Transferring equity in a 50% owned council flat to my mother

[Spencil]

My mother, brother and I purchased 50% of a council flat together under right to buy. This case was unusual in so far as that we were not obliged to pay rent on the remaining 50% of this flat or purchase the other 50%.

We paid off the mortgage on this about 4 years ago and now my wife and I are moving out to buy a new house.

My mother and brother have paid me the value of my share of the property upfront to help with my mortgage application and now we want to transfer my equity in the flat to them to get our completion certificate and to ensure it is not seen as my having a second home (I am signing over all interest in the flat).

However we are concerned as when my mother went to a mortgage lender to get a small mortgage to make up the price she is paying to buy my share (most of it came from her own savings) the council blocked her getting a mortgage for this purpose.

In the end she got a loan instead and I just accepted slightly less for the share but now we are worried that the council will again intervene when I try to transfer my share of the property to her officially as my solicitor has said they will need to contact the council for approval.

Can the council block transfer of equity to a family member who is already a part owner of the property?

And if it does go through will we have to repay part of the discount she got as it hasn't been five years yet?

And finally will the council be able to demand rent on the remaining 50% share they own now because of the change in circumstance?

Any advice would be very much appreciated!

[Diana M]

Re: Transferring equity in a 50% owned council flat to my mother

What reason did the Council give for blocking your mother's mortgage?

Was the loan she subsequently got to buy you out of the property an unsecured loan or a secured loan (which would probably have needed Council approval)?

You say you have a solicitor instructed who says that they will have to contact the council for approval of the transfer of ownership. Ask them what 'approval' is needed and why. It may just be a formality (telling them rather than asking them). I expect it's because the Council still own 50% of the property so you/your mother/brother are effectively co-owners with the Local Authority.

Or seeking approval may flag up problems with the discount received when purchasing the property if it was less than 5 years ago (that limit can vary - in some circumstances in can be only 3 years depending on when the original assured tenancy started).

If there is a problem with the potential to payback the discount, it may make sense to sit it out until the time restriction has passed.

You say you want to avoid having a second home. Are you worried about CGT if it's sold, or is there another reason?

My personal view is you mother should take independent legal advice on this situation. Family arrangements can end in tears if not set up strictly by the book. They're a lot harder to undo afterwards otherwise.

Di x

[Openlaw15]

Re: Transferring equity in a 50% owned council flat to my mother

My mother, brother and I purchased 50% of a council flat together under right to buy. This case was unusual in so far as that we were not obliged to pay rent on the remaining 50% of this flat or purchase the other 50%.

We paid off the mortgage on this about 4 years ago and now my wife and I are moving out to buy a new house.

My mother and brother have paid me the value of my share of the property upfront to help with my mortgage application and now we want to transfer my equity in the flat to them to get our completion certificate and to ensure it is not seen as my having a second home (I am signing over all interest in the flat).

However we are concerned as when my mother went to a mortgage lender to get a small mortgage to make up the price she is paying to buy my share (most of it came from her own savings) the council blocked her getting a mortgage for this purpose.

In the end she got a loan instead and I just accepted slightly less for the share but now we are worried that the council will again intervene when I try to transfer my share of the property to her officially as my solicitor has said they will need to contact the council for approval.

Can the council block transfer of equity to a family member who is already a part owner of the property?

And if it does go through will we have to repay part of the discount she got as it hasn't been five years yet?

And finally will the council be able to demand rent on the remaining 50% share they own now because of the change in circumstance?

Any advice would be very much appreciated!

It seems very unusual actually. Find the contract and post its terms here. It's like buying half a car and never being able to buy the rest. Housing Associations for shared properties normally let you, from say having a 25% interest in the property on purchase, purchase the rest, and the 75% would have to be covered by rent, ie to the Housing Association Landlord. Why did you do this in the first place - did you check the terms - what did your solicitor say originally about it? It may be negligence by the solicitor.

[Spencil]

Re: Transferring equity in a 50% owned council flat to my mother

Hi just di thanks for the reply.

So your questions in order:

1. The reason the council gave for blocking the mortgage was that they would only approve a mortgage to purchase additional shares in the property from them not to move shares around between existing owners.

My take on their objection is that they would prefer us to have to sell the property back to them as they would then be able to charge rent to the new owners or sell 100%.

