Can a parent buy a house for a child and sell back in short term

D

David1234

Registered User
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Hi,

A family member (lets say brother) is looking to buy a new house. They have found their ideal house that is now under offer, the vendors of this house are looking to complete ASAP. My brother does not yet have their home on the market but is intending to put it on next week.

My parents are in a position to buy the home in cash and sell it back to my brother for a combination of the equity in his existing house and a mortgage once the sale of his house goes through.

Is there a way of doing this that will not attract 2 sets of stamp duty & solicitors fees? Would the bank offering my brother a mortgage have an issue with purchasing the house from parents?

Is the above proposal destined for disaster? It looks to me that it could be quite messy but doable.

Is there another way to complete the purchase of the new home in a short time frame that they are missing?

Figures involved.

Brothers Home value- €500k with €100k o/s on mortgage
New home value- €800k
Brother and spouse combined salary- Circa €180k p/a

Thanks

David
 
So your brother requires a mortgage of €400k to buy the house

So your parents lend him €400k and he gets a mortgage from the bank for €400k.

He sells his existing house and repays your parents.

Brendan
 
Why don't the parents just lend him the money needed (in addition to mortgage) to buy the new house? Get it back when the existing one is sold. If they are concerned about risk they can draw up an agreement. (Obviously there are numerous risk involved anyway, no matter what they do).

edit: BB got there first.
 
He has spoken with a few banks about this and they will not give him a mortgage to buy the new house in conjunction with a loan from the parents. The underwriters won't allow it apparently. They said that he needs to sell his own home first which it doesn't look like he will have time to do.
 
@David1234
I'd suggest he talk to a broker that can present it properly.

The loan from parents is in relation to the equity in his existing home, not the new house. It might need to be documented, for the purposes of the bank, as a gift rather than a loan.

Also, make sure he knows the circumstances of the seller. I tried to buy a house where sellers wanted to close immediately, but I eventually had to pull out after several months of delays on their side without contracts being issued.
 
Brendan is right (on this one! :)).

Many of the other posters seem to have misunderstood the position.

David1234 said:
My parents are in a position to buy the home in cash
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So they are in a position to lend the full cash price.

That is what they should do.
 
It makes complete sense that parents lend €400k until the house is sold and they are paid back. But underwriters will look at worst case scenario. Brother has €100k mortgage on existing home, loan of €400k from parents and mortgage of €400k on new home. He doesn't sell the old home and parents are looking for their €400k back. What was supposed to be a debt of €400k is now €900k.
 
cremeegg said:
Brendan is right (on this one! :)).

Many of the other posters seem to have misunderstood the position.



So they are in a position to lend the full cash price.

That is what they should do.
Click to expand...

How would this approach work if parents buy the property in cash? Would parents have to put their name or my brothers name on the deeds? I would imagine it would be quite difficult getting a €400k mortgage on a home that your name was already on the deeds of.

It looks like getting a broker may be the best approach here.
 
SBarrett said:
It makes complete sense that parents lend €400k until the house is sold and they are paid back. But underwriters will look at worst case scenario. Brother has €100k mortgage on existing home, loan of €400k from parents and mortgage of €400k on new home. He doesn't sell the old home and parents are looking for their €400k back. What was supposed to be a debt of €400k is now €900k.
Click to expand...

I agree that the underwriters are correct in this approach. If they are to go down this route I would imaging that the loan would need to be documented at a non refundable gift as per RedOnions suggestion
 
David1234 said:
I agree that the underwriters are correct in this approach. If they are to go down this route I would imaging that the loan would need to be documented at a non refundable gift as per RedOnions suggestion
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Are you looking at the parents actually gifting the money to the brother, or just creating a bogus document to obtain credit by fraud.

Messy.
 
They definitely wouldn't be looking to do anything underhanded so I think a broker is the best route here.

I think the situation is slightly mad as other houses will always come along and they are making things overly complicated for themselves.
 
What if your parents take legal ownership of the original property, with your brother remaining as the beneficial owner? Your brother receives €500k from your parents; it appears as if he’s sold the original property. But because there’s no change of beneficial ownership, no stamp duty arises. Your brother then has €500k from the “sale” to complete the purchase of the second property. The first property is then sold and your parents are repaid.
 
Gordon Gekko said:
What if your parents take legal ownership of the original property, with your brother remaining as the beneficial owner? Your brother receives €500k from your parents; it appears as if he’s sold the original property. But because there’s no change of beneficial ownership, no stamp duty arises. Your brother then has €500k from the “sale” to complete the purchase of the second property. The first property is then sold and your parents are repaid.
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I'm pretty sure there would be some CAT implications. The CAT rules include provision for acquiring a temporary benefit like this -- maybe not enormous but definitely there.
 
dub_nerd said:
I'm pretty sure there would be some CAT implications. The CAT rules include provision for acquiring a temporary benefit like this -- maybe not enormous but definitely there.
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CAT would not be relevant, other than in relation to the free use of property aspect of the €500k. However, the value of that would be tiny, at most €5,000 a year, and therefore well covered by the Small Gift Exemptions of €6,000.
 
Gordon Gekko said:
CAT would not be relevant, other than in relation to the free use of property aspect of the €500k. However, the value of that would be tiny, at most €5,000 a year, and therefore well covered by the Small Gift Exemptions of €6,000.
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If I'm reading it right, the beneficial interest would incur a hit of 6.54% for the first year (less if held for a shorter time). That would be over €32k on €500k. It's well within the Group A inheritance threshold, but would count against future inheritance.

Relevant links -- see the Revenue info (esp. example 3) [broken link removed], and Table B of Schedule 1, Capital Acquisitions Tax Consolidation Act, 2003, here.
 
dub_nerd said:
If I'm reading it right, the beneficial interest would incur a hit of 6.54% for the first year (less if held for a shorter time). That would be over €32k on €500k. It's well within the Group A inheritance threshold, but would count against future inheritance.

Relevant links -- see the Revenue info (esp. example 3) [broken link removed], and Table B of Schedule 1, Capital Acquisitions Tax Consolidation Act, 2003, here.
Click to expand...

What?!

No, you’re way off the mark there.
 
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