Loaning my son money

MartynL

I have a question about loaning my son money for his mortgage. My son is effectively a first time buyer having sold his house and paid off his mortgage. I overpaid my mortgage with Nationwide a couple of years ago and have around £41000 that they say I can 'drawdown' over 15 years at 2% above the bank rate. My son is looking to buy a place for £80000 and has the rest of the money to make up the difference. He will borrow the £41000 from my mortgage drawdown and pay the repayments direct. Is there a problem with doing that legally? Forget about the issue if he stops paying etc I am just worried I might me doing something illegal avoiding tax etc.

So in a nutshell I am getting £41000 on my property and giving it to my son for his property in his name and he is paying the repayments direct. Obviously he is getting the 2.5% I can get which is better than what he can get himself.

clearing_out_my_pockets

What would you do as & when the 2.5% goes back up?

MartynL

Apparently it will stay at 2% above the bank rate so will it still be cheaper than him getting it elsewhere?

clearing_out_my_pockets

Not necessarily. Nationwide do a 2 year fix at 3.79% (£396 arrangement fee) for a loan to value of 48%. If the base rate goes up to 5% in that 2 year period, your son would be paying 5.5%.

MartynL

Ok I'll bear that in mind, thanks. Besides that though am I doing anything unlawful, i.e. tax evasion, loan to him etc?

Also just thought he is not in a position for a while to get a mortgage as he has just started a new job so he has no real options. I think he has to be in his job for a period of time.

getmore4less

You lend him £41k he pay you back with interest(by making your payments)

You are liable for income tax on the interest he pay you.



It might be worth him looking at one of the offset products and structure it slightly differently.

First direct do a base+1.89% with a £999 fee for 65%LTV which is cheaper than your deal.

MartynL

Hmm, it gets complicated. I have a pension payout lump sum also. If I lend him that for a couple of years until he can get a mortgage is that a problem? I charge him no interest on it, it is just a loan.

Pincher

If what you say is true, an employer can make a zero interest loan to an employee. The tax man would assess a market value of the benefit received, even though no interest was paid.

If the deposit is obtained by a loan, the mortgage scoring will not go well.
A gift from a parent is probably better, but don't take my word for it.

Just gift him the money. It will count towards the inheritance tax threshold, within the next 7 years, and then it's just money passed on tax free.

getmore4less

Why can't he get a mortgage?

You say he has £39k cash.

MartynL

Because he is just starting a job so he thinks he won't get a mortgage until he has been in one for a while(6 months maybe) and he has a place he wants to buy now.

CLAPTON

you can lend your son anything you like and if it's interest free there are no tax considerations
I'm surprised however that he can't get a mortgage elsewhere simply because he has changed jobs recently.