I currently have a house which is valued at around £460,000 and remaining mortgage at £270,200 with NatWest, which is due to come to an end 1 May 2024.
This was purchased with myself and my brother in-law. I had put down all the deposit for the house and make all the payments but he was put on a joint application to try and boost what we can borrow.
Now I would need him to come out of the mortgage and he also expects no payment from the house as this has been confirmed.
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I need to know how I can take him out as I am now on a better salary with my base being £80,000 and commission working out around £15-20,000 yearly.
I have my car finance which ends in November 2023 with credit cards outstanding around £4,000 in total.
Would there be stamp duty payable if his share was transferred to me? There would be no exchange in monies nor anything paid over to him. It would just be the case of removing him from the mortgage and deeds.
He has expressed he is happy to do this also. What is the best way to approach this as it is giving me sleepless nights. A.R, Via email.
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David Hollingworth replies: High house prices have placed considerable challenges on anyone looking to buy a property whether as a first-time buyer or home mover.
Affordability remains one of the biggest hurdles despite some signs of reductions in house prices due to current low levels of market activity.
It’s long been the case that parents have been a critical part of the equation for any aspiring first time buyer. It’s not limited to the Bank of Mum and Dad and help from other family members can be required.
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Family Boost
Buying jointly with your brother-in-law helped to boost the level of income, so that the lender could be confident that the mortgage would be affordable, presumably at a point when your income was lower than today.
That effectively saw him enable a larger mortgage to be taken out than you would have otherwise been able to secure alone.
That facilitated the purchase but you’ve not only met the whole of the monthly payment but also stumped up the deposit as well.
The arrangement has therefore worked well for you and your brother-in-law’s help has likely succeeded in accelerating you being able to buy your own home.
However, that clearly can have implications for both of you.
Firstly, this has been structured as joint owner as well as joint borrower.
Some lenders now offer the option to put the mortgage in joint names to boost the borrowing but without requiring the property to be in joint names.
Here, it sounds like the property is owned equally between you.
As your income position has now improved it’s understandable that you’d like to take on the full ownership, which was likely the ultimate goal all along.
Your brother-in-law may also prefer to be removed from the ownership in the longer run, as he is jointly and severally liable for the mortgage payments.
That could also have a knock on effect on what he can borrow in future, as any other lender would take account of that borrowing as a commitment.
It also means that if he bought another property or moved home, it would be an additional property and therefore attract the 3 per cent surcharge on Stamp Duty Land Tax.
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Affordability remains one of the biggest hurdles despite some signs of reductions in house prices due higher interest rates
Mortgage approval
Although there’s often a need to buy out another owner, the only requirement here is for you to take on the mortgage in your own name and to complete what’s typically referred to as a transfer of equity.
You will need to be able to demonstrate that you can meet the lender’s affordability criteria in your own right and the lender won’t simply release your brother-in-law from the mortgage until they are satisfied that the mortgage is affordable.
Lenders will look at income and outgoings when assessing affordability rather than apply a simple multiple but even taking only your basic salary into account would equate to less than 3.5x income.
Assuming there’s track record of regular commission payments then that should only improve affordability and the car finance payments come to an end soon as well.
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Transfer and stamp duty
There will be some legal work involved as well and legal advice will be important to help you to better understand the way forward and to help allay the concerns that you have.
You are right to question whether there could be stamp duty costs as a result of a transfer of equity.
This would be calculated based on the amount of ‘chargeable consideration’ which would include not only any cash payment but also the amount of mortgage that is taken on.
In your case there is no money to be paid but you will take on the other half of the mortgage.
That will equate to just over £135,000, which isn’t close to tipping over above the current nil rate band of £250,000 for Stamp Duty.
There shouldn’t therefore be any stamp duty liability to worry about assuming that you don’t own any other properties, which would trigger the additional property surcharge.
Advice on the mortgage and legal side should help you move forward and hopefully to do so with confidence.
