Buying a house from a relative (more WWYD + a tad long sorry)

[LDNmummy]

My DH and I are in a tricky situation. We are currently residing with a close and very loved family member whom we are sharing a house and mortgage plus all other house costs with.

The house is a 3 bedroom maisonette type in a very sought after, lovely and convenient part of Highbury and Islington in London. It has a huuugggee park at the end of the road and is a lovely multicultural area with a good mix of families and young people from all backgrounds. My DH has grown up here and I even attend the same GP his mother went to when pregnant with him, so roots are firmly set and he loves it here. Great schools and a good mix of city life with lots of greenery and calm depending where you venture. The house itself is three beds a little back garden and ample space for a small family.

We will be staying here for a couple of years then moving on to buy another home. The dilemma is whether or not to simply buy this one or start over new somewhere else. My ideal would be a three bed in the same area, but they are impossible to come by at a price we could afford and the area is in such high demand that not many come onto the market anyway.

The other option would be to move to nearby Hackney, to a nice part of it as it is developing into a new family area due to regeneration and the olympics next year. Our budget would stretch slightly further but still be tight.

The house we are in now is lovely but would need a lot of modernising and after putting all our money down to paying the deposit on it and its high monthly payments, we wouldn't have anything left over to actually fix it up for a long time. Plus it comes with service charges which are an added cost. Otherwise, I think we would be hard pressed to find something similar at its price in the area. But then I am not a big fan of maisonettes which is really putting me off, but then I would hate to leave the area.

I don't know how it would even work to buy a home from a family member whom you already share a mortgage with. Would we have to re-mortgage the house? Plus I wonder if it is worth taking on buying a house in an already sought after area or if it would be worth putting our money into an up and coming area where the value of the house could increase in profit far more. I am a complete novice at anything like this and would love some opinions on it.

[Yesmynameis]

Hi, good luck with deciding, I don't know London well so have no advice.

However, just with regards to buying a home from the family member. Do you, DH and the relative all own the home together i.e. the home is owned in 3 names? If so, you would be buying out the family member which is known as a Transfer of Equity. You can either do this by applying to the existing lender to take on the mortgage, or you can apply for a brand new mortgage if you want to and remortgage at the same time. Either way, you will need a solicitor to draw up the documents and arrange for the family member to be paid for their share in the property and their name removed from the title documents. Some mortgage lenders have in house solicitors who can deal with this paperwork for you.

[LDNmummy]

Thank you Yesmy!

DH and the family member both have names on the mortgage so I wouldn't be part of that but it would essentially be him buying out the family member.

That makes a lot more sense to me now, I didn't understand how it would work. We would probably want to remortgage but will see how that goes.

Getting a solicitor to sort it out I assume would be fairly easy so glad to know it is as simple as that.

[stubbornhubby]

• who actually owns the house?
  
• how will you agree the price for the other person's share of the house?
  
• are their other relatives involved? Eg are you sharing with a parent? If so do you have siblings who will be anxious that the parent is getting fair price and not being taken advantage of?
  
• will the realtive still live with you? if so will they start to pay you rent? How will you agree how much?

[LDNmummy]

My DH and his parent both have their names on the mortgage and maintain it fairly between them.

We had a surveyor come to inspect the property recently so we know the current worth of the house and will be happy to pay what it is actually worth.

The money will be split fairly between DH, parent and other siblings as this has already been discussed. The other siblings found out what the house is actually worth so we are going on their estimate. We only decided we may want to purchase the house ourselves after that point as an after thought as we are the ones living here now.

The parent involved will have another property to stay at, will still be welcome here without paying rent and will most likely buy their own much smaller property as they want to retire abroad in the next few years anyway so will not need an actual house here anymore but rather a small holiday apartment for when they visit.

[stubbornhubby]

yes, you said that they have a joint mortgage, but who actually owns the house, and is it owned 50/50?

IMO when surveyors work for the owner they tend to overestimate the value of a house, as that's what the owner want to hear. the other siblings will also be looking for as large a price as possible... so be careful, you may be paying too much...

Luckily there are plenty of websites where you can look up what other houses have actually sold for in your street, and streets nearby, so go check those as they will be useful. Actual sales are better info than opinions.

however of you have a price you are all happy with then that's a good start.

The sums go like this. Let's say the house is worth £200k and the mortgage is £150

• You have to pay him 50% = £100k, from which he uses £75 to pay off his share of the mortgage, netting £25k cash.
  
• assuming you don't have savings you will have borrowed an extra £100k, £25k of which has gone to him, and will have a total mortgage of £175k
  

You say the parent will stay with you for part of the time. At the moment the parent is paying mortgage and share of the bills, but once you bought the house (at the price the siblings have set) he will stay with you for free... just at the time you are doing the house up

Are you sure sure you are getting a good deal?

[cantspel]

You cant just buy someones half share of a mortgage so you would have to remortgage but there is nothing to stop you remortgaging with the same lender (subject to their rules of multiples for lending)

[Yesmynameis]

cantspel is right, if your name isn't currently on the mortgage you will need to make a new application, either with new lender or the same one. when i said you could apply to take on the existing mortgage, i was assuming you were already a joint owner/joint mortgage holder

[stubbornhubby]

but, unless you have savings to use, you are going to end up with a mortgage that is BIGGER than the current one you both share (in order to finance the cash he's going to want for his share). So you will have to either start again and remortgage, or get a second mortgage or something...

