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pay cash for a house or take out a mortgage?
hilla_2
Posts: 61 Forumite
Hi I would be grateful for your expert opinions on the following situation. My niece has just got married and her and her husband do not believe in borrowing money. They are very committed Christians and when the Bible says 'owe no man anything' they take it very literally and will not take out a mortgage. My sister and her husband (my niece’s mum and dad) are quite well off and have decided to look into the possibility of taking out a mortgage and letting them pay rent of £500 a month to them (they are paying that now for a run down place and of course they have no security of tenure). They have seen a really nice place in the Midlands for £90000. They had already decided that they were going to give each of their three children £30000 towards a mortgage anyway. The question is should they stump up the whole £90000 in cash without having a mortgage? They can just about afford to pay cash without selling shares which are very low at the moment.
Can people see any draw backs etc. I don't think my sister would have to pay tax on the money if they bought the house outright whereas I think they would if they took out a mortgage.
The other thing is they have 2 younger sons age 21 and 18 and they are hoping that they are going to be able to do the same for them. The problem will be if house prices go up a lot and they can't afford to buy a house outright. In 5 yrs time they should have paid 30000 back so that should help
This is a nice problem to have I know- sadly I'm not in the same position although I must say my sister and her husband are great people who have been extremely generous to my family in the past and helped us out in all sorts of situations. They have also worked very hard for their money so good luck on them.
Can people see any draw backs etc. I don't think my sister would have to pay tax on the money if they bought the house outright whereas I think they would if they took out a mortgage.
The other thing is they have 2 younger sons age 21 and 18 and they are hoping that they are going to be able to do the same for them. The problem will be if house prices go up a lot and they can't afford to buy a house outright. In 5 yrs time they should have paid 30000 back so that should help
This is a nice problem to have I know- sadly I'm not in the same position although I must say my sister and her husband are great people who have been extremely generous to my family in the past and helped us out in all sorts of situations. They have also worked very hard for their money so good luck on them.
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Comments
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Just to clarify, will this property be in your niece's name or your sister and BIL's name? If your sister owns it and your niece pays rent then the rental income will be taxable and the property will also be subject to capital gains tax as it is not your sister's main residence.
Surely your niece will just be borrowing money from your sister rather than from the bank though?! Why is one OK and not the other?0 -
They could look at one of the Muslim style mortgage products that are more widely available now. They buy a portion of the house, the bank buy the rest and they pay the bank for the remaining portion over the term plus a rent to the bank for the portion they do not yet own (I am no expert but may well be worth looking into)."I hear and I forget. I see and I remember. I do and I understand." — Confucius0
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the house will be in my sister and brother in laws name but they will just transfer it to them when they have paid back the £60000.not_tonight_josephine wrote: »Just to clarify, will this property be in your niece's name or your sister and BIL's name? If your sister owns it and your niece pays rent then the rental income will be taxable and the property will also be subject to capital gains tax as it is not your sister's main residence.
Surely your niece will just be borrowing money from your sister rather than from the bank though?! Why is one OK and not the other?
If my sister buys the house and my niece pays £500 a month would the taxman want his slice? Isn't it just like me giving my son £60000 and him paying it back to me at £500 a month. If they don't take out a mortgage they aren't getting any tax relief on the money so it could just be a private arrangement. Would there be any capital gains as they will just give them a house in the end.0 -
I don't think they would be bothered to do that? Do you have to be a Muslim to take out one of those loans?They could look at one of the Muslim style mortgage products that are more widely available now. They buy a portion of the house, the bank buy the rest and they pay the bank for the remaining portion over the term plus a rent to the bank for the portion they do not yet own (I am no expert but may well be worth looking into).0 -
http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/InheritanceTaxEstatesAndTrusts/DG_179363
Capital Gains Tax on a home you give away
As long as the home you give away is your main home, Capital Gains Tax won't be payable.
However, if you give away a second home, Capital Gains Tax may be payable if the property has increased in value between when you first owned it and when you gave it away0 -
a bank isnt a man tho, so according to the bible wouldnt that be ok?
my wifes parents paid for her house (yipee) so we dont have a mortgage. its in my wifes name however we both agree its actually her parents investment, we just take advantage of the situation.
i never wanted a mortgage either (purely from wanting an easy life point of view) so it was either rent, live with parents, or this unforseen option.
always think of number 1.Target Savings by end 2009: 20,000
current savings: 20,500 (target hit yippee!)
Debts: 8000 (student loan so doesnt count)
new target savings by Feb 2010: 30,0000 -
What a dumb idea , it dosent matter how you twist it , you still owe someone at the end of the day.0
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so do you have to pay any rent? If not how is it an investment for your in laws?a bank isnt a man tho, so according to the bible wouldnt that be ok?
my wifes parents paid for her house (yipee) so we dont have a mortgage. its in my wifes name however we both agree its actually her parents investment, we just take advantage of the situation.
i never wanted a mortgage either (purely from wanting an easy life point of view) so it was either rent, live with parents, or this unforseen option.
always think of number 1.0 -
I don't think they would be bothered to do that? Do you have to be a Muslim to take out one of those loans?
No you do not have to be a Muslim to take out one of these products and they have been specifically designed to comply with the same religious criteria i.e. oweing no man and never paying interest. In this case they would put down £30K and own one third of the property with the bank owning 2 thirds. As the example you gave, they would pay back the capital over a period of time to the bank, increasing their stake in the property. They pay rent to the bank on the portion of the property they do not yet own. This would also avoid any issues with taxation on income for their parents and any issues around inheritance tax should the worst happen. There will likely be people with more knowledge of these products than me knocking around the forum who can give you more advice but I definitely think it is an option worth researching further. Effectively they would have a mortgage structured to meet their religious beliefs."I hear and I forget. I see and I remember. I do and I understand." — Confucius0 -
well they don't think it's dumb- they feel really strongly about it and are quite willing to rent for the rest of their lives. It's a pity more people don't think a lot harder about getting into debt. My niece and her husband are also not complaining about the place they live in. It's my sister and her husband who are finding it difficult when house prices are so low at the moment and they have the means of helping them. My niece and her husband are a lovely couple and she has always been an amazing daughter so they just want to do what they can to help-what's money for after all but to help your family And with house prices being so low at the moment it is a good time to buyChrisCobra wrote: »What a dumb idea , it dosent matter how you twist it , you still owe someone at the end of the day.0
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