My fiancé and I have been toying with the idea of buying a house for a while. He has a flat that he owns and rents out since he’s in the military, so he goes out a lot. I was going to buy a place on my own, but her parents have given us some money as a wedding present that we would like to add to the budget that I have.
As a first time buyer, I would like to benefit from reduced stamp duty. Similarly, since your parents are giving away the money, what are your rights to the property in the event of a divorce or my death? Can I add your name to the deed but keep the mortgage in my name?
Helen Marsh, Partner at Forsters Law Firm, says this is a complex question. There are two main issues to address: taxes and joint ownership.
Dealing with the second problem first, I assume that the gift is for both of you, and therefore your fiancé will have an interest in this new property equal to his share of the gift.
It’s best to be clear with each other and with your parents about the intent of this gift and who it belongs to if you split up. Once this is settled, you need to enter a statement of trust which will clearly state this and clarify your respective shares in the property. A lawyer can help you with this and it may be a good idea for each of you to get independent legal advice to make sure you both understand what you are agreeing to.
As for taxes, if you buy property as an individual in England and Wales, it would be yours alone and solely its ownership status would be important for stamp duty purposes. However, if you use your parents’ gift and part of it belonged to your fiancé or husband (with or without a formal declaration of trust), he would have an equitable interest in the property and the tax position would be as if he were a joint buyer. .
With it included in the tax assessment, first-time buyer relief would not be available and the 3 percent surcharge on second homes would apply. Worse yet, you may also need to consider the 2 percent non-resident stamp duty land tax surcharge if your fiancé is abroad.
You would have to declare your equitable interest when applying for the mortgage. It will be easier to have it in this from the beginning, instead of adding it later.
If you buy with a mortgage in your name only (with or without using your parents’ gift) and then transfer a portion of the property, the lender likely wants the beneficiary to be jointly responsible for the mortgage.
The transfer of liabilities under the mortgage may trigger an additional stamp duty liability. This will depend on factors, including the level of capital you are transferring, how much debt your fiancé is responsible for, and whether you are married at the time the gift is made. If you can persuade the lender that your fiancé bears no mortgage liability, then it could be argued that there was no SDLT charge.
However, if you contribute to the mortgage payments, HM Revenue & Customs may be skeptical that you have no mortgage obligation. You should carefully consider HMRC’s approach to avoiding avoidance, as if it had been done immediately it would have led to a higher tax result.
What is the right mortgage agreement for us?
My husband and I own our house in Acton, London, and our four-year mortgage payment offer has just ended. We have moved to the standard variable rate at 5 percent. Our house is worth around £950,000 and we owe £150,000 on our mortgage. We would like to move to a cheaper mortgage, but we also want to move house within the next year and are worried about not being able to move our mortgage and getting prepayment penalties. Can you suggest any better deals for us to try to move, particularly ones that won’t prevent us from moving house? Is there anything else we should consider?
Barry Webb, Director of Mortgage Savings Expertssays that with the amount of equity you have in your property, you have a low “loan-to-value” ratio, meaning you could get the lowest rates on the market (assuming you qualify for them).
Most mortgages from high street lenders are transferable, so if you want to choose another two-, three-, or five-year fixed-rate offer, that’s fine.
If your current lender or the lender you want to remortgage with allows you to “port” your mortgage to a new property, you will not be charged a prepayment fee as long as you borrow the same amount of the mortgage or more. The caveat is that you’ll need to requalify for the full mortgage and go through another application. As long as your financial circumstances remain the same, you should be able to do this.
Another option is a rate-tracking mortgage with no prepayment fees. When looking to move, you should check out the entire market, rather than having to use your current mortgage lender.
If you have a tracking rate and decide you want to stay with your current lender, you can apply for a mortgage on the new property and choose a fixed rate at that time. Or you can ask a new lender to buy the new property at a fixed rate and you can do it because there are no prepayment fees.
Personally, I would lock in the rate now and “carry” it on top of your existing mortgage, because you are now locking in a rate that is likely to be lower than what will be available next year.
If you borrow more money from your mortgage when you move, it will have to be at a rate that is available at the time you apply for the new mortgage to buy the new home. In essence, you will have £150,000 at a fixed rate that you have chosen now. The extra money you borrow to buy your new home (assuming you need to borrow more money) will carry a new rate you choose when you move in next year, keeping costs low for you.
It is imperative that you ask your current lender or the one you wish to remortgage if your mortgages are transferable. If they are not and you want to sell, you will have to pay an early redemption fee.
Other things to consider before you move are to make sure you maintain a good credit rating. For this it is necessary that you continue paying your mortgages, loans and credit cards on time, register in the electoral roll, do not borrow more than you have and try to reduce what you owe on your credit cards.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect results arising from reliance on the answers, including any losses, and exclude all liability.
our next question
I am getting divorced. I stopped working to take care of our children. My husband does not agree to share any of his pension and instead proposes that I take more of the equity in the family home instead of claiming more than half of his DB plan pension. The cash equivalent value of his pension is £680,000 and he proposes that I take a deducted sum in lieu of some £250,000 of the family home earnings plus my half share. Do I have to agree to this?
Do you have a financial dilemma that you would like FT Money’s team of professional experts to discuss? Send your problem confidentially to [email protected]