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    • travelephant
    • By travelephant 14th Mar 18, 5:18 PM
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    travelephant
    Parent buying house for child to buy back
    • #1
    • 14th Mar 18, 5:18 PM
    Parent buying house for child to buy back 14th Mar 18 at 5:18 PM
    Hello from a long time lurker.

    I've been looking into buying a house in the next 6 months or so, but an interesting property in the right area has come up for auction this month. I am neither financially ready to bid, nor would I be able to attend the auction.

    My parents are open to buying the house for me, and in a few months time I would get a mortgage in order to buy it from them.

    What should we be considering before deciding whether this is sensible or not? The main thing that has crossed my mind so far would be related to taxes, for example capital gains, but I'm also not sure what effect the process would have on getting the mortage in the first place. I am sure there are other things to be aware of, but what?
Page 1
    • G_M
    • By G_M 14th Mar 18, 5:21 PM
    • 44,484 Posts
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    G_M
    • #2
    • 14th Mar 18, 5:21 PM
    • #2
    • 14th Mar 18, 5:21 PM
    Apart from all the caveats about auctions, how wouldd you know you'd be able to get a mortgage on this property 'in a few months'? and what would happen if you couldn't?

    Oh1 And of course there are all the extra costs associated with two purchases (legals, survey by parents/survey by mortgage lender; SDLT etc)
    • davidmcn
    • By davidmcn 14th Mar 18, 5:22 PM
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    davidmcn
    • #3
    • 14th Mar 18, 5:22 PM
    • #3
    • 14th Mar 18, 5:22 PM
    Most lenders won't lend if the current owner bought within the last six months. Also need to bear in mind why it's in an auction - is there something which makes it unmortgageable?
    • AdrianC
    • By AdrianC 14th Mar 18, 5:23 PM
    • 17,602 Posts
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    AdrianC
    • #4
    • 14th Mar 18, 5:23 PM
    • #4
    • 14th Mar 18, 5:23 PM
    They already own their own home? So +3% on SDLT when they buy, then SDLT when you buy it from them... Unlikely to be any CGT, unless the value rises markedly in that period.

    Why don't they just lend you the money to buy in your name, then you get a mortgage to repay them? They can bid on your behalf at the auction.

    Remember that a bid is binding - in effect, you exchange contracts at hammer-fall - and you have 28 days to complete. Make sure you know everything you want to know BEFORE bidding. And don't get the red mist descending... Know what price you'll walk away. Them bidding for you may help prevent that.
    • xylophone
    • By xylophone 14th Mar 18, 5:25 PM
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    xylophone
    • #5
    • 14th Mar 18, 5:25 PM
    • #5
    • 14th Mar 18, 5:25 PM
    Are your parents prepared to be your mortgagee?

    They would lend you the money so that you could buy the property - you would enter into a legally binding agreement (secured against the first charge they would take on the property) to repay the capital/interest to them?
    • BrassicWoman
    • By BrassicWoman 14th Mar 18, 6:40 PM
    • 1,636 Posts
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    BrassicWoman
    • #6
    • 14th Mar 18, 6:40 PM
    • #6
    • 14th Mar 18, 6:40 PM
    easier if parents can give you a deposit and guarantee your mortgage, so you can buy in your own name. anything stopping that?
    Jan 18 grocery challenge £105.13/ £150
    • davidmcn
    • By davidmcn 14th Mar 18, 6:50 PM
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    davidmcn
    • #7
    • 14th Mar 18, 6:50 PM
    • #7
    • 14th Mar 18, 6:50 PM
    easier if parents can give you a deposit and guarantee your mortgage, so you can buy in your own name. anything stopping that?
    Originally posted by BrassicWoman
    For this property probably the timescales involved in getting a mortgage offer, given that auction completion dates are usually a strict 28 days after the auction.
    • travelephant
    • By travelephant 14th Mar 18, 10:44 PM
    • 6 Posts
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    travelephant
    • #8
    • 14th Mar 18, 10:44 PM
    • #8
    • 14th Mar 18, 10:44 PM
    Apart from all the caveats about auctions, how wouldd you know you'd be able to get a mortgage on this property 'in a few months'? and what would happen if you couldn't?
    Originally posted by G_M
    It is a good question. I don't know for certain I'd be able to.

