Mortgage.. Where do I start with this..

Annie Beau

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I have 57k left on my mortgage. House valued probably about 140k. I want to sell it to my son for 57k. I've heard that this might be viewed as trying to evade inheritance tax and I might have to look into something called Gift of Equity.
There's a few things I'll need to research but if anyone in here knows anything I would be grateful
Firstly this Gift of Equity.. Is it likely to restrict who he can get a mortgage from? Any complications likely?
2 - his credit rating isn't wonderful. Had a DMP in 2016 which was paid off with a lump sum in 2018. He is debt free but one other thing is a tax credit overpayment which went to a DCA because his ex hadn't informed tax credits about change of circumstances and then didn't tell him about tax credits chasing the overpayment. He is paying this off with instalments and there's about 260 left.
We have had a very quick look on the Which website and it seems there are some lenders who will accept poor credit.
The LTV... let's just say its valued at 130k instead of 140.. He wants to borrow about 75 k as there's quite a bit of work. Nothing which would be a concern for a mortgage provider. Just replace central heating etc
Any advice welcome
 

Queen Jess

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I think the situation is complicated enough that you should get some proper financial advice.

From what I understand, you would be gifting equity of the difference between the price you pay and the amount the property is valued at. Any gift is subject to IHT rules, so it is chargeable at 40% up to 3 years and then taper relief applies thereafter until it goes to 0 after 7 years. So if you were to die after 7 years, no tax would be payable. May not be an issue depending on the value of your estate anyway.

Note also that if you continue to live in the house, you must pay rent, otherwise the clock doesn't tick down. So if you continued to live there with no rent and were to die in 10 years, the gift is considered to have occurred on death and therefore full IHT would be payable (depending on the size of your estate of course).

You are charging enough for the mortgage to be paid off in full, but make sure you have enough for legal fees etc as well.

Deposit gifts and gifts of equity do seriously reduce the choice of lender. Each lender applies their own rules and many have made it more difficult since the pandemic. Some lenders are mentioned here: https://ns-fs.co.uk/Gifting-Family-...o-Let-Using-Gifted-Equity-As-The-Deposit.html

DMPs I think remain on credit history for some time and will definitely be a consideration given this was only a few years ago. This will again significantly reduce your choice of mortgage lender and given he will be considered more of a risk, his mortgage rate will be much higher.

Given you need to find a lender happy with both the equity gift and the DMP/credit history, you need to talk to a mortgage broker to get some specific advice here.
 
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Annie Beau

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Thanks... There's a mortgage centre near where I live advertising free first consultations I'll have a chat with them.
I never thought about the rent issue... There will be a way to do it.. Again something I need to look into
Cheers for advice
 

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