Release of equity by selling property to son

kajay

We want to sell our house that has a mortgage left on it of £171K it is worth approx £250k. We have another property which we rent out worth approx £60-65k with no mortgage on it.

We have been told by our present lender that we could take our present mortgage with us on to another property, but that the maximum they would lend us would be £160 based on the income from second property and both mine and husbands income. They would only lend on a 14 year term as I am 51 years old and my husband is 40.

The properties we have seen and like are out of our price range unless we sold our second property to release equity at a loss as we paid £74k for it in 2008. We have a 19 year old son, who has expressed an interest in renting the second property with his girlfriend. (our current tenant is due to move out next month). I had an idea, and wondered if it was worth offering the flat to our son and girlfriend to buy from us, releasing equity from the property to enable us to buy another suitable property.

They both earn between them approximately £20k. We had thought of offering it to them at a lower price, say £20k less than its value, on the provision that if they sold, and value had gone up that the £20 would be paid back to us. Sort of like a gifted deposit, not sure if thats what it would be. We would like to release equity from second property, and help our son onto the property ladder at same time. Don't know if this is a good idea or not.

holly_hobby

The best thing to do is to have your son and GF establish how much they could borrow on their income and circumstances - then you can consider your options and receive appropriate guidance.

If you do sell at a discounted pch price, and you want them to repay any agreed gain realised on sale - this will need to be effected by a legal agreement (if you wanted to protect your interest).

Hope this helps

Holly

kajay

holly_hobby wrote: »

The best thing to do is to have your son and GF establish how much they could borrow on their income and circumstances - then you can consider your options and receive appropriate guidance.

If you do sell at a discounted pch price, and you want them to repay any agreed gain realised on sale - this will need to be effected by a legal agreement (if you wanted to protect your interest).

Hope this helps

Holly

Son and girlfriend going to see how much they could borrow. We would want to protect our interest in the property if we sold it them at a discounted price. However, we would probably help them further with any future property purchases, if they needed help. We do think as the market is slow at the moment, we would have to sell at a discount anyway, and this way we would be helping son and gf onto property market, and not lose anymore than we have already, if we protect our discounted interest, and it will enable us to free up equity to help buy our next property. Thanks for your comment

kajay

Just a thought. If we asked for say £60k for the property, and they obtained a mortgage for say £40k, the capital short of £20k would be what they would owe us when they sold in the future. How would this work with the banks and mortgage, solicitors etc. Obviously, they are going to find out exactly how much they could raise with a mortgage, but banks require a deposit, and I'm not sure how this would work.

GMS

You can gift the deposit to your son and have no problem.

If the gift is a repayable one then many lenders will not allow it.

A broker may be useful with this as it is important to get the scenario agreed before parting with any lender fees

holly_hobby

As GMS correctly states any gifted deposit, that is repayable ( i.e it isn't really a gift), will be taken into account within affordability assessment, or will be completely disallowed - due to the restrictive basis of gift.

However, you did say in your OP that only if the property sold with a 20k gain, you would effectively like the gain returned to you. So in essence, and if I understand correctly, if there is no gain on sale, there is no return of capital reqd by you .

If that is the case, my interpretation of this is that it is not a gift with reservation (although it could be argued there is an element of it), but instead a private agreement to share in net equity realised upon sale, subject to conditions as noted (and further to prior satisfaction of any 1st or other charges on the property at time of disposal.)

However, it would be very wise to firstly determine if this type of arrangement is agreeable to the lender, if so a suitable contract or agreement may be drawn up, which may be executed if all parties are in agreement to the terms.

Then you will know how to discuss this with your broker, and more importantly they will know how to present it to the lender for the best chance of success.

Hope this helps

Holly

kajay

So a chat with our solicitor will be a good idea before we see a broker then. Thanks for all your advice. It's been a great help.

Thrugelmir

You also need to consider scenarios such as your sons relationship breaking down.

taliesin

You might also look into "family mortgages". We made a similar (if slightly simpler) arrangement to help one of our sons using the Britannia's "Family Equity" scheme.

kajay

taliesin wrote: »

You might also look into "family mortgages". We made a similar (if slightly simpler) arrangement to help one of our sons using the Britannia's "Family Equity" scheme.

Thats sounds interesting, we'll look into that! Thanks