Advice for Son buying first apartment but also a home owner.

grace2much

I need some general advice before I take the plunge and go to a solicitor etc.  My son is 23 and just finished Uni and started his new job as a graduate with a large US engineering/software firm in the UK 6 months ago. 

He has an annual salary of £37,000 + around £3,000 of overtime/callouts etc and a company car.  Also has £30,000 saved for a deposit.  No debt apart from his student loan.  Just over a year ago my wife and I gifted him our house (we still live there as he does as well) as we are both retired and health not so good.  So he is the legal owner of a mortgage-free house worth about £185,000/210,000.

To summarise, he has:
£30,000 cash for deposit
Salary of £37,000 + £3000 overtime + company car
The legal owner of a Mortgage-free house valued at approximately £200,000
His only debt is his student Uni loan of approximately £40,000.

Now to my questions

Even though my Son has never bought a house (it was our gift/transfer to him) I assume he does not qualify as a first-time buyer.

Will having the mortgage-free house be looked at as a positive or negative as he looks to buy a new apartment for himself?

What would be the maximum amount you think he would be offered on a 30-40-year mortgage? 

And any other points he would need to consider and thank you in advance for any advice offered.

GrumpyDil

He definately will not qualify as a first time owner and will need to pay 3% additional stamp duty on the total purchase price of a new property.

Although not the question which I'll leave the mortgage brokers to answer, you do realise that transferring your property into his name does not prevent a local authority feom assessing you as still owning the property. Also, once he moves out he will be assessed to pay capital gains tax on any increase in the property value.

Keep_pedalling

Well that was a pretty dumb thing to do! No he can no longer be classed as a first time buyer, and in addition he will have to pay an additional 3% SDLT on his purchase. Your home provides additional security for his lender but the risk becomes yours. 

Frankly as the transfer was recent, I would undo it and get him to transfer ownership back to you before CGT comes into play. It won’t give him his FTB status back but it will avoid the additional 3% tax.

Presumably you did this as a means of avoiding care costs in which case you should Google deliberate deprivation of assets.

prowla

Check out the parking situation at the flats to avoid being one of the "I got ticketed outside my flat" posters in the parking board.

Veteransaver

Transferring your house was a pretty risky thing to do. Not sure what you hoped to achieve with that as it is well below IHT thresholds so can only assume it's for potential care costs? What would happen if he went bankrupt, or married then got divorced? You could be left penniless and homeless.

user1977

grace2much said:

Just over a year ago my wife and I gifted him our house (we still live there as he does as well) as we are both retired and health not so good.

For what reason though? Did you get advice from anyone about doing this?

Newbie_John

It happened, so let's try to answer the question.

With £37k salary, he could get about £185k mortgage, with deposit £30k - could get him to a property worth about £215k.

Now having a property opens more options. He could sell it (!!!), he could remortgage it (not sure what's it properly called), he could even prove the he has additional income from possible rent you pay him. 

But as already mentioned, buying his "first property" will cost him more, additional taxes, no first time buyer help, higher interest rate etc.

Hopefully that answers all your questions - but definitely case for a broker 😔

housebuyer143

Newbie_John said:

It happened, so let's try to answer the question.

With £37k salary, he could get about £185k mortgage, with deposit £30k - could get him to a property worth about £215k.

Now having a property opens more options. He could sell it (!!!), he could remortgage it (not sure what's it properly called), he could even prove the he has additional income from possible rent you pay him. 

But as already mentioned, buying his "first property" will cost him more, additional taxes, no first time buyer help, higher interest rate etc.

Hopefully that answers all your questions - but definitely case for a broker 😔

He doesn't need a broker just for this reason alone  Having an unencumbered property will have no bearing on his new mortgage as they will completely disregard it (although some might take the bills into account). Remortgaging it will then bring his affordability down massively for the new property, so not a great idea.

The main issue is the additional 3% assuming it's England as it's higher in Wales and Scotland and get loss of FTB relief. Funnily enough he might not be ineligible for FTB mortgage products such as helping hands at nationwide because they class a FTB as someone who hasn't had a mortgage for 4 years or something.