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!

Re: Mortgage broker/advisor

> She is happy
> with this amount for now, it is enough for her to make the arrangements
she
> wants to.

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.

Re: Mortgage broker/advisor

"Miss L. Toe" <> wrote in message
news:44893430$0$14810$
>> She is happy
>> with this amount for now, it is enough for her to make the arrangements
> she
>> wants to.
>
> 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.

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!

Re: Mortgage broker/advisor

Simon Finnigan wrote:

> 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.

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

Re: Mortgage broker/advisor

"Jonathan Bryce" <> wrote in message
news:
> Simon Finnigan wrote:
>
>> 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.
>
> You will need to register the purchase price as £140,000, or whatever the
> market value actually is, for stamp duty purposes.

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?

Re: Mortgage broker/advisor

> "Jonathan Bryce" wrote
> > You will need to register the purchase price as £140,000, or
> > whatever the market value actually is, for stamp duty purposes.
>
"Simon Finnigan" wrote
> 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?

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

Re: Mortgage broker/advisor

"Tim" <
>> "Jonathan Bryce" wrote
>> > You will need to register the purchase price as £140,000, or
>> > whatever the market value actually is, for stamp duty purposes.
>>
> "Simon Finnigan" wrote
>> 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?
>
> How would you argue that it was an "arms length"
> deal, when you are buying from your mother?

Depends what arms length means really.

Re: Mortgage broker/advisor

> >> "Jonathan Bryce" wrote
> >> > You will need to register the purchase price as £140,000, or
> >> > whatever the market value actually is, for stamp duty purposes.
> >>
> > "Simon Finnigan" wrote
> >> 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?
> >
> "Tim" wrote
> > How would you argue that it was an "arms length"
> > deal, when you are buying from your mother?
>
"Simon Finnigan" wrote
> Depends what arms length means really.

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

Re: Mortgage broker/advisor

Tim wrote:

>> >> "Jonathan Bryce" wrote
>> >> > You will need to register the purchase price as £140,000, or
>> >> > whatever the market value actually is, for stamp duty purposes.
>> >>
>> > "Simon Finnigan" wrote
>> >> 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?
>> >
>> "Tim" wrote
>> > How would you argue that it was an "arms length"
>> > deal, when you are buying from your mother?
>>
> "Simon Finnigan" wrote
>> Depends what arms length means really.
>
> A deal where the price is what two independent
> (unrelated) people would agree in the open market...

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)

Re: Mortgage broker/advisor

> >> >> "Jonathan Bryce" wrote
> >> >> > You will need to register the purchase price as £140,000, or
> >> >> > whatever the market value actually is, for stamp duty purposes.
> >> >>
> >> > "Simon Finnigan" wrote
> >> >> 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?
> >> >
> >> "Tim" wrote
> >> > How would you argue that it was an "arms length"
> >> > deal, when you are buying from your mother?
> >>
> > "Simon Finnigan" wrote
> >> Depends what arms length means really.
> >
> "Tim" wrote:
> > A deal where the price is what two independent
> > (unrelated) people would agree in the open market...
>
"Ronald Raygun" wrote
> 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?

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
> (There being no stamp duty on gifts, AIUI)

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

Re: Mortgage broker/advisor

Tim wrote:

>> >> >> "Jonathan Bryce" wrote
>> >> >> > You will need to register the purchase price as £140,000, or
>> >> >> > whatever the market value actually is, for stamp duty purposes.
>> >> >>
>> >> > "Simon Finnigan" wrote
>> >> >> 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?
>> >> >
>> >> "Tim" wrote
>> >> > How would you argue that it was an "arms length"
>> >> > deal, when you are buying from your mother?
>> >>
>> > "Simon Finnigan" wrote
>> >> Depends what arms length means really.
>> >
>> "Tim" wrote:
>> > A deal where the price is what two independent
>> > (unrelated) people would agree in the open market...
>>
> "Ronald Raygun" wrote
>> 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?
>
> 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?

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

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

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.

> "Ronald Raygun" wrote
>> (There being no stamp duty on gifts, AIUI)
>
> Agreed, but I don't think that's the point, is it?

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.

Re: Mortgage broker/advisor

Ronald Raygun wrote:

> 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)

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

Re: Mortgage broker/advisor

Jonathan Bryce wrote:

> Ronald Raygun wrote:
>
>> 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)
>
> 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

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.