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Mortgage broker/advisor

Hi All, I`m currently planning on buying a house. The house is priced at a fair level, and I plan to remain here for at least 5 years (most likely a lot longer).

The issue is that the situation is more than a bit unusual. The house I am buying currently belongs to my mum. She has moved out and has been renting the house to me for the past year. Now she needs to raise some money to arrange her life properly (hoping to retire soon). The price we have agreed on for the house is 140,000 (which is more than reasonable for the house in question). She is giving me 20,000 of this as my inheritance (get it now when it is useful, rather than wait for her to die when I`ll be much better off financially :-) ), meaning that the total needed to buy the house is

120,000.

As it stands I am not in a position to fund a mortgage for the full

120,000, a mortgage of between 70,000 and 90,000 is affordable (this includes provision for interest rates to shoot up). I could probably fund a mortgage of 120,000 for now, but if anything went wrong, interest rates went up etc then I`d be up the creek, hence the lower amount. She is happy with this amount for now, it is enough for her to make the arrangements she wants to. The advice we have been given is for her to sell us the house for 70,000, and to have a charge put on the house (deeds? Can`t remember the exact term right now, having one of those days) for the remaining 50,000. This is for her security, as obviously I will not be leaving her in the lurch - this just makes sure that her interests are being looked after. The remaining 50,000 would be paid to her within an agreed timeframe, approximately 10 years. This will be funded by extending the mortage, as I expect the full mortgage to be affordable within 5 years as an absolute maximum.

Does this sound a reasonable plan? If not, what would people suggest? This is a good house in a good area, 3 bedrooms etc, nice gardens. Plenty of room for a family, so no need to worry about moving up the property ladder (the view I am taking is that getting the second mortgage is essentially stepping up from a small property to a larger one, I just get to live in the nicer bigger place through the entire dealings)

Thanks for your help!

Reply to
Simon Finnigan
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Does she actually need a lump sum ? If not why involve a bank to take profit out from between you ? Why not just get a 'mortgage' from your mum and pay her the interest ? She can still have a claim back over the property if you dont pay up, assumming everything is drwan up properly by a solicitor, and it sounds like here total assets are less than the Inheritance tax threshold.

Reply to
Miss L. Toe

Yeah she needs a lump sum. Although it might be a possibility to pay the remaining 50,000 back directly to her and save on interest on that sum. I`ll suggest that to her. It might be worth sitting down with her sums and seeing if she can get by with a smaller lump sum and take monthyl payments directly from us. Even if we pay her some interest, it`d mean we get the house more cheaply than getting a full mortgage, and she`d get more money. Whether being paid monthly will be enough for her is a different matter - I`ll deffinately chase her up and check out her figures.

And everything will be done properly through a solicitor - far too big sums of money to consider doing it ourselves! :-)

Thanks!

Reply to
Simon Finnigan

You will need to register the purchase price as £140,000, or whatever the market value actually is, for stamp duty purposes.

Reply to
Jonathan Bryce

In this case the purchase price would be agreed to be 120,000 - the price I am going to pay minus the 20,000 discount she is giving. I`d assume that this is perfectly legal and above board, and would save paying any stamp duty. Anyone disagree that this would be legal?

Reply to
Simon Finnigan

"Simon Finnigan" wrote

How would you argue that it was an "arms length" deal, when you are buying from your mother?

Reply to
Tim

Depends what arms length means really.

Reply to
Simon Finnigan

"Simon Finnigan" wrote

A deal where the price is what two independent (unrelated) people would agree in the open market...

Reply to
Tim

So if the "open market" or "arm's length" value were indeed 140k but the transfer were handled as a 20k gift plus 120k purchase, that would be fine, and no stamp duty would be payable, right?

(There being no stamp duty on gifts, AIUI)

Reply to
Ronald Raygun

"Ronald Raygun" wrote

If that were the case, then if someone "sold" a 800K house to a relative for (say) 10K, with a 790K "gift", do you think they'd get away without paying any SD?

But really, isn't it a 140K sale plus a 20K gift?

"Ronald Raygun" wrote

Agreed, but I don't think that's the point, is it?

Reply to
Tim

Yes, I don't see why not. After all, that would be the position if he gifted the whole house with no cash adjustment.

According to the OP, it was valued (by mutual agreement) at 140k, and there was to be 120k money changing hands, with the remaining 20k being a gift. For SD and indeed IHT purposes, for the avoidance of trouble stemming from the transaction not being at arm's length, there ought to be an independent valuation, and this might well exceed 140k.

I thought it was very much the point. If 120k is the SD threshold, it pays to make sure the purchase part of the transaction is kept below it, and the rest of the value is transferred by way of gift.

Reply to
Ronald Raygun

There is no stamp duty on the gift of £20k from mother to son. However, when he uses that money to buy the house off the mother, there is stamp duty. So stamp duty would be payable on the whole £140k

Reply to
Jonathan Bryce

What money?

The arrangement proposed, AIUI, was that she makes him a gift *worth* 20k, but it's not a gift of money, it is a 1/7 share of the house. He then borrows 120k to buy the other 6/7.

Reply to
Ronald Raygun

Well the two linked transactions come to £140k, so stamp duty is payable on that.

Reply to
Jonathan Bryce

But surely that only applies if they are linked for consideration. If the house were, say, sold in two tranches of 70k each, for example. But if it's a part-gift, there is only 120k of consideration.

A gift isn't really a proper transaction, there being no quid pro quo. So if it isn't a transaction, it can't be part of a linked transaction.

It would be absurd if it were, since if a gift were a transaction, then a gift of value in excess of the SD threshold would also incur SD (even if there were no linked part-sale), and it doesn't, does it?

Reply to
Ronald Raygun

Well, either you look at it as linked transactions, or a sale to a related party at an undervalue. Either way, you have to pay stamp duty on £140k.

Reply to
Jonathan Bryce

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