Joint Mortgage

X-man

Due to my parents financial difficulties, me and my two brothers are considering taking out a joint mortgage to buy our parents property. My parents are elderley and cannot now afford the repayments on their property, some of which is repayment and some interest only.

My thoughts are, that the three of us could take out a joint mortgage over 25 years on an interest only basis, which would reduce the monthly payments to a level our parents could afford to continue paying.

Effectively, the property becomes ours and our parents continue to live in a property they don't want to leave.

Two of us already have a mortgage on our own properties but the LTV on my parents property would only be about 33%.

Can anyone see any pitfalls or complications with this arrangement or would it be a straightforward process?

Thanks for any advice.

Mr_helpful

X-man wrote: »

Due to my parents financial difficulties, me and my two brothers are considering taking out a joint mortgage to buy our parents property. My parents are elderley and cannot now afford the repayments on their property, some of which is repayment and some interest only.

My thoughts are, that the three of us could take out a joint mortgage over 25 years on an interest only basis, which would reduce the monthly payments to a level our parents could afford to continue paying.

Effectively, the property becomes ours and our parents continue to live in a property they don't want to leave.

Two of us already have a mortgage on our own properties but the LTV on my parents property would only be about 33%.

Can anyone see any pitfalls or complications with this arrangement or would it be a straightforward process?

Thanks for any advice.

This would appear to ne a sale below market value or a mortgage with a large gifted deposit. You would be liable for stamp duty but other than that I think it would be possible. There may be IHT implications on the gift.
you need to speak to a no fees broker who understands gifted deposits and can advise further. plenty on google.

herbiesjp

You need professional advice with this in terms of inheritance implications.

If they continue to live in the property, they will be deemed to still own the property. They will need to pay the owners a market rate of rent and you would need to be able to evidence that money being received if need be in order to prove they no longer owned the property

This area is a minefield, and more than a broker, I suggest you speak to a suitably qualifed tax adviser to work out the legal ways of resolving these problems

Mr_helpful

herbiesjp wrote: »

You need professional advice with this in terms of inheritance implications.

If they continue to live in the property, they will be deemed to still own the property. They will need to pay the owners a market rate of rent and you would need to be able to evidence that money being received if need be in order to prove they no longer owned the property

This area is a minefield, and more than a broker, I suggest you speak to a suitably qualifed tax adviser to work out the legal ways of resolving these problems

I can see what Herbie is saying but I dont think he has put it that well. if the Op is just taking over the parents mortgage then the rest of the equity is a gift and will possibly be subject to inheritance tax. If the parents live for seven years then tax liability will be lost. As parents are continuing to live there then it should really be a Buy to let mortgage and a rent should be charged. Basically if it looks like a dodge round tax the inland revenue will jump on you. The secret is to disclose all the details all times to the lender and your solicitor.

herbiesjp

X-man wrote: »

Due to my parents financial difficulties, me and my two brothers are considering taking out a joint mortgage to buy our parents property. My parents are elderley and cannot now afford the repayments on their property, some of which is repayment and some interest only.
.

Mr H

They are not taking over the mortgage - rather buying the property jointly with two brothers.

This would be classed as a gift with reservation - and therefore HMRC would still keep the property in the estate of the parents unless they had taken out relevant provison to mitigate

CLAPTON

If you buy the property at the full market rate there are no IHT implications whether or not they pay rent.

If they give you the property, even if you remortage then it will be seem as a gift with reservation and will be included in their IHT bill however long they live.

In any event if you own the property, there will be captial gains tax when you sell.


seek professional advice.

Conrad

No one here is mentioning the fact the new mortgage company will be interested in the following;

1) As you wont be dwelling in the property, this will possibly need to be arranged as a buy to let

2) The AST for the tenants should normally be no more than 6 or 12 months

3) Some B2L schemes mean you must demonstrate minimum income levels yourselves (sometimes an issue if self employed)

4) Make sure the insurance reflects the true nature of the risk presented

5) Giften deposits - some lenders wont allow


I thinks its very doable but there are quite a few pitfalls, so dont go to a broker if he doesnt naturally bring up all these and other points

X-man

OK. The idea behind my logic is simply to reduce my parents monthly mortgage payments, by whatever means necessary, to enable them to stop in their property. As I mentioned earlier, they are elderley and I doubt would be given many years to extend the mortgage by.

With regards to inheritance tax, the property is only worth £150K (If that makes a difference) of which, approximately £50K will pay off the mortgage loan, leaving the three of us with around £33K should anything happen to our parents.

Is there an easier way of doing this?

WillowCat

If they're struggling to pay the mortgage have they investigated whether they are eligible for pension credits? The calculations take into consideration mortgage interest (but not capital repayment if I remember correctly).

X-man

Looking at the charts, I doubt they would be eligible for any pension credits.

TEDDYRUKSPIN

Listen to Conrad.

IHT will be least of your concerns. Reason being is that you are taking on the mortgage and hence buying out your parents.

Worry is really where are you going to get this mortgage?

Further advance from you equity from existing property? Buy to let?

Very unlikely you will obtain an residential mortgage as both of you are not living in this property.

Hope this make sense.