Use of Childrens Savings to pay mortgage

bingham40

Hi,

I have recently started IT Contracting and like lots of other people am finding it very difficult to get a mortgage. I am moving house and only need a 20% mortgage - to secure the new house, despite this being the same value as my current mortgage First Direct wont let me have this as I am now contracting and the last mortgage was secured when i was a PAYE employee. The high equity level I have and doubled salary from contracting doesnt seem to wash with them or any other lenders. I even tried a guarantor but they werent interested.

I have invested heavily in savings accounts for my children over the last 10 years and they have inherited some money as well. As such they have enough money to cover the cost of us moving and buying the new house. Although using their money seems a bit "wrong" to me I have thought about it and the rates they are receiving are much lower than a mortgage rate so I could repay their accounts at a higher rate benefitting them. I have heard though that this would then count as gifts to my children and mean that they would then be subject to tax on their savings interest.

Can anyone tell me if they have done anything similar and if so what implications I might have missed?

MrsBartolozzi

This was discussed here last year I think and the general consensus was disproval at "stealing" your children's money.

I would ask myself whether I could pay back the amount borrowed (as well as the interest that would have accrued) before the children turn 18/go to uni/whatever age they would have got their hands on the money. If you are sure that you will be able to do so comfortably then do so. After all you say that you saved the money (I assume gave them the money yourself/with your partner) for them so technically you are borrowing it back and repaying it with interest. How big a proportion is the inheritance? If it's a large part of what you'd be using then that would complicate things I think as that's not your money it's your childrens'.

I'll look out the older thread for you.

MrsBartolozzi

Here's one thread asking a similar question. I'm sure there is another, but I can't find it right now.

https://forums.moneysavingexpert.com/discussion/2372423

bingham40

Thanks, the old thread would be great.

I know it sounds a bit dodgy and I cant help feeling like it's stealing as well! If I lay out the figures though hopefully people wont think it's so bad:

I earn a day rate of £400 per day, approx 75k PA after leave, periods on no work and personal pension.

The house I am buying will be 330k and I can effectively pay for this outright through the sale of my existing home, car and savings. I need 35k for immediate repairs (re-wiring, heating etc etc) on the new house, it's this that I will be using the childrens money for (they have 35k between them) or would have been using the mortgage for. These figures also include a 10k contigency fund.

At a net income of 4.5k per month I will have no problem paying the childrens accounts back at 1k per month, they would have all their money back, plus interest plus additional funds within 5 years. As the oldest of my kids is only 5 their is plenty of time left to pay them back even if I have a break in contracting income.

Is it really legal though? Are their any implications to it from a tax perspective for the children?

The "inheritance" element of the money is around 60%, the rest I have invested for them.

GMS

Once the property has been improved you may be able to remortgage after 6 months in order to repay the children, with anything you have saved in the meantime being classed as interest or deducted from the balance.

bingham40

GMS, thanks ideally yes i'd be paying them back as soon as I have a good contracting history or have returned to a permanent PAYE role and can get a mortgage.

Do you know the tax implications on thir interest if we then give them all their money back as I understand they may then be subject to tax as the gift comes from us as parents rather than other sources over the last 5 years.

waveneygnome

No idea about the tax side of things - sorry.

Just wanted to add though, don't beat your self up about the morals of it too much.

I take it the children will be living in the new, improved house, enjoying their new environment and benefiting from it? It is your intention to repay the money ASAP into their appropriate accounts?

I'd say use their money.

The alternatives are:

a) you can't get the new house - the children won't benefit
b) You find a lender willing to lend and you end up paying more out to bankers than your children are receiving from the same set of bankers....er the bankers win again.
c) you borrow the money, but for some unforeseen reason you cannot repay your children the money....you have options: sell the house when the children are older/move out, you downsize and give the children back the money when they are older and likely in more need of it at their time in life.

I have thee young children and used to save into various savings schemes for them, but was fed up with the low returns (actually negative returns when inflation taken into account), relatively high charges and at the time not very much investment choice.

We used all their savings and contiune to use the money we intended to save for them to over-pay our mortgage in our fantastic 'dream' house. Our kids love their new home, the space, grounds etc. and are benefiting NOW from it (unlike the savings where they will benefit in the future).

When the time comes (in our case a least another 13yrs) we'll have loads of options to financially 'make it right with the children'.

Hope this helps.

ILW

Maybe taking the savings that you put in would be OK, but taking their inheritance seems very wrong to me.

bingham40

It looks like i've split people opinions. Sill not sure what to do.

System

I say go for it. Just bear in mind that nothing in the IT contracting world is certain these days and there is no guarantee that you can continue at the current earnings level. However that fact that you will be mortgage free if things do a downturn must be a very positive point. You have plenty of time to replace your children's savings.

missylaney

Just out of curiosity, if the oldest of your children is 5 how have you managed to be investing in savings accounts for them for the last 10 years?