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  • FIRST POST
    • LitteButterfly500
    • By LitteButterfly500 12th Jun 17, 7:06 AM
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    LitteButterfly500
    Mortgage Vs Loan From Parents
    • #1
    • 12th Jun 17, 7:06 AM
    Mortgage Vs Loan From Parents 12th Jun 17 at 7:06 AM
    Hi All
    First time poster but long timer lurker.
    Bit of background: I am a 25 year old First Time Buyer. I have been saving for the last year and a half whilst living with my parents and have around £12K saved as a deposit. Around 2 months ago I felt like I'd built up enough of a deposit to start looking at properties so I spoke with an independent mortgage broker to work out what sort of prices I could afford. He felt that on my salary I would be able to afford a mortgage of between £120-£130K meaning I could afford a property between £130-140K. This amount would just be a bit short of being able to afford a 3 bed property where I live which usually go for between £150-170K so my parents offered to gift me the remaining difference in the deposit.

    Last night however my dad threw another idea into the mix. My parents are in the position of being able to afford to buy a whole property at £170K themselves. He thinks that they should do that and then we become joint owners of the property, with my parents each taking a 1/3rd share and myself a 1/3rd share. I think this would be done as tenants in common? I would then repay them rather than having a mortgage, and slowly increase my share in the property.

    I am just wondering about any precautions I would need to look out for. I assume that we would be charged the higher rate of stamp duty as my parents already own our family home.

    What sort of legal precautions do I/we need to undertake? my parents are in their late 50s/ early 60s so whilst unlikely they would die how would they need to re-word their wills so that I can inherit the property if they were to pass away unexpectedly. Is there some sort of legal contract I would need to get drawn up which shows how my share in the property increase each month that I pay them back?
    Also how should I draw up any trust details so as to protect all 3 parties should I eventually want to move a partner into the property? I would obviously like to protect my parents investment as they will be making the largest contribution to the property.
    Would they have to pay capital gains on the money they receive from me? If I were to get a lodger through the rent-a-room scheme would there be any implications on its tax-free nature?

    I suppose the most important questions is would it be better to go down the traditional mortgage route for simplicity or would my parents offer of a whole house be better?
    Sorry for the huge amount of questions!!!!
Page 1
    • anselld
    • By anselld 12th Jun 17, 7:17 AM
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    anselld
    • #2
    • 12th Jun 17, 7:17 AM
    • #2
    • 12th Jun 17, 7:17 AM
    It would be better for parents to lend you the money and you retain full ownership. This avoids the higher SDLT and CGT implications. Parents cash can still be protected by appropriate agreement and charge on property.
    • BrassicWoman
    • By BrassicWoman 12th Jun 17, 7:28 AM
    • 1,238 Posts
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    BrassicWoman
    • #3
    • 12th Jun 17, 7:28 AM
    • #3
    • 12th Jun 17, 7:28 AM
    Do you want your parents to have a view on every tiny thing you do to the house?
    Downsized and mortgage free
    August 17 grocery challenge £89.07/£100
    • LitteButterfly500
    • By LitteButterfly500 12th Jun 17, 7:49 AM
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    LitteButterfly500
    • #4
    • 12th Jun 17, 7:49 AM
    • #4
    • 12th Jun 17, 7:49 AM
    My parents would be very relaxed about any work I do on the property. We have a very good relationship so I think they'd just be happy to get me onto the property ladder. I am also looking at some of the larger new builds available in our area so at this time not requiring a huge amount of work.

    I suppose the thing with them just giving me the cash in terms of paying them back how would this be arranged? I pay them back the money and then their charge against the property reduces each month?? They want me to eventually own the whole property but I'm just not sure how you would organise it all. obviously we would be seeking legal advice for the matter just want to start getting my head around it.
    • getmore4less
    • By getmore4less 12th Jun 17, 8:23 AM
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    getmore4less
    • #5
    • 12th Jun 17, 8:23 AM
    • #5
    • 12th Jun 17, 8:23 AM
    The simplest route is they become your lender just like any other mortgage lender.

    You own the property and owe them the money they have a charge over the property.


    They can decide if they want to charge you interest and get taxed on that.

    Them being part owners has significant costs SDLT and future CGT exposure are your starters..

