Q My husband and I bought a house with my parents 12 years ago. We own one-third and they own two-thirds. We live together and it is the main home for all of us as well as our children. My husband and I also own a small rental property. Our plan was that as time went on we would buy my parents’ stake. My parents are now in their late 60s and thinking about options for the future including whether they would need a more accessible property and wanting to be able to help my siblings financially. Most of their capital is tied up in the house. At the moment we do not know what their future accommodation needs will be.
I inquired with a mortgage broker about taking out a mortgage to buy my parents’ stake in the property. I was told no lender would lend to us if my parents were still living in the property as they would have rights to stay in the house which may compete with the mortgage company’s rights. They also informed me that my husband and I would have to pay stamp duty on the portion of the house we were buying.
We are not in a position to buy the rest of the house without a mortgage. We do not want to sell the house as it is perfect for our needs right now. Are we stuck unless my parents move out? Is there any way for my parents to release their capital?
LD
A It turns out that what the mortgage broker told you was plain wrong. According to Pete Mugleston, a mortgage expert at www.onlinemortgageadvisor.co.uk, “While it’s true that lenders don’t like the risk [of your parents still living in the property], there are about 13 lenders currently happy to consider what is known as a ‘concessionary purchase’, where you buy from the gifter – your parents – and they remain in the property.” Mugleston says that typically your parents would be required to take (and provide evidence of having taken) independent legal advice on the implications of allowing the lender the ability to fully repossess the property if you default on your mortgage. So, no, you are not stuck if your parents don’t move out and yes, there is a way for them to release your capital but it would make sense to use a mortgage broker that is aware of the lenders who are happy to consider concessionary purchases.
Your mortgage broker was right that you may have to pay stamp duty land tax (SDLT) on the portion of the house you plan to buy. But how much SDLT you’ll have to pay depends on how much that portion is worth. If it’s less than £250,000, the bill will be nil. If it’s more than £250,000 but less than £925,000 you’ll be charged 5% then 10% between £925,000 and £1.5m and 12% over £1.5m.
