Buying parents home below market value

Zapdoos

Hi,

I am hoping for some guidance/advice/pointer in the right direction as I am not too experienced on this topic.

In a nutshell, the scenario is that my parents got into financial difficulties a few years ago and ended with an interest only mortgage on their house which is on a variable rate. With the recent rate rises, their monthly payment has doubled and is almost unsustainable.

They have enquired about moving back onto a fixed rate repayment mortgage but unfortunately they cannot afford it despite their financial situation improving over the last couple of years.

I am considering buying the house from them for the value of the remaining mortgage (significantly below market value) and putting the house onto a mortgage which is a) fixed rate b) pays off the mortgage.

Some supporting data:
- Outstanding mortgage value: £290k
- Current House Value: £615k Approximately
- Initial mortgage searches show I can get a mortgage which comfortably brings the monthly payment back into the sustainable range
- I am 29, no kids, not married, I live at home and earn enough to be able to get a mortgage for £260kish and I have savings to cover the deposit to get to the £290k mortgage value.

Really appreciate any guidance from the community here, a) is this feasible b) are there any hidden implications I should be aware of e.g. if I wanted to buy my own house in a couple of years.

Zapdoos

Sorry to confirm "I live at home" means I still live with my parents in the house and would be classed as a first time buyer.

Linton

Just to understand your proposal.  Is it that you are actually buying the house for 2X£290K.  You give £290 K to your parents and also pay off their £290K debt by taking out a mortgage yourself to cover it?  So only a £35K discount which they may have to accept anyway should they sell the house on the open market. Plus of course they would saving on EA fees etc.

So what is your parent's situation then?  You own the house which they live in for free as your guest?  Should for any reason you sell the house they could be homeless?.  What would happen if you died, became bankrupt, got married, or simply fell out with them.

One potential issue about which I know very little is whether you could get a mortgage under those conditions.  If you stop paying the mortgage for any reason the mortgage company must have the right to sell the house to get the debt repaid.  They are not going to like being seen throwing a couple of OAPs out onto the streets.

Perhaps a better solution is for them to sell the house, repay the mortgage and still have enough money left over to buy something smaller for themselves.  You would have to find somewhere else to live but at least they would have complete security.  One additional option for them, depending on their age, would be to buy something better with a lifetime mortgage where the capital is repaid on their death. 

But the deal doent seem great for you either. The financial side has already been coverd - it looks like you are offering them what for you is no better than a fair price, it's not below market value.   You would be buying a house far too large for your own needs and taking on the responsibility of paying a high council tax, maintenance costs, heating costs  etc etc.  You would lose your first time buyer status should you want to buy somethng more appropiate for your needs at some time.  Finally depending on their age you could be tied to each other for the next 20-30 years.

Linton

Perhaps I have misunderstood - does the £290K mortgage simply cover the £290K debt and parents get nothing? In which case that looks like a seriously bad deal for them and they would be better off and much morer secure selling the house and buying another with the proceeds.

There are further considerations should they require benefits as giving away half a £600K house could be seen as deprivation of assets and then living for free could have inheritance tax implications.

amnblog

Yes, you can do this. But you need to use the right mortgage lender, therefore you need to engage a good mortgage broker.

kingstreet

Zapdoos said:

Hi,

I am hoping for some guidance/advice/pointer in the right direction as I am not too experienced on this topic.

In a nutshell, the scenario is that my parents got into financial difficulties a few years ago and ended with an interest only mortgage on their house which is on a variable rate. With the recent rate rises, their monthly payment has doubled and is almost unsustainable.

They have enquired about moving back onto a fixed rate repayment mortgage but unfortunately they cannot afford it despite their financial situation improving over the last couple of years.

I am considering buying the house from them for the value of the remaining mortgage (significantly below market value) and putting the house onto a mortgage which is a) fixed rate b) pays off the mortgage.

Some supporting data:
- Outstanding mortgage value: £290k
- Current House Value: £615k Approximately
- Initial mortgage searches show I can get a mortgage which comfortably brings the monthly payment back into the sustainable range
- I am 29, no kids, not married, I live at home and earn enough to be able to get a mortgage for £260kish and I have savings to cover the deposit to get to the £290k mortgage value.

Really appreciate any guidance from the community here, a) is this feasible b) are there any hidden implications I should be aware of e.g. if I wanted to buy my own house in a couple of years.

You will use up all your mortgage borrowing power, leaving you unable to get a mortgage on a new residence later.

If you could get a mortgage lender at that time, you will face second property stamp duty which is 3% higher.

If your parents have a "foreseeable need" for some form of care, the transaction could be considered to be depriving them of an asset worth £325k.

elsien

There could be tax implications for all of you to take into account.

https://www.downslaw.co.uk/blog/qa-can-i-buy-mums-house-under-market-value/

GenieBoy

So they owe £290K and you are going to buy the £615K property off them for £290K so they can clear their debt? Sounds like a terrible deal for your parents.

As others have already commented, your parents would be best selling the property on the open market for £615K, clearing their debt and then buying a smaller/cheaper property with the £325K left over.

Spendless

Do you have any siblings? I have a close relative who proposed doing exactly this after one of their parents died and the remaining parent couldn't afford the mortgage (long story -short) . I pointed out to their sibling that their sister was in fact taking every bit of equity from her parents home  for herself. The upshot was that sister then upped the offer to a more realistic one once her sibling had a conversation with her about it.     

silvercar

How old are your parents? If you are 29, they could be relatively young. Why not buy it with your parents? So you go on the deeds with your parents and you take out a mortgage with them for your share. 

Keep_pedalling

Your parents would be stark raving bonkers to go along with this. Far better plan, they downsize and you get your own place.