Buying for parents while they sell

SWChezza

Hi. My parents want to move to a bungalow and after months of looking have found one suitable. The vendors won't wait for them to sell though so I'd like to take out a second mortgage (which I have confirmed I can do) but the bungalow then sells it to my parents when they sell their house. The values are very similar so not worried about that. Is that all as easy as it sounds and how does the stamp duty work? I feel like it might all be risky but not sure why and struggling to get clear advice...

SWChezza

Should say - buy the bungalow then sell it to my parents...

MeteredOut

So, is your plan

- you buy bungalow (you own two houses)
- parents sell their house (they move from one house to the other house)
- parents buy bungalow from you (they own one house, you're back to owning one house)

?

When you confirmed you could get a second mortgage, that was on the basis of your parents, and not you, living in the house and the provider confirmed that was ok for a residential mortgage?

You'll have to pay the additional stamp duty as you'd own another property that is not your main residence. There will obviously be additional buy/selling fees too. What if there is a time differences between you buying and selling, what if the market values change (either up or down). If up, could there be CGT implications for you? Also consider council tax for the period before they move in - you or they could be due double council tax on an empty property.

Thinking of the logistics - what if their house takes 2 years to sell, or they have to knock £30K or £50K off the price in order to sell it. Can you/they afford that?

And, apologies for this, what if your parents were to pass away before they sell their house? Are you the sole beneficiary of their house (in which case you'd then own 3 properties) or are there other beneficiaries?

Is their house on the market? Are houses selling fast where they live?

Sounds too risky to me, but it depends on your financial situations whether you could take the stamp duty hit and/or wait for a while to get your funds back.

SWChezza

Second mortgage didn't mention them living in it actually - would it make a difference?

On the stamp duty - would I be able to claim that back when I sold it again?

I get the risks around selling theirs but pretty confident it will go quite quickly and cover the cost of the bungalow plus fees.

MeteredOut

SWChezza said:

Second mortgage didn't mention them living in it actually - would it make a difference?

On the stamp duty - would I be able to claim that back when I sold it again?

I get the risks around selling theirs but pretty confident it will go quite quickly and cover the cost of the bungalow plus fees.

I'd certainly check with the mortgage provider. They may want you to take a BTL mortgage, even though you're not charging them rent.

On stamp duty

When to apply for a refund of Stamp Duty Land Tax (SDLT)

You can apply for a refund of the higher rates of SDLT for additional properties if you’ve sold what was previously your main home. You have to be either the: 

• main buyer of the property charged at the higher rate of SDLT 
• agent acting for the main buyer 

You must have sold your previous main home within 3 years of buying the new property, unless exceptional circumstances apply.

https://www.gov.uk/guidance/apply-for-a-refund-of-the-higher-rates-of-stamp-duty-land-tax

It's not your main home.

user1977

Why buy in your name rather than just lend the money to your parents?

SWChezza

user1977 said:

Why buy in your name rather than just lend the money to your parents?

Because it's a mortgage? So I wouldn't be able to get the money and lend it to them would I?

FlorayG

user1977 said:

Why buy in your name rather than just lend the money to your parents?

I assume because the OP needs to mortgage to get the money so it needs to be for a property purchase

user1977

Sorry, I was assuming the borrowing was against the OP's existing property - is this going to be secured against the property being purchased instead?

SWChezza

user1977 said:

Sorry, I was assuming the borrowing was against the OP's existing property - is this going to be secured against the property being purchased instead?

It is but might be worth exploring if can be secured against existing property. Still got some mortgage outstanding on that though so maybe not enough equity. Is that type of mortgage done at standard rates?

MeteredOut

user1977 said:

Sorry, I was assuming the borrowing was against the OP's existing property - is this going to be secured against the property being purchased instead?

Yes, that's what was stated. I'd assumed the OP's own property didn't have enough equity to release the funds via a remortgage there, hence a second mortgage on the new property.

OP, could you do a remortgage of your own property?