Bridging Loan from parents and how to then transfer mortgage across query...

thepumpkin

Please can someone advise re this situation:
We couldn't sell our house but my parents have sold their house (they did not have a mortgage on their house so now have the money available). They have not found a place to live so need somewhere to live. They are going to live in our house and with their money from their sale they have offered to lend us the money (bridging loan) so that we can buy the property we want to buy. Therefore, for a time we will own 2 properties (our current house and the one that my parents will have bridged us for). My parents are going to live in our house until it sells (by which time they hope to have found a place they like to buy). So, when it sells we would then be looking to transfer / port our current mortgage across to the house that my parents bridged us for which means that the loan can be paid off and my parents will then use the money to buy their house.

We are wondering if this is possible as we will be paying off the bridging loan with our mortage and we are not sure that this is ok?
Thanks.

Annisele

There are *so* many ways that could go wrong.

In principle:

• If you and your parents want them to live in your house, that's OK (subject to your lender's consent)
• If your parents want to lend you money, that's also OK.
• And if you want to use that money to buy another house, that's OK too.

However...

• What happens if you can't sell your house within a reasonable time?
• What happens if your parents find their perfect property, but you haven't yet sold (so you can't give the money back) and they can't get a mortgage?
• What happens if somebody involved loses their job / becomes too ill to work / dies/ gets divorced/goes bankrupt/ has some other calamity occur?
• What happens if your parents don't like living in your house? If somebody changes their mind? If you have a big family bust up?

That is not intended to be exhaustive!

I think it's a recipe for utter disaster, but if you do decide to go ahead then you and your parents need separate legal advice, to protect all parties.

I've also no idea of the tax consequences of the plan. From an income tax perspective your parents would effectively be getting free rent in lieu of interest on their capital, and I don't know whether HMRC would be interested in that. If you keep the arrangement long term, there are likely to be CGT issues too.

thepumpkin

Thanks for the reply.
I understand your concern about how it could go wrong and we have talked about all of those scenarios and more. Both parties are happy with the arrangement and if it came to it they would be happy to live the new new property and we move back in to our old house. Would appreciate any legal / financial advice on here if anyone reads this. We are planning on seeking advice within the next week.
Thanks

Paul_the_Painter

What's wrong with your parents just buying your current house from you? Only issue might be stamp duty on multiple sales, but probably a small price to pay in the great scheme of things.

thepumpkin

Paul_the_Painter wrote: »

What's wrong with your parents just buying your current house from you? Only issue might be stamp duty on multiple sales, but probably a small price to pay in the great scheme of things.

We did think of that but we wanted to avoid the extra stamp duty. I also should have said that my parents have sold their second home and will be living in our old house only half of the time as they will still have their main home.

Thanks

[Deleted User]

Same thing applies tho surely? If they want a house to live in.., even if its only part time.., rather than giving u money for the house and calling it a 'bridging loan' wouldn't it be easier for everyone if they simply bought the house.., changed things if things need to be changed to make it more sellable while they are living in their main house and u are free to get a mortgage to move?

If its a negative equity problem then its always going to be a bad idea (someone is going to lose out.., either you or your parents.., house prices are not rising in a hurry). If they don't want to buy the place outright., its a bad idea to put up their money for a bridging loan.., in case your house does not sell.

Increasing your indebtedness to buy a new home leaves u as a family group with three (including the parental main home)/two houses to sell rather than one/two, if things don't go well. Who is going to live in the 'new house' if u have to return to the old one?

poppysarah

thepumpkin wrote: »

Thanks for the reply.
I understand your concern about how it could go wrong and we have talked about all of those scenarios and more. Both parties are happy with the arrangement and if it came to it they would be happy to live the new new property and we move back in to our old house. Would appreciate any legal / financial advice on here if anyone reads this. We are planning on seeking advice within the next week.
Thanks

All of you need to seek proper paid legal representation for drawing up paperwork to cover EVERY eventuality.

Probably separately too. What if someone dies/divorce etc