Want to buy sisters flat below market price

Johnson_2

Hi,

I wonder if anyone can give any advice. Basically I want to buy my sisters flat. It has just been empty for a year or so as she has moved back to my mum and dads. She has decided she wants to sell the flat as quickly as possible for different reasons. The flat was valued at around £120000 last year and has a lease. She basially just wants rid of the flat now, and wants to sell it to me for £80000 as there are many things which need doing etc new bathroom and new kitchen. I am just wondering if she is allowed to set the price for her flat or will I only be able to buy the flat at market value? Will the solicitor want a valuation of the flat from an estate agent?

meanmachine_2

You'll need a valuation for the mortgage, but you simply buy it at under the market value, for the reasons outlined in your post.

Simple as that, as far as I can see.

The only problem with valuations come when the surveyor thinks it's worth less than the vendor would wish.

SnowyOwl_2

That sounds about right! No need to involve an estate agent - your sister can sell her flat for whatever sum she wishes - it's up to her to cover her mortgage on it etc of course, but as purchaser that isn't your concern.

And as the previous poster mentioned, if you are getting a mortgage then the mortgage company will insist on a valuation to ensure that the property is sufficient collateral to cover the amount you will be borrowing from them (ie in case you do a bunk and they have to sell it then they should in theory get back what they lent to you). It doesn't matter if you actually pay less then the amount they value it at - but they will object to giving you a mortgage to finance the purchase if the flat is in their opinion worth less than the sum you are going to borrow. It doesn't sound like this is the case though.

You are getting a wonderful deal - in effect your sister is giving you a v.generous gift by letting you have the flat at way below market price (even if the kitchen & bathroom need doing).

Jay-Jay_4

I bought my Nan's house under market value because it needed gutting.

It's of no concern to anyone else how much you pay for it or why, as long as it's worth as much as you want to borrow then you can pay what you want for it.

VickyA_2

Jay-Jay wrote:

It's of no concern to anyone else how much you pay for it or why, as long as it's worth as much as you want to borrow then you can pay what you want for it.

You took the words right away from my fingers!

Jay-Jay_4

VickyA wrote:

You took the words right away from my fingers!

lol....:D ........

Johnson_2

Thanks for the replys, thats what I thought. One other thing that did concern me was the stamp duty threshold of £120000. Would the taxman take an interest in the sale since the the flats value is around £120000? It could be a little bit higher or lower than £120000, my sister is going to get it valued again. If it is priced higher than £120000 and I pay alot lower might the taxman think I am trying to avoid stamp duty. This is the first property I will be buying so sorry if this sounds like a silly question.

Fifer

The tax man may take an interest but, as long as there's no evidence of you transferring the balance of the value of the flat to your sister after the transaction in a deliberate attempt to avoid stamp suty, I don't believe there should be any problem. You might want to check that with your solicitor to be sure though.

SnowyOwl said there's no need to involve an EA. I'd put it more strongly; there's every reason not to involve an EA. The agents function is to market the flat and find a buyer. Your sister does not need those services so to pay an EA would be to give even more money away than she is doing already, and there are causes far more worthy of charity than your average EA. Your solicitors are more than capable of taking care of this relatively simple transaction.

sneekymum

I can't see any problems here - I suspect you're thinking about some rules that mean you can't sell things to close family at less than market value - these rules only affect Capital Gains Tax and would apply if your sister had another property which was her main residence.

RiskAdverse100

I don't think it's quite correct to say that it is of no concern to anyone else how much is being paid for the flat. If it is being sold for a lot less than market value then the lenders are certainly going to be very interested.

Although this is obviously not the case here, someone who was in serious financial problems might want to transfer a property in this way to a relative so as to keep it out of the hands of creditors should they end up going bankrupt.

Once the dust had settled the plan would no doubt be to transfer it back to the original owner, once their bankruptcy had been discharged, for the same amount.

When someone does go bankrupt, their Trustee in Bankruptcy will always investigate property transfers of this kind and will always try and get them reversed if they took place not long before the bankruptcy happened.

Lenders will be concerned if the price to be paid as stated on the mortgage application form is a lot less than the market value given to it by their valuer. If the transaction was dubious and designed to defeat creditors then they are not going to want to lend money on a property only for their security to disappear should the transaction be reversed.

Where there is no intention to defeat creditors and the person selling at an undervalue is financially solvent then the problem is often solved by Insolvency Act Indemnity Insurance being taken out. The seller would make a statutory declaration that they are solvent at the moment and will still be solvent after the sale has been completed and a one-off premium of under £200 will be paid. I should point out here that the policy will only benefit the lenders.

Both parties will no doubt want to cut down on legal costs here. You will of course need to appoint a conveyancer as your lenders will insist on one acting for them. Your sister doesn't necessarily need a conveyancer although you will have to get around the problem of paying off the mortgage on completion. Your own solicitor will no have to do this direct in order to avoid problems with your lenders. Getting hold of a copy of the lease (if your sister does not have one) will also involve expense as lenders will not usually release original documents to anyone other than a conveyancer acting for the borrower and will often charge for producing copies.

Your conveyancer will also having to carry out some searches on the property and ask your sister some enquiries. Even though you may know all about the flat and won't be interested in having searches done and won't need to ask any questions, your conveyancer also has the lenders as a client as well as you and will want at least some checks to be carried out to make sure that the flat is a good security for the amount they are lending.

No mention has been made of Inheritance Tax and how this could affect your sister. Giving property away for nothing or selling it at an undervalue means that the transaction could have tax implications for her estate if she doesn't survive for another 7 years (sorry to get all gloomy here but, while on the figures given Inheritance Tax is not an issue, we are not told what other assets your sister has!). Even though this is not really any immediate concern of yours, I am sure you would want your sister to consider all the implications of the transaction carefully, particularly if she is not going to appoint a conveyancer to act for her.

RiskAdverse100

Johnson_2

Hi

Just a few points on the last post. My sister has no other properties and has all has all the paperwork ie deeds, lease. Also her morgage has been completely paid off so I will need to appoint a conveyancer to make some checks on the property and ask my sister any enquires on the lenders behalf. Is that right? My intentions are not to live in the flat but to do the flat up and sell it. Do you think I could come up against any problems with the tax man doing this? Basically my sister has not been living in the flat for a year now and has recently been broken into and ramsacked. She is now fears squatters moving in to it which is the reason for wanting a quick sale. Thanks again for the replys