Parents offer to buy our house

alexkerr

My parents in law have approached my wife and I and offered to buy our house from us in order to rent back from them therefore the house would be owned outright by them and left to us in their will.

In principle this sounds like quite a good idea. They save on fees and get their 5% return and we save around 300 a month on mortgage etc. We still have 2 years fixed rate at 6.3%. With first child on the way and my wife now working part time, this will make our lives much easier especially as won't have any repeair bills for house either. However, I want to understand potential pit falls and consequences and how the transaction will work.

We owe 109k on our mortgage and I think the house will be worth around 125k. Do they have to purchase it at market value? That will then pay off our mortgage plus the early repayment charge and we are then left with the rest of the capital? They originally gave us 3k for a deposit on the house when we bought it 5 years ago for 115k - will this come into play at all?

The complication may arise further down the line if we want to move. Although not discussed yet, I imagine they would sell the house and buy another with any difference being paid by us in the way of a small mortgage. I would hope to be on more money then and if I wasn't we wouldn't be able to move in the first place if we continued to own the house ourselves.

We could be doing ourselves out of potential money from the house going up in value but considering our current situation and housing market this seems better prospect. The house is in the family and we are not paying interest to the bank.

DVardysShadow

Better for you if they gave you a private mortgage, I would think. With the renting back idea, ownership will be with them as far as the law is concerned, so you could be kicked out if they take a funny turn in the head - OK, you hope they don't. You could protect yourself a bit with the right sort of tenancy [not AST], but this does not address the possibility of you needing to move.

Werdnal

Looking at this from your parent's point of view, do they have the first idea what becoming landlords is all about? Regardless of whether they are renting to you, or complete strangers, they would still have to abide by all the legal regulations and declare the rent you pay them for tax. On selling the property, they would also be stung for capital gains tax as this is a second property they they have never lived in.

If there is any mortgage involved in the purchase, and any future move it would have to be on BTL terms, as would house insurance if the house is owned by them but they are not residing in it.

There have been a lot of posts here about rifts caused by renting to relations. It can all go wrong, and lead to a lot of resentment and problems. What if, for instance, further down the line, you and your wife decide to separate (sorry but it does happen) - who would get what out of the settlement? One of you would have to move out and I cannot see parents making your wife homeless!

ceebeeby

Way too many what if's.

What if your wife dies
What if you and your wife separate
What if you want to move and parents don't want to fund new house
What if they can't afford repairs in future
What if they decided NOT to leave the house to you
What if you fall out with them in the future

Wouldn't touch it with a barge pole!

kdenty

This has so many ways to go horribly wrong. What if you fall out with them? Or something happens to the house? Who would fix a plumbing leak etc? How quickly? What if (and I hope it doesn't happen) you split from your wife or something happens to her. Will the inlaws still let you get your house in their inheritance? What if something happens to them such as they have to sell their assets to pay for care?

If they have that much money then let them buy a buy to let house but there is so much that could happen between now and when they die it's not worth the risk to your own home.

How do they save on fees too? Will it not cost you in fees making sure there is a proper contract as such to protect yourselves?
Will there not still be some stamp duty maybe?

How old are they. My mortgage has 20 years left. My parents could last another 20 years. If they bought my house I would might never have an opportunity to own my own home! What if something happened and I wanted to sell the house and get the money back?

Will your house in thir estate cost you in the long run as inheritance tax will come into play?

agrinnall

One other thing to consider is that if they have to go into care they may be required to sell the house to fund it, potentially leaving you homeless.

blago

If you lose jobs the DWP wont pay rent to parents (I don't think so anyway).

alexkerr

Thanks for the advice, these are the sort of things that I had on my mind.

They already own and let 3 houses and other saleable assets so they are well aware of the landlord issues . The main issue is that if my wife dies, how do I cover myself best?

Assuming they don't leave me house I need to be able to pay the rent. Is there insurance that we can take. Would a joint life insurance policy cover this. We have one now for mortgage but I assume we can take one out for an amount of money?

Is there a way to cover myself if we did split up?

DVardysShadow

alexkerr wrote: »

Thanks for the advice, these are the sort of things that I had on my mind.

They already own and let 3 houses and other saleable assets so they are well aware of the landlord issues . The main issue is that if my wife dies, how do I cover myself best?

Assuming they don't leave me house I need to be able to pay the rent. Is there insurance that we can take. Would a joint life insurance policy cover this. We have one now for mortgage but I assume we can take one out for an amount of money?

Is there a way to cover myself if we did split up?

With those concerns, DON'T DO IT.

SuzieSue

I know that your in laws are trying to help, but really this is a disasterous idea.

The best thing they could do to help you is to give you the £300 per month that you want to save. If the £300 is from their normal income, then it is free of inheritance tax which looks like it might be important in their case if they have a number of properties.

Catblue

I agree - don't do it.

The timing of this is significant now that your wife is pregnant - do you think that your in-laws are basically hinting that they believe that you personally are incapable of providing for your new family financially? And that since you are so useless then mum and dad will step in and control the major finances of their daughter and her hapless husband from now on? Seems like they are keen to remove your biggest financial tie to their daughter. Obviously if you are only renting the house then you personally would get no money from any increase in value of the house over the years if you ever split up. They'd be able to kick you out rather swiftly also.

It really is none of their business even if things are a bit tight financially for you right now. Sounds like you've done fine up to now without their help.

Seriously - imagine how you'd feel, as a grown man and a father by then, having to ask permission to repaint the living room ceiling? And then begging them to come round and repair the plumbing? Oh, and then having to go cap in hand and ask for permission and money to move house? Ugh.

Within 6 months, you would feel horribly resentful towards them.