2. The loan that my mother got was unsecured.

3. If I am unable to pass on my share before the completion of my new mortgage (which is well underway) I will be charged stamp duty at the second home rate and possibly other penalties like CGT on a home that I will not be living in, renting or getting any value from. Also having given me the money my mother obviously now wants the equity in return. Unfortunately we are not in a position to sit it out till the 5 years have passed as we are in the middle of a purchase and for various personal reasons my wife and I need to secure new accommodation.

[Spencil]

Re: Transferring equity in a 50% owned council flat to my mother

Open law

Sorry I probably didn't make myself clear.

There is an opportunity to purchase the other half but no obligation to purchase the other half or pay rent on it.

There was no negligence it was simply a deal offered for a limited time to attract key workers into the area and encourage them to buy.

We did it, as you might have guessed, to buy a stake in a property we would otherwise not have been able to afford at the time on what are actually some very good terms in terms of affordability.

[Openlaw15]

Re: Transferring equity in a 50% owned council flat to my mother

My mother, brother and I purchased 50% of a council flat together under right to buy. This case was unusual in so far as that we were not obliged to pay rent on the remaining 50% of this flat or purchase the other 50%.

We paid off the mortgage on this about 4 years ago and now my wife and I are moving out to buy a new house.

My mother and brother have paid me the value of my share of the property upfront to help with my mortgage application and now we want to transfer my equity in the flat to them to get our completion certificate and to ensure it is not seen as my having a second home (I am signing over all interest in the flat).

However we are concerned as when my mother went to a mortgage lender to get a small mortgage to make up the price she is paying to buy my share (most of it came from her own savings) the council blocked her getting a mortgage for this purpose.

In the end she got a loan instead and I just accepted slightly less for the share but now we are worried that the council will again intervene when I try to transfer my share of the property to her officially as my solicitor has said they will need to contact the council for approval.

Can the council block transfer of equity to a family member who is already a part owner of the property?

And if it does go through will we have to repay part of the discount she got as it hasn't been five years yet?

And finally will the council be able to demand rent on the remaining 50% share they own now because of the change in circumstance?

Any advice would be very much appreciated!

Who held the legal deeds when the mortgage was paid off, ie you or the Council? If the Council had the deeds to the property you never technically never really had a legal interest to the property, as is the case with Housing Associations. if so the council will have drawn up agreements in writing (covenants) which will have told you what you can and cannot do.

[Diana M]

Re: Transferring equity in a 50% owned council flat to my mother

The reason the council gave for blocking the mortgage was that they would only approve a mortgage to purchase additional shares in the property from them not to move shares around between existing owners.

That makes sense although it's a bit of a silly rule since your mother has sourced the money from elsewhere (i.e. not a mortgage).

Perhaps the concern is that a mortgage would increase your mother's outgoings so create a risk of repossession if she could not keep up with the repayments. If that were to happen then the lender could take possession of your 50%. An unsecured loan removes that risk to the Council.

It sounds as if you bought the property under the Government's Social HomeBuy Scheme which is a staircasing product allowing you to buy more shares as and when you can afford it. It's unusual for there to be no rent payable on the part not purchased though - why was that?

You will have bought the leasehold so you should own your (50% share of) the property until that lease expires regardless of how the purchase was funded (cash or mortgage). What you can and can't do with your share will be written in that lease which your solicitor should have.

Transfers between family members do not normally mean you have to pay back the discount. That would only be if you sold or transferred your share to a third party.

Di x

[Spencil]

Re: Transferring equity in a 50% owned council flat to my mother

Just Di

I'm not sure of the reasoning behind why there was no rent to pay on the remaining 50% as I was rather Young when we first entered into the agreement and wasn't massively involved in the logistics. All I know is it was a short run scheme to attract key workers to the area which they soon removed when they realised how much the might lose from it. Fortunate by the time they stopped it we had already taken advantage.

In any case I'm hoping there won't be an issue with the equity transfer as my mother has already paid me the value. We are just a little concerned about the councils motivation, which I believe is to encourage us to sell the property so they can benefit from the full value of the resale.

[Diana M]

Re: Transferring equity in a 50% owned council flat to my mother

We are just a little concerned about the councils motivation, which I believe is to encourage us to sell the property so they can benefit from the full value of the resale.

Don't let your 'inner cynic' worry you about the Council's motivation. They're not above the law or what's written in the lease.

I don't know which part of the country you live in, but in the current political/economic climate some Councils are being encouraged to sell off their housing stock not buy more. You're probably crediting your local housing team with more commercial sense than they've actually got!

It sounds like you bagged a good bargain, so your mum should hang on to it tight with both hands.

Di x