    The debt can have terms that it gets cancelled on their death, if you die they get to call in the debt, or whatever other terms you deem appropriate.
    • AnotherJoe
    • By AnotherJoe 12th Jun 17, 8:24 AM
    • 7,055 Posts
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    AnotherJoe
    • #6
    • 12th Jun 17, 8:24 AM
    • #6
    • 12th Jun 17, 8:24 AM
    What anselld said, it's close to what I did with one of my kids. I have a second charge on the house (since she also has a mortage) but don't own any proportion of it, much simpler. In your case with no mortage company involved it would be even simpler.
    The legal agreement can outline how youll pay back the loan.
    If your parents are making any money on the loan, they will need to pay tax on it.
    Do you have any siblings or anyone else the parents would leave money to in a will ? If so that should be recognised in their wills.
    Last edited by AnotherJoe; 12-06-2017 at 8:27 AM.
    • saajan_12
    • By saajan_12 12th Jun 17, 8:31 AM
    • 665 Posts
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    saajan_12
    • #7
    • 12th Jun 17, 8:31 AM
    • #7
    • 12th Jun 17, 8:31 AM
    IF your parents loan you the money,
    *No CGT as you are the only owner and always live in the property
    *No extra SDLT as it is your first property
    *No having to adjust ownership percentages as the loan is paid off
    *No repair / council tax obligations on parents as part owners if your situation changes
    *No wills issue, property is yours and you owe them / their estate a debt.

    It can work in the same way as a mortgage - they place a charge against the title for the mortgage balance. You don't have to change anything in the paperwork as you pay off chunks, but when the balance is paid off you can have the charge removed.
    • LitteButterfly500
    • By LitteButterfly500 12th Jun 17, 8:41 AM
    • 4 Posts
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    LitteButterfly500
    • #8
    • 12th Jun 17, 8:41 AM
    • #8
    • 12th Jun 17, 8:41 AM
    Thanks for the replies. It's definitely helping to clear this up for me. I think I will show this to my parents as my dad was sure a tenants in common would be the best way to go. But I can see that them effectively acting as my mortgage lender and having a charge on the property would actually be most effective for both parties.
    I do have a younger brother and their intention is to do the same for my brother; investing further money into a property for him, given that I will have already paid some of the capital back to them by that time arises, which won't be for a few years as he is still a student and unsure of his next move after uni.
    I think they are viewing this as an opportunity to give us money now rather than as inheritance. I suppose the only other worry for us all would be any complications should either/or both of them need to move into a care home before the loan was repaid or they were both to pass away unexpectedly and they still had a charge on the house, would I be forced to sell the home to pay either for their care or IHT?? This is in mind that they already own our family home mortgage free?
    • 00ec25
    • By 00ec25 12th Jun 17, 10:21 AM
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    00ec25
    • #9
    • 12th Jun 17, 10:21 AM
    • #9
    • 12th Jun 17, 10:21 AM
    Thanks for the replies. It's definitely helping to clear this up for me. I think I will show this to my parents as my dad was sure a tenants in common would be the best way to go. But I can see that them effectively acting as my mortgage lender and having a charge on the property would actually be most effective for both parties.
    Originally posted by LitteButterfly500
    it will be for the reasons summarised by saajan

    I do have a younger brother and their intention is to do the same for my brother; investing further money into a property for him, given that I will have already paid some of the capital back to them by that time arises, which won't be for a few years as he is still a student and unsure of his next move after uni.
    Originally posted by LitteButterfly500
    ok, they know their own financial position and therefore when they have enough money to do both you and your brother

    I think they are viewing this as an opportunity to give us money now rather than as inheritance.
    Originally posted by LitteButterfly500
    hmm, that is less clear.
    - if they part own as TIC then yes their respective shares can be left to you in their respective wills, but that share will form part of their estate on death. Also in respect of the o/s balance of the loan even if repayment is "cancelled" on death, the o/s amount would then be classed as a gift and would be included in their respective estates under the gift rules (7 year sliding scale, so will be a tad messsy as it will need to be micro calculated).

    - if they act instead merely as private lenders, the same applies in respect of the "gift" upon death

    neither option therefore is a means of passing on their wealth totally without IHT implications. They would need proper (paid) financial advice if that is a serious objective of theirs.
    I suppose the only other worry for us all would be any complications should either/or both of them need to move into a care home before the loan was repaid or they were both to pass away unexpectedly and they still had a charge on the house, would I be forced to sell the home to pay either for their care or IHT?? This is in mind that they already own our family home mortgage free?
    Originally posted by LitteButterfly500
    have you ever seen inside a council funded care home and compared that to one where you have to pay yourself? I wonder if the children really do want their parents to live like that so the kids get "their" inheritance?
    • bob bank spanker
    • By bob bank spanker 12th Jun 17, 10:26 AM
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    bob bank spanker
    I suppose the only other worry for us all would be any complications should either/or both of them need to move into a care home before the loan was repaid or they were both to pass away unexpectedly and they still had a charge on the house, would I be forced to sell the home to pay either for their care or IHT?? This is in mind that they already own our family home mortgage free?
    Originally posted by LitteButterfly500
    My grandmother ended up in a council funded care home, in similar circumstances. My father wanted her to receive the best care they could afford, but his 2 sisters wanted their inheritance. Having seen the conditions inside (it's the smell that hits you first btw) it is not something I would recommend.
    • Mojisola
    • By Mojisola 12th Jun 17, 10:32 AM
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    Mojisola
    But I can see that them effectively acting as my mortgage lender and having a charge on the property would actually be most effective for both parties.

