Mortgage Question

leigh_boy

leigh_boy

leigh_boy

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this in behalf of a friend, il start with the facts

Houses is 4 bed detached
owned by his divorced parents
currently on an interest only mortgage
house is valued at 289K

my friend wants to buy it from his parents because his mum wants her money from the house.

its been suggested by his parents that they sell him the house for £110k - first i cant see how this can happen if the house is worth 289 but the mortgage is on interest only and the house was bought for £150 20 odd years ago.


is this even possible?

i know my ex couldn't get a mortgage but got a loan for 100K and bough her flat this way... would that work?
 
I can't see why it isn't possible, you can get part mortgages and such so a mortgage for a value less than the house is worth is fine too? The seller sets the price, not the mortgage company?
 
Not really heard of this before, but I don't see why it wouldn't be possible.

In my mind, it's only the same as someone trying to get a mortgage with a low LTV.

My worry would be the house was bought for 150K on interest only, yet they want to sell for 110K? What about the other 40K?

Unless they're looking to free up 110K, so they sell for 260K? Bit confused by the OP tbh.
 
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davido_labido said:
I can't see why it isn't possible, you can get part mortgages and such so a mortgage for a value less than the house is worth is fine too? The seller sets the price, not the mortgage company?
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you say that, my last mortgage when the surveyor came round, they said the house was worth more then the amount we had asked for a mortgage for ( surly in their favour) and refused the mortgage unless we paid the 20K difference...
that was Halifax btw.
 
Presumably they're suggesting he actually buy the house for £260,000, thus freeing up £110,000 equity to pay out to the mother / parents.

If he buys it for £110,000 then that's not even enough to repay the mortgage, and nobody's getting a penny.
 
The_Abyss said:
Presumably they're suggesting he actually buy the house for £260,000, thus freeing up £110,000 equity to pay out to the mother / parents.

If he buys it for £110,000 then that's not even enough to repay the mortgage, and nobody's getting a penny.
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maybe it was a bit confusing because his dad said to him that when my friend sells the house (when ever that is) he then give his dad £175K

and the maths of that + the mortgage means if he wanted to move on in 7 years time he would have exactly nothign from it and that was presuming the house value went up to 313 i think he said.
 
So, a few issues to consider:

1) Selling the house for way under its value could be seen as trying to dodge stamp duty.
2) Where does mum live afterwards ? Still in the house, or somewhere bought with the 110 grand.
3) They are in effect giving him 179 grand "free". It is well under inheritance tax threshhold so no issues there, but are there siblings or other dependents losing out ?
 
The_Abyss said:
Presumably they're suggesting he actually buy the house for £260,000, thus freeing up £110,000 equity to pay out to the mother / parents.

If he buys it for £110,000 then that's not even enough to repay the mortgage, and nobody's getting a penny.
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I'm not sure, but confused.

The house was purchased for £150?
What is the outstanding mortgage?
 
leigh_boy said:
you say that, my last mortgage when the surveyor came round, they said the house was worth more then the amount we had asked for a mortgage for ( surly in their favour) and refused the mortgage unless we paid the 20K difference...
that was Halifax btw.
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Sorry - you applied for a mortgage, the house was then valued and it was worth more but even though you didn't pay any more the mortgage company insisted you borrow more?

I don't think so.
 
I'm sure there are many tax avoidance implications associated with offloading assets at vastly below their market value.

You also can't legitimately take out a plain old bank loan for a property. When you're asked the reasons you want the loan you'll never see "to buy a house" as an option. Nor "hookers and gambling" while we're on the subject.
 
The_Abyss said:
Sorry - you applied for a mortgage, the house was then valued and it was worth more but even though you didn't pay any more the mortgage company insisted you borrow more?

I don't think so.
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this was a few years ago but ye it was refused because the house was under valued it didnt make sense because if i didnt pay it they would be £££ in already they tried to explain it was based on the market value not the sold value.. its different if your a cash buyer obviously
 
If its an interest only mortgage then the parents own the house but haven't paid off any of the actual mortgage. The idea being that at the end of the mortgage period they would have figured out some way to pay off the balance.

If they sell him the house for £110,000 then he would own the house but potentially still owe the bank the £150,000 originally borrowed. Either that or the bank would want to take that £110,000 and then they would still need to find £40,000.

I can't see how the parents can benefit from this unless they sell the house for more than £150,000 as they still owe that.
 
leigh_boy said:
you say that, my last mortgage when the surveyor came round, they said the house was worth more then the amount we had asked for a mortgage for ( surly in their favour) and refused the mortgage unless we paid the 20K difference...
that was Halifax btw.
Click to expand...

That makes no sense at all.

House is worth 100k
You ask for an 80k mortgage

that's simply an LTV of 80%, either you or Halifax got something badly wrong - are you sure it isn't the other way around;

You have 20k deposit ask for an 80k mortgage on a house you believe is worth 100k. Turns out the house is worth £150k, so you don't have enough deposit to secure the required LTV for the mortgage you want...therefore you need to stump up the difference.

Presumably at interest only, the outstanding balance is still £150k? What endowments or otherwise do your parents have? i.e. how were they planning to pay off the balance after 25 years?
 
fez said:
If its an interest only mortgage then the parents own the house but haven't paid off any of the actual mortgage. The idea being that at the end of the mortgage period they would have figured out some way to pay off the balance.

If they sell him the house for £110,000 then he would own the house but potentially still owe the bank the £150,000 originally borrowed. Either that or the bank would want to take that £110,000 and then they would still need to find £40,000.

I can't see how the parents can benefit from this unless they sell the house for more than £150,000 as they still owe that.
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this is why its so confusing.. really he needs a financial advisor but he cant organise a **** up in a brewery so here i am lol.
 
Your issue seems to be that you are relying on someone with absolutely no knowledge of these things to explain the situation. Without an understanding of it all he is incapable of giving someone else enough information to be able to help.
 
If he doesn't understand the situation, not a lot we can do here to help. Best advice would be to see a financial advisor.
 
fez said:
Your issue seems to be that you are relying on someone with absolutely no knowledge of these things to explain the situation. Without an understanding of it all he is incapable of giving someone else enough information to be able to help.
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i know.. but thought id chuck the question out there
 
leigh_boy said:
this is why its so confusing.. really he needs a financial advisor but he cant organise a **** up in a brewery so here i am lol.
Click to expand...

Well unless you get the basic facts, anyone trying to help will be guessing and the advice quite possibly incorrect and pointless.
 
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