Setting up a mortgage/charge on a child's house loan.

mhg_2

This must be increasingly common, but I could find no reference in the forums. I am retired and want to lend different amounts of money to my children to replace their mortgages at lower interest rates than they are presently paying. They need to pay me some interest (a) for my income as I will lose the deposit income and (b) it provides a 'valuation' over time as they pay it off etc so when I die they will each be able to compare the 'value' of their loan as part of my estate. They are each married with children, so I must protect my loan from any (hopefully unlikely) marital ructions. Question 1: How might I find a lawyer that can prepare and register a mortgage deed/charge (high street lawyers only deal with building society pre-drafted documents which many barely understand and 'city' lawyers would be ridiculously expensive). Are there precedents available? Can private individuals register charges at the land registry? Question 2: How different is all that in Scotland? Look forward to hearing from anyone with experience of this (maybe even in Scotland?!)

holly_hobby

As I understand you wish to loan an amount of capital to your children, which will redeem (pay off) their existing mortgage debt, with the end result of you effectively becoming their (private) mortgage provider, and they your debtor.

Legally I can't see why such a private self contained family arrangement would be an issue, BUT for legal and IHT purposes you must have this sounded out by your Solicitor and correctly recorded as a private loan from your estate, with the agreed interest, schedule, repayment arrangements and any process for non-payment, accurately recorded by your Solicitor.

You also need to consider what you will do if your children do not maintain their repayments to you (is this where the charge you mention comes into play ?)

With regards to placing a charge on the property, yes as long as there are no pre-existing charges (which would mean your interest would come after the pre-existing charge), and there is no charge remaining from a mortgage lender - which should be the case if you plan to wholly redeem your childrens mortgages as suggested, then your Solicitor may apply for registration of your interest against each property with land registry.

You also need to seek advice (inc IHT and estate planning) on the occassion that you may pre-decease the total repayment of the loans to your children, and how that would be dealt with as part of your estate administration and probate following your death .

Also what are your requirements if they should pre-decease you ? (preume you require the loan repaid from their estate, or would you simply forgo collection of the os monies as a gift to the estate ? - all the while considering how this affects IHT issues.)

So you need an experienced IHT planner, whom should also be able to draft the reqd legal docs for the loans you propose to make to your children, whilst ensuring estate protection and working to mitigate any possible IHT bill)

It is certainly possible, but the legalities must be watertight re HMRC, and you should also seek tax advice on how the loan repayments effect your tax position under Scottish laws.

I am afraid that I am based in England, and have no experience of Scottish Law -but would imagine that it shouldn't be that far off what has been discussed here, which I hope gives some food for thought.

Hope this helps

Holly

Annisele

Firstly, I think you might be underestimating high street lawyers!

I'm not certain that future marital ructions would matter all that much. It sounds as though you're not actually giving your children any money - you are lending money on preferential terms. So, if your children split up with their partners, they'll still owe you money - just as splitting up wouldn't stop them from owing money to NatWest.

Finally, are you sure that your children would be happy with the arrangement? If my parents proposed it to me I'd probably say thanks, but no thanks:

• I'd think that they clearly couldn't afford to make an outright gift - as they're relying on the income. So, if for some reason I couldn't pay my loan, I'd be causing problems for my family. Left alone, if I couldn't pay my loan I'd be causing problems to a faceless corporation and trashing my credit rating - and I'd much prefer that to having my parents unable to afford things because of me.
• I'd worry about how things would be kept fair in future. Calculation is easiest if you agree a fixed rate of, say, 3% - but if interest rates go up in future to 15%, the 3% would look very unfair. My parents wouldn't be very good at accepting increased payments.
• I'd worry about what would happen in future if my parents needed the money back but I couldn't remortgage to pay it to them. With a normal lender, I'd say "tough - you promised I'd have 25 years to pay this back, so you have to wait". With family I'd feel obligated to find some way to pay them back now, and I might have to sell.
• I'd worry about my parents needing the money back / needing more income and not telling me - they have an idea that they should be looking after me even though I'm well and truly old enough to do that for myself!

dimbo61

one idea which might work ! is if your children had offset mortgages with YBS which allows friends & family to offset there mortgages
Now you put money into " your " offset account saving them interest on there mortgage
You can give £3000 a year as a gift
Best to seek a tax accountant