    I think they are viewing this as an opportunity to give us money now rather than as inheritance.
    Originally posted by LitteButterfly500
    If this is a loan which you are repaying, it's not a gift/early inheritance.
    • LitteButterfly500
    • By LitteButterfly500 12th Jun 17, 11:52 AM
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    LitteButterfly500
    I have seen inside a council owned care home as my grandmother unfortunately ended up in one initially whilst we sorted private care for her. My parents are in a position that their pensions would cover private care plus the value of their own home should additional equity be required. We will of course take financial advise.
    I meant inheritance more in the sense that they are able to write off the debt should they pass away (and therefore it becomes a gift under IHT as part of their estate) or if they so wished at any other time.
    • armchaireconomist
    • By armchaireconomist 12th Jun 17, 12:29 PM
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    armchaireconomist
    Get a mortgage, leave them out of it. Silver spoon disaster waiting to happen.
    • Clairabella
    • By Clairabella 12th Jun 17, 12:30 PM
    • 154 Posts
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    Clairabella
    Gosh its all sounding very complicated. We simply loaned our daughter an extra £10,000 and she agreed to pay back £200 per month. She set up a standing order after the first few months of us having to remind her she was owing. We didn't charge interest it was making little enough invested as it was.
    • teddysmum
    • By teddysmum 12th Jun 17, 1:58 PM
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    teddysmum
    Regarding the above comments on council care homes:


    My father was taken into care suddenly and we were informed afterwards. I went to visit, but mistook my sister's instructions and first went to the council run place a few doors from where he was.


    The council care staff, laughingly gave me directions, calling his home the 'posh one'.


    However, the council run place was in an older building but it was the private home (the one he was in) that smelled of urine. (However,one lady resident did frequently wet herself then put her pad under another client's chair, so didn't help matters).


    He was moved and there was no smell in the next home.


    There is a lovely home near us (quite luxurious) yet it takes both council, self funding clients and its prices were the same as the other two places, so council bad/self funding good doesn't always follow.
    • teddysmum
    • By teddysmum 12th Jun 17, 2:00 PM
    • 8,040 Posts
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    teddysmum
    Regarding the above comments on council care homes:


    My father was taken into care suddenly and we were informed afterwards. I went to visit, but mistook my sister's instructions and first went to the council run place a few doors from where he was.


    The council care staff, laughingly gave me directions, calling his home the 'posh one'.


    However, the council run place was in an older building but it was the private home (the one he was in) that smelled of urine. (However,one lady resident did frequently wet herself then put her pad under another client's chair, so didn't help matters).


    He was moved and there was no smell in the next home.


    There is a lovely home near us (quite luxurious) yet it takes both council, self funding clients and its prices were (are still?) the same as the other two places, so council-bad/self funding-good care doesn't always follow.
    • Mojisola
    • By Mojisola 12th Jun 17, 2:09 PM
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    Mojisola
    There is a lovely home near us (quite luxurious) yet it takes both council, self funding clients and its prices were (are still?) the same as the other two places, so council-bad/self funding-good care doesn't always follow.
    Originally posted by teddysmum
    It will increasingly become the case.

    Our council used to block book rooms in privately run homes at a cheaper price than self-funders had to pay. All residents were treated exactly the same.

    The council now pays out at one level and there is only one home that accepts residents at that price. The lower income is obvious when the place is visited.

    On the other hand, the more expensive places aren't always the best ones - several of our local ones cream off so much for the home owners salaries that the homes themselves are run on a shoe-string. They look like 5-star hotels but living in them isn't a great experience.

    Dad ended up in a mid-price, not-for-profit home who focused their spending on staff. It looked a bit tatty in places but the staffing levels were very good.
    • Piggywinkle
    • By Piggywinkle 15th Jun 17, 2:01 PM
    • 71 Posts
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    Piggywinkle
    Maybe worth looking into Barclay's Family Springboard Mortgage? There would be no 'debt' to your parents, they simply agree to put the amount of 10% of the mortgage into an account for three years to act as a safety net. It's then returned to them with 1.75% worth of interest. The house would be entirely yours.


    This is the route we're going down - we personally know of 2 other families who have done it this way and recommend it. It may not be right for you, but it's worth a look I think - just look on their website.
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