    For this property probably the timescales involved in getting a mortgage offer, given that auction completion dates are usually a strict 28 days after the auction.
    Originally posted by davidmcn
    Yes, that is it. I already have a sufficient deposit, but there is no way on earth I'd get a mortgage in time.
    • Tom99
    • By Tom99 15th Mar 18, 3:18 AM
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    Tom99
    • #9
    • 15th Mar 18, 3:18 AM
    • #9
    • 15th Mar 18, 3:18 AM
    Buy the property in your name with money provided by you parents but make sure you have a full survey and appoint a solicitor to go through the legal pack before the auction date.

    If you are to be the buyer but can't attend the auction you may be able to bid online or appoint your parents as your proxy but that might need sorting out with the auctioneer before they bid on your behalf.
    • travelephant
    • By travelephant 16th Mar 18, 10:50 AM
    • 6 Posts
    • 0 Thanks
    travelephant
    Why don't they just lend you the money to buy in your name, then you get a mortgage to repay them? They can bid on your behalf at the auction.
    Originally posted by AdrianC
    After discussing it, this is probably what will happen if we decide to go for it.

    Are your parents prepared to be your mortgagee?
    Originally posted by xylophone
    That might work in the short term, although I imagine it would come with its own potential complications?
    • Beardmidget
    • By Beardmidget 16th Mar 18, 11:19 AM
    • 151 Posts
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    Beardmidget
    After discussing it, this is probably what will happen if we decide to go for it.


    That might work in the short term, although I imagine it would come with its own potential complications?
    Originally posted by travelephant
    This is definitely what should happen if your parents have the money and trust you. There are potentially tens of thousands of pounds you’d save by doing this. As long as you don’t intend to default, in which case it would make Christmas awkward!

    In terms of complications, if you undertake this transaction formally, registering them as the first charge like a mortgage lender, then I can’t see that there would be an issue, even if something unexpected and terrible were to happen- if you, or they, were to suddenly pass away, then it would be clear whose estate owned what. (hopefully not!).

    In terms of mortgage lenders giving you the cash to pay them back, doing it formally will make it more obvious that you really are repaying a ‘mortgage’ to them, not just planning on buying a Lamborghini with a wedge of cash they give you.

    They will not gain a big tax liability, because if you remortgage as able and repay them the money they put in (with little or no interest), they won’t have gained, and as detailed above you won’t have to pay a second round of SDLT which they would even if it was BELOW SDLT threshold for you as a FTB.
    • Beardmidget
    • By Beardmidget 16th Mar 18, 11:23 AM
    • 151 Posts
    • 110 Thanks
    Beardmidget
    Oh- the only other potentially sticky wicket might be if your deposit was, say, £20k, and the house £200k, and you believed the calculators online and thought you were good for a £180k mortgage. When the time comes you go to the local broker who can only get you a £140k mortgage because you dared to eat in the local KFC in January, and once you needed to pay for a new exhaust on your car- so you’re obviously a high roller and they need to reduce your lending to affordability accordingly.

    Would be worth discussing with your parents what their expectations would be/ what would happen in this scenario.
    • travelephant
    • By travelephant 16th Mar 18, 12:10 PM
    • 6 Posts
    • 0 Thanks
    travelephant
    Thanks Beardmidget, that is a great amount of insight.
    We're safe on your sticky wicket: none of the involved parties eat KFC. We have two scenarios in our budget (which is yet to be tested because this is all coming with other big changes in circumstances), and because of the uncertainty we wouldn't be bidding for more than we could comfortably afford in our worst case scenario. Hopefully that gives us safety. In all our planning we've been very clear that there is a big difference between being able to afford a certain mortgage, and the bank agreeing to lend it.

    We of course have no intent to default, and the relationship I have with my parents is as good as you can get. I'm very lucky when it comes to family.
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