Buying my parents house
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Tallulah_Chicken
Posts: 55 Forumite
I just wanted to run the following scenario past a few of the brokers to see if there are any potential bear traps I haven't thought about in a bit of a crazy scheme we want to give a go!
My Dad died a few years ago and my Mum recently remarried. She has had the house she shared with my Dad up for sale for about a month at!£450k. They bought it mortgage free 6 years ago for £355k and have spent around £100k making!it really lovely. However it is an old cottage with limited parking and very much a bit of an oddity which you either love or hate. One viewing and one offer of £400k which was rejected. Basically it is becoming clear we need to drop the price to somewhere closer to this if we want to sell.
My husband and I have been talking, and rather than sell the house and letting someone else have the benefit of £50k of my parents money, we would like to buy it ourselves at!£400k. My Mum and brother are quite happy for us to do this for the same reason. Our current house is worth around £250k and we would sell this to part fund the purchase. This is where it gets complicated:
My Dad's will was well out of date and complicated, and so we agreed to transfer everything into my mums name, with a gentleman's agreement that this meant my brother and I would both be gifted £50k of shares and a 25% share of the house each, but we haven't done anything about this yet. My husband is also a lot older than me, and as a result we have had a lot of trouble in the past getting a mortgage due to age restrictions. We are currently three years into a five year fix with Barclays and owe £135,995. Plan A is therefore to buy the house for £250k, My mum will keep the shares, and we will port the existing mortgage. We will find the money for solicitors , SDLT, moving etc separately from savings. The fly in the ointment is that we no longer meet Barclays lending criteria (both my husbands age and affordability) but I understand from their lending criteria that they will be willing to consider this anyway as long as we do not borrow more or change the term, or have any arrears. We don't and both have perfect credit histories. I earn £36,834pa and my husband gets around £30k in pension.
I was also looking for a plan B if Barclays won't port the mortgage, and so was running some figures through the Halifax intermediary calculator. Realistically the house will need to be in my name only and the mortgage based on my salary. We are aware of the potential pitfalls of this but are happy to proceed. I have listed myself as the only applicant and my husband as a dependent (although this annoys me, as he is certainly not financially dependent on me) and it seems to suggest they would be willing to lend up to £174,000 (if we also clear our current debts of roughly £12k with the proceeds of the sale), which would be great as we would also need to cover the additional costs of redeeming the ERC on the Barclays mortgage (£4,700)
My questions are as follows:
I know some lenders have a problem with married couples owning houses and obtaining mortgages in one name only. But Halifax don't seem to have an issue. Is this right?
How does the LTV work? Its clearly in our interests to buy it for £250k as this keeps us at 1% SDLT. But this isn't reflective of its true value so which value would the LTV be based on?
I know this would be a concessionary sale, but as I'm buying off my mum, and she has already moved out this seems to be ok?
Is there anything else we would need to consider?
A polite request - I am well aware that my mum owning everything is risky and not to be advised. But we are a close family (even with the new husband!) and there is no question of anyone reneging on this deal. She's also not about to go into care or anything like that and in any case, has a decent amount of her own money and could fund all her own care without resorting to the state. Her new husband also has his own house and plenty of cash, and hasn't shown any golddigging tendencies, so I think we can avoid the obvious comments on these points.
Thanks everyone in advance!
My Dad died a few years ago and my Mum recently remarried. She has had the house she shared with my Dad up for sale for about a month at!£450k. They bought it mortgage free 6 years ago for £355k and have spent around £100k making!it really lovely. However it is an old cottage with limited parking and very much a bit of an oddity which you either love or hate. One viewing and one offer of £400k which was rejected. Basically it is becoming clear we need to drop the price to somewhere closer to this if we want to sell.
My husband and I have been talking, and rather than sell the house and letting someone else have the benefit of £50k of my parents money, we would like to buy it ourselves at!£400k. My Mum and brother are quite happy for us to do this for the same reason. Our current house is worth around £250k and we would sell this to part fund the purchase. This is where it gets complicated:
My Dad's will was well out of date and complicated, and so we agreed to transfer everything into my mums name, with a gentleman's agreement that this meant my brother and I would both be gifted £50k of shares and a 25% share of the house each, but we haven't done anything about this yet. My husband is also a lot older than me, and as a result we have had a lot of trouble in the past getting a mortgage due to age restrictions. We are currently three years into a five year fix with Barclays and owe £135,995. Plan A is therefore to buy the house for £250k, My mum will keep the shares, and we will port the existing mortgage. We will find the money for solicitors , SDLT, moving etc separately from savings. The fly in the ointment is that we no longer meet Barclays lending criteria (both my husbands age and affordability) but I understand from their lending criteria that they will be willing to consider this anyway as long as we do not borrow more or change the term, or have any arrears. We don't and both have perfect credit histories. I earn £36,834pa and my husband gets around £30k in pension.
I was also looking for a plan B if Barclays won't port the mortgage, and so was running some figures through the Halifax intermediary calculator. Realistically the house will need to be in my name only and the mortgage based on my salary. We are aware of the potential pitfalls of this but are happy to proceed. I have listed myself as the only applicant and my husband as a dependent (although this annoys me, as he is certainly not financially dependent on me) and it seems to suggest they would be willing to lend up to £174,000 (if we also clear our current debts of roughly £12k with the proceeds of the sale), which would be great as we would also need to cover the additional costs of redeeming the ERC on the Barclays mortgage (£4,700)
My questions are as follows:
I know some lenders have a problem with married couples owning houses and obtaining mortgages in one name only. But Halifax don't seem to have an issue. Is this right?
