Friend gifting me a house - can I take a mortgage against only 25% of it?
ahrimaniac
Posts: 981 Forum Member
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Howdo.
Here's the situation I'm mulling over at the moment. Lifelong friend is gifting me a house. Long story, but he's a good friend and doesn't need it and wants me to be secure, which is canny.
It's a bit of a fussy old-lady property at the moment and I'd be looking to modernise it. My question is - I want to take a mortgage out against the property when it is mine, but I don't want to take the full value of the property - maybe £50,000, which is 20% of the property.
From what I can see, you can only be loaned up to £25,000 from a bank but this differs as a secured loan? Is a mortgage possible for only a small part of the value of the house?
I'm going to talk to my bank this evening but just wanted to pick some brains.
Thanks!
Here's the situation I'm mulling over at the moment. Lifelong friend is gifting me a house. Long story, but he's a good friend and doesn't need it and wants me to be secure, which is canny.
It's a bit of a fussy old-lady property at the moment and I'd be looking to modernise it. My question is - I want to take a mortgage out against the property when it is mine, but I don't want to take the full value of the property - maybe £50,000, which is 20% of the property.
From what I can see, you can only be loaned up to £25,000 from a bank but this differs as a secured loan? Is a mortgage possible for only a small part of the value of the house?
I'm going to talk to my bank this evening but just wanted to pick some brains.
Thanks!
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Comments
However, you need to speak to a Financial Adviser, because being given a house is taxable income and you might be stung for a huge tax bill.
It might be better if your friend kept the house in his name, and you paid a nominal rent
Being given a house is not taxable income, there should be no immediate tax implications for the recipient and it would most certainly not be better for the OP to rent the house, and if gifted it would be completely outside the donor's taxable estate at death after 7 years (provided they are still alive.)
In which case, the OP wouldn't be able to get a mortgage. Quite apart from the inheritance tax issue.
However, if the house wasn't the friend's main residence, then because the gift counts as a transfer, there might be capital gains tax payable.
Thanks for the advice so far - I probably didn't make myself clear, but yes I'd be looking to borrow about 20/25% of the value of the property, and my confusion was around whenever I look at mortgages, they only seem to talk of giving me 90% or so of the value of the house, which I don't need or want. 20/25% would be enough to do the kitchen and bathroom out and make a few improvements.
Tax issue - it isn't his main property and he doesn't live there, so appreciate there may be CGT, looking into that now
And thanks all for your help!
That's generally just the maximum loan to value ratio they're willing to lend - banks will be delighted to lend you less than that (and usually you get cheaper options given that it reduces their risk).
I think gifting a property may still involve conveyancing. In that case a solicitor might give some advice, as this situation isn't usual.
I think you may be right!
Absolutely. We're beginning that process next week. I've got solicitors ready when I need them but currently mulling.
they'll be falling all over themselves to lend you 20 - 25% of the property value, you'll be beating them off with a shitty stick. make sure you get the best rates and product, you're in a strong position.
PS - that's some friend you have! does he have any more properties he doesn't want?
so borrowing 25% LTV is going to make you able to get a mortgage from almost any lender.
I am wondering if you could buy the house on a low valuation in stages as a sitting tenant to reduce your tax obligations. or arange a peppercorn lease before purchase.
Ie house worth £250000 with vacant occupancey on opemn market for up to 3 months
House is worth £200k with vacant occupancey at auction
House worth £100-150k at aution with sitting tennant with life long pepper corn lease arrangement.
Therefore an estate agent could value the house at £100k and tax would have to be declared and paid on £100k
If he was left the house in a will, he can adjust the will to leave the house to you. (unless the will has been fully executed)
inheritance tax will have to be paid on the estate if that exceeds the threshold. However both husband and wifes combined thresholds are possibly available even if the other spouse died many years ago.
I suspect the taxman will have thought of that one a long time ago
The bad news is that you might have to pay a lot of stamp duty to put the house in your name.
So go to the buiding society you save with and tallk to the person at the counter.
If it's genuinely a gift there's no stamp duty payable.
This is one of those things that needs to be checked out.
What's to stopping me, instead of buying a house normally, to give the money as a gift to the current owner, while the owner then makes me a separate gift of the house itself? No stamp duty payable.
In fact things of this sort happen already around thresholds (c. £250K for example).
The fact that HMRC may well ask you to prove to them that's a pure coincidence these two things happened round about the same time