WANT TO SWAP HOMES
Q. My son and I wish to swap houses for various reasons which suits us both. Both houses are worth about €240,000. There is no mortgage on my house but there is on my son’s house. My son has two other properties which are rented out and also have mortgages. What are the legal and financial implications of this situation.
A. House swopping is a phenomenon that has become very popular in recent years, particularly between parents and children. At a time when the house market was very sluggish it offered an opportunity to people wanting to move to do a deal with similarly-minded people.
Obviously there are a number of factors to be taken into account, not least the legal requirements, and you should consult with your financial adviser and/or your solicitors to have the full ramifications explained to you. In general terms, even in a case where there is a direct house swop with no cash adjustment, both transactions will be subject to stamp duty at 1%. At one time the stamp duty only applied if there was a difference between the values of the properties but the Revenue quickly realised they were losing out and closed this loophole.
In your particular circumstances, the fact that your son has a mortgage on his home will be a complicating factor. He won’t be able to switch his existing home mortgage over to your house but will have to apply for a new mortgage and go through the whole process as if he were starting from scratch. The new Central bank guidelines will now apply – 80% loan to value ( he’s not a first time buyer ) and he will only be allowed up to 3.5 times income. The mortgages he has on the rental properties won’t necessarily pose a problem as long as he has no arrears on any of the 3 mortgages. However it may still have a bearing on his borrowing eligibility even if the rental income generated more than covers the mortgage repayments and costs.
Applying for a new mortgage will mean getting valuations on all properties and for your son will entail all the legal and other costs that accrue from securing a mortgage.
Apart from taking legal advice, your son should first discuss with his financial adviser or lender the feasibility of securing the new mortgage before you incur these costs.