How does the LTV work? Its clearly in our interests to buy it for £250k as this keeps us at 1% SDLT. But this isn't reflective of its true value so which value would the LTV be based on?
I know this would be a concessionary sale, but as I'm buying off my mum, and she has already moved out this seems to be ok?
Is there anything else we would need to consider?
A polite request - I am well aware that my mum owning everything is risky and not to be advised. But we are a close family (even with the new husband!) and there is no question of anyone reneging on this deal. She's also not about to go into care or anything like that and in any case, has a decent amount of her own money and could fund all her own care without resorting to the state. Her new husband also has his own house and plenty of cash, and hasn't shown any golddigging tendencies, so I think we can avoid the obvious comments on these points.
Thanks everyone in advance!
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Comments
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I reckon your brother will be losing out.
This sounds unnecessarily complicated. The issue here is youre trying to recover spent money. Your mums money spent on the house is gone, that was just a bad decision. It looks like your brother will pay for that bad decision.
LTV and stamp duty are two seperate things. I think land registry and HMRC will take umbridge with your mother selling a house that she had an offer of £400,000 for and yet only accepted an offer of £250,000. HMRC really dont like people manipulating figures that results in less tax being owed.
LTV is how much your mortgage is compared the the value of the house. The value of the house is determined by an independent valuer (zoopla value shouldnt be a million miles away unless the property has an erroneous or non existant sales history).
Id avoid going down this route, everyone should stand on their own feet in this instance. Your mum should be accountable for that bad choice on making the house nice if the intention was to make a profit. She should sell it at a loss (no doubt actually coming out of it with money in hand). You should move forward with your own thing and your brother should get what hes entitled to through your dads will. Personal opinion of course. It just seems a particularly complicated way to buy a house, one which will draw attention.0 -
I think you misunderstand - I will be buying it for what it's worth and my brother will still get what he's entitled to. It is my mum who will lose out on the money she has spent on improvements (not for resale purposes), but not by any more than she would have if she accepted the low offer, she can afford to do that so she's fine with it. It just seems daft for her to give me money and then me give it straight back to her, but pay £2,500 in tax for the privilege...0
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Tallulah_Chicken wrote: »I think you misunderstand - I will be buying it for what it's worth and my brother will still get what he's entitled to. It is my mum who will lose out on the money she has spent on improvements (not for resale purposes), but not by any more than she would have if she accepted the low offer, she can afford to do that so she's fine with it. It just seems daft for her to give me money and then me give it straight back to her, but pay £2,500 in tax for the privilege...
Right you and brother get 25% of the value of the house each.
So lets say your mum sold for £400,000. Your brother would be owed £100,000. With your proposal you want to pay £250k and forfeit your shares (presumably this is then your mums, as youve not paid her for the house) So £250,000 represents what youre saying is 75% of the value of the house. And that puts the value of the house at £333k with your brothers share being £83250 (ish). WHilst in the same breath youve got a £400,000 house for £250k so effectively swapping your stake of £100k to £150k.
Im not here to argue the sensibilities of tax policy just highlighting that HMRC will be expecting tax, either through sales tax or benefit in kind tax. What youre proposing, firstly is complicated and thus invites issues and secondly looks like tax evasion. They just dont like that at HMRC.
If youre going down this route, i dont think the advice you will get from here is going to be much help or at least offer much in the way of reassurances. You want professional legal recourse if things go wrong, as such, lawyers and financial advisers are the people to speak to regarding this. Ideally a shared one acting on all of your behalf and individuals to represent each party.
Like i said, its complicated. Why dont you just let your mum sell the house for £400k, take your £100k and buy a house for the £350k you reckon youll have. No one loses out that shouldnt, everyone is protected and no unnecessary legal fees, complexities or unexpected tax bills.0 -
My goodness me, so cynical! I know this forum gives the impression that most family relationships are completely disfunctional but ours is not. We are absolutely fair with each other (and always have been), so if I get £150k off the price of the house, my brother will also get £150k. My mum, brother and I will not allow it any other way. It may not be strictly correct, as you set out above, but there you go. We trust each other. We will all get exactly what we would get if we accepted the offer. I've even offered to split the saving in SDLT with them. I really do not see the point in selling this house for £400k, taking my £150k and buying another (probably not so nice) for £400k.
So moving on, has anyone got any other advice on the questions I asked please?0 -
Tallulah_Chicken wrote: »So moving on, has anyone got any other advice on the questions I asked please?
Yes, get professional advice and stop trying to do it on the cheap by asking random strangers.0 -
gentleman's agreement that this meant my brother and I would both be gifted £50k of shares and a 25% share of the house each,
A "gentleman's agreement" won't wash with HMRC in respect of any CGT owed on the gifts.
If your father's will did not suit the beneficiaries, why on earth didn't they do things properly with a Deed Of Variation within two years of his death?
She has only just moved out of the cottage which was her PPR?
Would it be possible for you to become tenants of the cottage while your own property is on the market? Once sold, you would have around £120,000 in cash?
Your mother might then become your and your husband's mortgagee - she could gift you a deposit of £150,000, you could pay her £100,000 as another part of your deposit and then £150,000 over a certain number of years? She would take a first charge against the property which she might "forgive" in her will.
She could then gift your brother the £100,000 and £50k of shares (bearing in mind any CGT)?
However, the above gifts could have IHT implications further down the line
You would need to take expert advice as to the feasibility of the suggestion or indeed any other plan that you might have.0
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