Investing in Me

Dynamax

Hi All

I'm currently living with Parents and looking at buying our own property with my fianc!e. We are trying to pay off all existing debt and then save a deposit. It's been an agonising time but next month we will be debt free and ready to start saving.

Yesterday I received an offer, from an Aunt. She can see the situation we are in has offered to invest a significant amount of money towards our deposit. Twenty Thousand Pounds! Which to me is a massive amount of money. But as it's an investment she needs to know how we would intend to repay her.

What are my best options?

* A simple repayment over a 20 year period set with an agreed interest rate?

* An agreement to say she owns a % of the property and upon resale she gets that % back (high risk but a possibly high return)

* The invested money stays in the property and we pay her interest at the RPI (Retail Price Index)?

Not sure what the best option for me would be, has anyone come across a scenario like this before, Or could give me any advice?

Thanks

[Deleted User]

Isn't it up to her to set the terms? If she is loaning you it, then treat it as a loan and agree a repayment term, rate and figure out the monthly cost.

Does she actually want to 'invest'.. ie. buy a portion of the house? There may be some capital gains issues there, and you'd need to inform your solicitor and mortgage company

Jegersmart

Interesting aunt you have there.......

I wouldn't get involved to be honest, what happens if she wants her money back after 2 years? Would there be a contract? Business between family members can cause tension/upset and may not be worth it overall?

I would save up the deposit and politely decline her offer - it just isn't worth the risk to family, relationships or anything else in my mind. In any case, you are taking on more debt which may not be prudent.

Good luck!

J

qpop

You will struggle to get a mortgage if you disclose to the mortgage lender any of the above options.

1) The repayment would be considered an outgoing, and would be accounted for in affordability calculations.

2)"Shared equity" is hard to pass with a lender. At best your aunt can expect a second-charge on the property, and some (most?) mortgage lenders don't allow registration of second charges

3)Sounds like the best deal for you, and the worst deal for her.

Either way, if you're upfront about the source of the deposit (and you should be, as application fraud is a criminal offense) you're likely to find mortgage lenders not willing to help. Your mileage may vary though and it may be worth approaching a lender and asking.

---

The best bet in these situations is either an outright gift by a family member or saving the deposit yourselves - anything in between tends to end in tears somewhere down the line.

(I speak having spent a couple of years at one of the largest UK mortgage lenders deciding whether applicants were given or declined their lending requests)

Dynamax

Thanks for the above responses:

She has 20k that she was about to tie up in some scheme that would pay her RPI for 5 years, then on completion of the 5 years would invest elsewhere. All they want to see is a return comparable to RPI.

Interesting to see the comments about capital gains and also informing the mortgage company on the source of the deposit. Do they normally ask this?

I'm thinking towards a loan agreement drawn up through a solicitor that we would agree on a say 4% over 20 year period. I could disclose this as an outgoing but it would only be small (£142 ish per month).

Trust me she won't ask for the money back immediately, but I know what your saying about the family connection. It's risky but really she is incredibly understanding and I'm sure there wouldn't be a problem.

Keep advice coming if anyone can see another option.

Jegersmart

Dynamax wrote: »

Keep advice coming if anyone can see another option.

yes, save the deposit yourselves:)

imho

J

Masomnia

£121 per month by my maths

Surely it wouldn't be a problem if it was all agreed legally; I think it'll depend on the LTV and your income tbh.

qpop

All lenders should ask about the source of the deposit.

No lender in their right mind would risk being seen to lend 100% LTV (which what you're proposing is). I'd echo Jegersmart's comment and say a bit of saving would be a good idea. There's no guarantee that we're at the bottom of house prices, and in fact the prices have been artificially held up as buying/selling volumes fall.

Dynamax

What about if I paid in cash 20K into an account, kept it there until we're ready to buy, then say I saved it all up in cash and had it stored in shoe boxes until I decided to bank it?!?

I would agree through a solicitors agreement to repay cash payments to the Aunt then there would be no trace of the 20k debt on my bank records.

I know this is probably wrong and probably fraudulent but I'm fed up of living in a single bedroom trying to save the deposit. I have an invested deposit that I'll more than likely inherit when the time comes.

qpop

Dynamax wrote: »

What about if I paid in cash 20K into an account, kept it there until we're ready to buy, then say I saved it all up in cash and had it stored in shoe boxes until I decided to bank it?!?

I would agree through a solicitors agreement to repay cash payments to the Aunt then there would be no trace of the 20k debt on my bank records.

I know this is probably wrong and probably fraudulent but I'm fed up of living in a single bedroom trying to save the deposit. I have an invested deposit that I'll more than likely inherit when the time comes.

To willingly mislead a mortgage lender is fraudulent.

I don't think you'll get many people advising you to commit application fraud.

Yes, it's incredibly frustrating trying to save a deposit, but trying to "beat the system" doesn't tend to get people anywhere.

Why not call Nationwide/HSBC/Santander and ask their opinion on a hypothetical situation - the responses may not be as negative as I'm suggesting?

Dynamax

Who would be the best person to get advice from, a Solicitor or a Finiancial Advisor, or are they the same?