See how one savvy family used Family Concessionary Purchase to help their son get on the property ladder.
It’s currently a tough time for first time buyers looking to get on the property ladder. Buyers typically need at least a 15% deposit to get the more affordable interest rates and lenders are increasing scrutiny over buyer’s expenses and reducing maximum loan amounts as a result. Often parents will need to lend a hand by providing deposits. Clients are often unaware, however, that equity in property can also be gifted to children by way of a family concessionary purchase. Taking a very simple example, we assume the parents own a property worth £100,000 and would be happy to gift £25,000 of the equity to a child. The child can get a mortgage for £75,000 and not require a deposit at all, lenders will accept the equity already in the property as a gifted deposit. Of course the parents are still handing that money over just as if it were cash in the bank. However one resourceful couple, David and Louise made the most of depressed house prices in the country and solved that problem very eloquently.
They bought a tired 3 bedroom semi-detached property, initially as a buy to let. It was purchased for £115,000 and needed new kitchen, bathroom, a small amount of rewiring and a new boiler, as well as fully redecorating throughout. It was expected that the house would value for around £145,000 once modernised and would cost about £11,000 to do so. The property was developed, and rented for a year. When the tenants moved out they realised their son Mark, having landed a good promotion and able to afford a mortgage, might be able to buy it from them.
Mark applied for a mortgage with Virgin Money, at the time the best value for money, and was agreed a loan of £127,500. He bought the house from his parents at a value of £150,000 and did not have to put down a penny for his deposit, and his parents got almost everything back they had spent, including the cost of the solicitors for both the sale and the purchase. With Buy to Let such an appealing proposition, even if the child decided they were not ready to buy or just didn’t want to, their investment would be sound, however keeping £22,500 in their savings left them in a far safer position and allowed them to purchase additional property. For Mark, getting a good rate of interest meant he was paying far less that he would have been renting and was able to save far more that he would have if he had bought with a smaller deposit or remained in rented accommodation.
Parents should of course consider their own long term plans and ensure the funds will not be required later. Parents may also need to seek independent legal advice and if the parents die within 7 years then the gift may be treated as part of their estate for inheritance tax purposes. This case study is specific to these particular clients and your circumstances or situation may be different. You should seek advice which is specific to yourselves.
Talking to a mortgage broker might create far more opportunity than you might have realised. Remember we charge some of the lowest fees in the industry, and eager to pass on any of the knowledge we have learned over the past 10 years in the business. Call us on 0207 183 1101 to see how we can help you.