Lending deposit for a house.

stilernin

(I hope I have chosen the correct board for this post. Mods, please move it if necessary.)

I am thinking of offering a long term loan to my child (married with good job) to enable them to move to a larger house.

How I see it is that it will be theirs eventually, so as long as they pay the interest I would get on it, I would be happy. I suppose that as their income increases and both are working full time (once the grandchildren are at school) they would want to pay some back. I'm nearly 60 so they wouldn't want to pay interest for the next 40yrs!!

It just seems a good time in the market for them to upsize, house prices may begin to rise again soon, so I would like to help them move sooner rather than later.

So the question is.............. has anyone done this? What advice could you give me?

(I'm not sure I've explained this too well. I don't have a very big pension to look forward to, so I can't just 'give it' now as I need the interest to make a bigger final pot IYSWIM. I'll just stop now shall I? )

Thanks for reading.

EdInvestor

stilernin wrote: »

I don't have a very big pension to look forward to, so I can't just 'give it' now as I need the interest to make a bigger final pot IYSWIM.

The problem is you still need the money (or at least the income it can generate).If you follow this idea, you could quite easily lose the capital - either if your son and his wife divorce, or if they go bankrupt.Both are increasingly common these days.

MarsdenCuckoo

What's that saying: "Never a borrower or a lender be".... and to family is even more risky in my book.

Can see the logic i.e. they will probably pay a higher interest rate to their lender than you will get on your money deposited with a bank, etc. so why not cut out the middle man? However, as already said, relationships don't come with guarantees and if the worst came to the worst you risk losing out big time.

No ideas if this would work but, maybe, if you were to lend them some money to get a bigger house, could you retain title to the relevant percentage and then, instead of interest, they'd be paying you 'rent' on your portion? Effectively, it could work out the same for them financially but you would be protected and, of course, as house prices increased so would your stake.

Just a thought.

Savvy_Sue

The only advice I'd give is that if you ignore the advice given and go ahead, get an agreement in writing! ie that they're paying you £X per month for the next Y years.

At the moment, interest rates are so low: would you want a fixed rate of return? I think I would ...

I fear you also run into Inheritance Tax issues (unless you survive for 7 years and / or your estate is going to be under the limit, INCLUDING this gift) and if you go for part ownership possible Capital Gains Tax issues if the house is sold, but I know next to nothing about that!

chesky369

I think Edinvestor is completely right in that you really must be very careful about divorce - you may think your son/daughter is completely happy but we all know things can change and the income for your old age could be caught in the middle of legal wrangling.

missile

Don't lend money unless you can afford to loose it. Why not just give them what you can afford?

EdInvestor

You would also have to pay tax on the rental income if a part ownership of a property was involved.

Kavanne

My in laws gave us money towards deposit but after looking into all the tax implications of paying them interest etc they decided they were happy for us to just have the money lol

Primrose

I would think very carefully about letting go of your money. You say you don't have a large pension. What will happen if you get older and need to go into care? Will your child sell their bigger house to raise the capital to fund you in a better care home or will you be content to end up in a miserable place with no facilities simply because you no longer have the money to fund the care home of your choice? Your child's needs and aspirations will have grown with the size of their house and you have no guarantee that they will not end up divorcing or separating and you won't get your money back. Even if you don't end up going into care, as you get older you may need that money to pay for extra domestic help or gardening. I feel you would be unwise to loan them any money. You say they have a good job. Let them manage within their income and don't encourage them to live beyond their means.

stilernin

Many thanks for the replies everyone. You have certainly given me a lot to think about.

It was the tax angles and hidden pitfalls that I was wondering about.