I’m after a bit of advice really…..

We’re currently living in my Dad’s place and have decided with him to transfer it over to us.
At present, there’s an interest-only mortgage (£230K no endowment) that’s due up in 2017, so the mortgage company will expect their capital back or the property needs to be sold to cover it.
He’s a pensioner so has no way to secure a new mortgage. There’s approximately £100K equity in the property.

I was hoping that we could transfer the property to my wife and I for the mortgageable value (£230K) and I would set up a new capital repayment mortgage to clear the interest only mortgage and then release the equity to him in chunks to top up his pension.
He would benefit from no fees, hassle and getting the full current market value. We would not have to move and would be able to get onto the property ladder without a deposit.

Does this sound possible? If so what steps do I need to go through?

The house doesn’t belong to you so it will be classed as a purchase, you will have to pay stamp duty but your father is perfectly entitled to sell it to you for less than the market value. Your mortgage company will very likely still expect you to provide a deposit and typically you’ll have to prove you have one, 10/15% as a minimum at the moment. Give them a ring and ask. I work for a bank by the way so not just guessing. 🙂

I think the first step would be to convince a bank to lend you £230k with no deposit ?

Then he sells it to you, pockets £100k.

The rest sounds like a tax avoidance scheme.

Cheers Jekkyl. What if I paid to be added to the existing mortgage and then remortgaged to cover the purchase?

You could get yourself added to the mortgage yes, that’s called a transfer of equity. There would likely be nominal admin charges & legal fees but the bank would take your father’s circumstances into account as well as yours when providing a mortgage. If he’s already a pensioner then he would still be allowed a mortgage as he has a gauaranteed income, but you may also fall foul of their criteria for maximum age. If their max age is 75 for example and he’s currently 65 that only gives you 10 years to pay back 230k, which would work out very expensive.

Edit: generally you can’t use this route to avoid stamp duty as the solicitor who will carry out the later removal of your father from the deeds has a legal duty to ensure that all tax that should be paid is paid to her maj.

Thanks for the advice Jekkyl. I’ll chat to the bank.

@hels – no part of this is about tax avoidance. My dad’s mortgage is coming to an end, he will struggle to get a new one and he’s keen to help us onto the property ladder. Happy to pay whatever stamp duty/tax etc we’re required to pay.

Bit of insider knowledge if you like, when your dad’s mortgage comes to an end the bank in 2017, they will write to him to remind him and possibly even phone now and again but as long as the interest payments are made it is very very unlikely they would ever repossess the property. No bank ever likes to repossess because it costs a lot of money and makes them look bad in the press etc. (I can’t guarantee that the mortgage company won’t and they will never admit to customers so take this advice with caution) So you could just continue to live there and pay the interest payments and some towards the capital and then when your father passes on the property will become yours and you can then remortgage it for a proper residential mortgage. That is if your siblings (if any) don’t mind you taking the property and even if they do you could release funds with the remortgage to pay them out.

Hmm… I kinda did this inadvertantley as I transferred onto a mortagage that someone else held, and then they transfered off a couple of years later. No stamp duty was asked for or paid, the cost of each transfer was about £1000 + and fee the lender charges, so expect at least £2000 in costs in total. Each process was a transfer of equity.

I think the way it would have to work is – you apply to join your father on the existing mortgage. This shouldn’t be too difficult as you are a better risk than your dad. Then you would apply seperately to swap your dad with your wife. Again on the existing mortgage – and again it should be fine as she will be a better risk than your dad. Then you and your wife are together on the (old existing, interest only) mortgage and you start applying for new products for 2017. If you aren’t paying your Dad anything when he transfers off then you also have to get proof that he isn’t bankrupt (and your not using it as a way to avoid debt repayment for him) but I think that this is just by getting a form signed by a solicitor.

Each transfer is a long process, assuming your dads lender does agree, you will still probably need a mortgage interview (these tend to last a couple of hours) and it can take upto 3 months to finally go through (a better solicitor could speed it up I’m sure). So you should think about starting soon ish…

As for the morals / legality – for me it was initially buying his ex partner out of my then boyfriends place, so that he and I could live together. Then buying him out when we split. I effectively now own a house that I didn’t actually buy.

EDIT – This was all in Scotland… Other rules may apply in Englandshire.

Edit: just re-read and you are not already a property owner so no stamp dutynexcess

OP, yes its a sale/puchase and will attract stamp duty, this will probably be at the new higher rate (extra 3%) as this will be a second home/investment property Legal costs will be limited (£300-500 ?). Its definitely not tax avoidance as no cap gains will be due nor estate taxes, hes selling the property to you and you are paying stamp duty so all totally legit. On the bank loan / mortgage you will have to have sufficient income to take on the extra debt with no “rent” to cover it or you can try and structure it as buy to let but companies don’t like that as its a family member. To release equity you would have to borrow the whole purchase price or certainly more than the current loan. May have to have your father lend you back some of the money, ie you cannot borrow same amount as his mortgage and complete the purchase – where does the extra £100 come from ?

Having said all this you might see if there is another solution like acting as a guarantor on a new mortgage but that way your father doesn’t get the lump sum.

this will probably be at the new higher rate (extra 3%) as this will be a second home/investment property

??? As I read it they live there now, this is / will be their home.

So you could just continue to live there and pay the interest payments and some towards the capital and then when your father passes on the property will become yours and you can then remortgage it for a proper residential mortgage

surely this still requires a deposit at the time.

@trail rat. nope because he would then own the property and all the equity so would be classed a remortgage.

fair enough – assuming theres equity left after the estates settled.