[LDNmummy]

Thank you guys so much for the info, I am having to pop out for now but will show this to DH too so we can make note of what steps we want to take.

DH's name will be put on the paperwork soon as a part owner of the property before anything is done in the future. My name will be kept off everything till after sales and other things go through. Not for any reason except that it is his family home and I feel like I would be overstepping bounderies unecessarily.

When we buy a new home or take on this one obviously then my name will be put on paperwork too.

This is our first home purchase as such so it is all very confusing and this is all very helpful.

Stubborn I should have said that the parent will have their own property, but we as a family will be happy to accomodate when they are in the UK for visits if they wish to stay for a few days here and there. The parent will not be staying for extended periods but more for visiting grandchild and will be very far away abroad so we would miss said parent enough to not mind IYSWIM.

[stubbornhubby]

LDNmummy - you say "DH's name will be put on the paperwork soon as a part owner of the property"

So he's not actually a owner of the house?

That's kind of what I suspected in the first place from the way you worded the OP - that's why I asked who actually is the owner of the house?

And it sounds like the answer is: it's your FIL's house?

So you are living in his house, and helping him with the mortgage. That's not wise, IMO. You now consider yourselves joint owners, but your FIL and the siblings probably don't see it like that. If the house is worth £X00,000 are they expecting you to pay him £X00,000 for it? (that being a price they have set).

If I were you I'd get some legal advice...

[Yesmynameis]

So you are planning on doing transfer of equity No1 into joint names of family member and your DH and then Transfer of equity No2 to transfer from DH and family member to you and DH??? Sounds long winded and a bit complicated bearing in mind there is a lender involved too. At the very least you are going to incur twice as many legal fees as you need to.
Speak to a solicitor to get some advice

[LDNmummy]

Hey guys, just got back and catching up with this.

stubborn we are very lucky in the sense that this has been an arrangement between DH, his parent and his siblings for years. It was the intention of his parent when buying the house that it would be sold and profit be split between the siblings so they could buy their own homes. Said parent will be retiring so will not need a large home and will be moving abroad permanently.

Everyone has the same understanding of this process and it has been discussed at length. The only issue now is that we may want to buy this house for ourselves but are not sure if that is a good idea yet.

DH's name will be put on the paperwork shortly, it has just been a process of waiting for the siblings to officially move to the other property.

It is something that has been put in place to provide a security for the siblings by this parent so they could be settled when starting their own adult lives.

I have no issues with the arrangement as this parent is not the kind who would do something untoward. Rather quite the opposite, even taking care of me in the past. The other siblings are assured a share of everything as is DH and all are chipping in to help with the process.

I know it sounds rather complicated, it is simply to provide adequate housing for all, and on sale of the properties, money to invest in individual homes for each sibling IYSWIM.


But thank you and Yesmy for the advice, I will seek some legal advice. It sounds more complicated writing it down unfortunately.

[stubbornhubby]

i think it might be more complicated than you realise, OP!

And my experience is there is nothing like the divvying up of a parent's house to cause squabbling and mistrust amongst siblings.. I have seen it many time... just warning you..

(and if one of the siblings BUYS the house then it's even worse as the question of price then becomes an issue)

[fedupofnamechanging]

You sound as if you and Dh have a lovely close relationship with his parents and siblings, which is lovely, but I think when money is involved things can get a bit tricky. I have a couple of reservations about this (admittedly coloured by my own relationship with my IL's).

Firstly, if the house is sold to a stranger, your IL's will be able to get the highest price possible and not feel any guilt about it. If they sell to your DH for the maximum profit, there may be a sense of not doing right by him, but if they sell for less than max profit there will be a sense of not doing right by his siblings.

Secondly, this house is going to be very expensive when you take over the whole mortgage and have to spend money on doing it up. Interest rates are looking as if they will rise, so be very sure you can afford this (sorry if i sound patronising, but i was utterly clueless when I first bought a house).

Thirdly, you don't sound as if you absolutely love this house. this will be the most expensive thing you've ever bought - you deserve to love it.

The family will always consider this 'their' family home, if it stays in the family. They might think they have 'rights', either to stay in the house for visits or to offer an opinion on what you do with the house. Obviously, legally they wouldn't, but emotionally it might cause tension. A new house might be better for you. Of course, this depends on how you feel about your IL's.

Finally and most importantly, if you and DH are going to be buying this house, then it is very, very important that your name is on the legal documentation from the word go. You feeling as if you are overstepping the mark makes me feel uneasy about this whole idea. Will you feel when all is done and dusted as if this is your home or theirs still. You must have your name on the deeds straight away as you need the legal protection that this offers you. You will be paying a lot for this house, so it has to feel (and be) yours.

I wouldn't do this, but if you are going to, then make sure you are protected.

Good luck with whatever you decide

[stubbornhubby]

OP you also need to consider Stamp Duty payable on the transfer(s) that you are planning...

www.hmrc.gov.uk/sdlt/calculate/transfer-ownership.htm