My fiancé and I have been toying with the idea of buying a home for a while. He has a flat that he owns and rents out as he is in the armed forces, so is away a lot. I was going to purchase somewhere on my own but his parents have gifted us some money as a wedding present which we would like to add to the budget I have.
As a first-time buyer, I would like to benefit from the stamp duty reduction. Similarly, since his parents are gifting the money, what are his rights towards the property ownership in the event of divorce or my death? Could I add his name to the deeds but keep the mortgage in my name?
Helen Marsh, a partner at law firm Forsters, says this is a complex question. There are two main issues to address: tax and joint ownership.
Dealing with the second issue first, I assume the gift is to you both, and therefore your fiancé will own a share in this new property equivalent to his portion of the gift.
It is best to be clear with each other, and his parents, over the intention for this gift and who it belongs to if you were to separate. Once this is settled, you should enter into a declaration of trust which will set this out clearly and clarify your respective shares in the property. A solicitor can help you with this and it may be a good idea for you each to have independent legal advice to ensure you both understand what you are agreeing to.
On tax, if you purchase property as an individual in England and Wales, it would be yours alone and only your property-owning status would matter for stamp duty purposes. However, if you use the gift from his parents and some 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 purchaser.
With him included in the tax assessment, no first-time buyer’s relief would be available and the 3 per cent surcharge on second homes would apply. Worse still, you may also have to consider the non-resident stamp duty land tax 2 per cent surcharge if your fiancé is based overseas.
You would have to declare his equitable interest when applying for the mortgage. It will be easier to have him on this from the start, rather than adding him later.
If you buy with a mortgage solely in your name (with or without using the gift from his parents) and later transfer a share of the property, the lender is likely to want the recipient to be jointly liable for the mortgage.
Transferring liabilities under the mortgage may trigger a further stamp duty liability. This will depend on factors, including the level of equity you transfer, how much debt your fiancé becomes liable for and whether you are married at the time the gift takes place. If you can persuade the lender that your fiancé takes on no mortgage liability, then there would be an argument that there was no SDLT charge.
If he contributes to the mortgage repayments, however, HM Revenue & Customs may be sceptical about him not having any mortgage liability. You would need carefully to consider HMRC’s approach to anti-avoidance, as had it been done immediately it would have led to a higher tax outcome.
What is the right mortgage deal for us?
My husband and I own our house in Acton, London, and our four-year repayment mortgage offer has just come to an end. We have moved on to the standard variable rate at 5 per cent. Our house is worth about £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 being hit with early repayment penalties. Can you suggest any better deals for us to try to move to, particularly those that would not stop us from moving home? Is there anything else we need to consider?
Barry Webb, director of Mortgage Saving Experts, says that with the amount of equity you have in your property you have a low “loan to value” ratio, which means you could achieve the lowest rates in the market (assuming you qualify for these).
The majority of high street lenders’ mortgages are portable, so if you wish to choose another two, three or five-year fixed rate deal that’s fine.
If your current lender or lender you wish to remortgage to allows you to “port” your mortgage to a new property, you will not be hit with an early repayment charge providing you borrow the same amount on the mortgage or more. The caveat is that you will need to requalify for the whole 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 tracker rate mortgage with no early repayment charges. When you look to move you should review the whole market, rather than having to use your current mortgage lender.
If you are on a tracker rate and decide you wish to stay with your current lender then you can apply for a mortgage on the new property and choose a fixed rate at that time. Or you can apply to a new lender to purchase the new property on a fixed rate and you can do this because you have no early repayment charges.
Personally, I would fix the rate now and “port” over your existing mortgage, because you are securing a rate now which will more than likely be lower than what is available next year.
If you borrow more money on your mortgage when you move this will have to be on a rate which is available at the time you apply for the new mortgage to buy the new home. In essence you will have £150,000 on a fixed rate which you have chosen now. The extra money you borrow to buy your new home (assuming you need to borrow more money) will be on a new rate which you choose when you move next year, keeping the costs down for you.
It is imperative you ask your current lender or the one you wish to remortgage to if their mortgages are portable. If they are not and you wish to sell then you will pay an early repayment charge.
Other things to consider before you move are that you should ensure you keep a good credit rating. For this you need to keep making your payments on any mortgages, loans and credit cards on time, get yourself on the electoral roll, do not borrow any 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 result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
Our next question
I am getting divorced. I gave up work to take care of our children. My husband will not agree to share any of his pension, and instead is proposing I should take a larger share of the equity in the family home in lieu of a claim over half of his defined benefit scheme pension. The cash equivalent value of his pension is £680,000, and he is proposing I should take a discounted sum in lieu of around £250,000 from the proceeds of the family home in addition to my half share. Should I agree to this?
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