House / Mortgage woes - advice needed
Discussion
Bit of an odd situation really -
We have our own house, and are at more or less 100% of mortgage owing / value. We are currently on the market to sell. We want to move house. A relative has offered to purchase the new place for us with cash (its a repossession at bargain price just what we want) on the proviso we buy it off him once ours is sold. So our house is on the market.
That's all fine. Our thoughts were as follows - relative buys house for cash at say 110k, we sell ours then apply for new mortgage. As we have no deposit, we will need a 90 / 95% mortgage. We already have an AIP for well above the required amount.
My plan was that we would buy the property from my relative for market value (I will have done all the renovations myself) at 125k. We would have our 10% deposit paid by the relative, leaving us with a mortgage for 112.5k. Relative receives 112.5k which covers solicitors fees etc.
This isnt a problem until it comes to it comes to tax etc. I've been told if we do this, my relative will have to pay capital gains tax on the 15k profit hes made, which is 3k or so.
Can anyone offer any advice - is what i want to do legal, are there any pitfalls, is there any other solution? Any advice greatfully received.
We have our own house, and are at more or less 100% of mortgage owing / value. We are currently on the market to sell. We want to move house. A relative has offered to purchase the new place for us with cash (its a repossession at bargain price just what we want) on the proviso we buy it off him once ours is sold. So our house is on the market.
That's all fine. Our thoughts were as follows - relative buys house for cash at say 110k, we sell ours then apply for new mortgage. As we have no deposit, we will need a 90 / 95% mortgage. We already have an AIP for well above the required amount.
My plan was that we would buy the property from my relative for market value (I will have done all the renovations myself) at 125k. We would have our 10% deposit paid by the relative, leaving us with a mortgage for 112.5k. Relative receives 112.5k which covers solicitors fees etc.
This isnt a problem until it comes to it comes to tax etc. I've been told if we do this, my relative will have to pay capital gains tax on the 15k profit hes made, which is 3k or so.
Can anyone offer any advice - is what i want to do legal, are there any pitfalls, is there any other solution? Any advice greatfully received.
Whatever about the legalities, everyone who makes a capital gain in any given tax year can offset their personal Capital Gains Tax allowance against the gain. The allowance is currently £10,600, so your "relative" would only have a taxable "gain" of £4,400 (£15,000 less £10,600).
If your "relative" bought the property jointly - say with his spouse (although it doesn't have to be a spouse) each individual would get their £10,600 allowance - effectively removing any of the gain from tax.
If your "relative" bought the property jointly - say with his spouse (although it doesn't have to be a spouse) each individual would get their £10,600 allowance - effectively removing any of the gain from tax.
We are still paying mortgage off on our place. We are priced to sell, and can cover any difference with mortgage without issue. Relative is understanding in that we have to sell (they offered out of blue to buy it for us) and know this may take 6 months, by which time all renovations will be finished, and we will have moved in to it.
broken biscuit said:
Bit of an odd situation really -
We have our own house, and are at more or less 100% of mortgage owing / value. We are currently on the market to sell. We want to move house. A relative has offered to purchase the new place for us with cash (its a repossession at bargain price just what we want) on the proviso we buy it off him once ours is sold. So our house is on the market.
That's all fine. Our thoughts were as follows - relative buys house for cash at say 110k, we sell ours then apply for new mortgage. As we have no deposit, we will need a 90 / 95% mortgage. We already have an AIP for well above the required amount.
My plan was that we would buy the property from my relative for market value (I will have done all the renovations myself) at 125k. We would have our 10% deposit paid by the relative, leaving us with a mortgage for 112.5k. Relative receives 112.5k which covers solicitors fees etc.
This isnt a problem until it comes to it comes to tax etc. I've been told if we do this, my relative will have to pay capital gains tax on the 15k profit hes made, which is 3k or so.
Can anyone offer any advice - is what i want to do legal, are there any pitfalls, is there any other solution? Any advice greatfully received.
Have you actually explained what you intend to do, in detail, with a mortgage lender??We have our own house, and are at more or less 100% of mortgage owing / value. We are currently on the market to sell. We want to move house. A relative has offered to purchase the new place for us with cash (its a repossession at bargain price just what we want) on the proviso we buy it off him once ours is sold. So our house is on the market.
That's all fine. Our thoughts were as follows - relative buys house for cash at say 110k, we sell ours then apply for new mortgage. As we have no deposit, we will need a 90 / 95% mortgage. We already have an AIP for well above the required amount.
My plan was that we would buy the property from my relative for market value (I will have done all the renovations myself) at 125k. We would have our 10% deposit paid by the relative, leaving us with a mortgage for 112.5k. Relative receives 112.5k which covers solicitors fees etc.
This isnt a problem until it comes to it comes to tax etc. I've been told if we do this, my relative will have to pay capital gains tax on the 15k profit hes made, which is 3k or so.
Can anyone offer any advice - is what i want to do legal, are there any pitfalls, is there any other solution? Any advice greatfully received.
As, as far as I'm concerned, you may struggle with this.
The lender will ask you for proof of deposit, which you won't have.
They will also ask you for the source of deposit. You don't physically have the deposit as it is effectively tied up in the property. Once you disclose where your deposit is coming from, it will be classed as 'Gifted Equity' and there are not many lenders who do this and those that do have strict criteria around this such as the 'relative' has to be a parent.......
Sarnie said:
Have you actually explained what you intend to do, in detail, with a mortgage lender??
As, as far as I'm concerned, you may struggle with this.
The lender will ask you for proof of deposit, which you won't have.
They will also ask you for the source of deposit. You don't physically have the deposit as it is effectively tied up in the property. Once you disclose where your deposit is coming from, it will be classed as 'Gifted Equity' and there are not many lenders who do this and those that do have strict criteria around this such as the 'relative' has to be a parent.......
mortgage provider and IFA confirmed the mortgage co. are happy at this. Family gifted deposit consisting of equity in property. Only condition is relative must own property for six calender months prior to exchange to myself. Not an issue as we will be moving in once renovated anyway, whilst our property on market, and paying all relevant bills for it too.As, as far as I'm concerned, you may struggle with this.
The lender will ask you for proof of deposit, which you won't have.
They will also ask you for the source of deposit. You don't physically have the deposit as it is effectively tied up in the property. Once you disclose where your deposit is coming from, it will be classed as 'Gifted Equity' and there are not many lenders who do this and those that do have strict criteria around this such as the 'relative' has to be a parent.......
broken biscuit said:
mortgage provider and IFA confirmed the mortgage co. are happy at this. Family gifted deposit consisting of equity in property. Only condition is relative must own property for six calender months prior to exchange to myself. Not an issue as we will be moving in once renovated anyway, whilst our property on market, and paying all relevant bills for it too.
I hope you are right but this isn't a 'Family Gifted Deposit' its a 'Family Gifted Equity'. They are entirely different and carry different criteria.For example, I've just presented this exact scenario to Abbey and they said they wouldn't get involved in back-to-back transactions like this, nor a 'Family Gifted Equity' sale especially if the family member wasn't a Mother, Father, Brother or Sister. They would however do 'Family Gifted Deposit', which this isn't.
I'd just get it clarified again before you commit to the whole transaction and find yourself homeless.....
I've got it on email from a Halifax business manager - trusting that to be sufficient. Worst case scenario, I have to find £11k, which wont be impossible to do. Just now waiting to see if the offer on the house is accepted. If so, my relative owns it, and I will be moving into it once my place sells.
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