Buying a house with parents - Shared Equity

mnorton2k

As we have no chance of getting on the property ladder ourselves a member of my family has had a lump sum payment from her pension and wants to help us get on the property ladder and suggested that they may be able to invest their lump sum in the property in exchange for a percentage of the property e.g 10% for £20k investment, my question is whether this is at all possible ? and also how this affects the mortgage as this would entirely paid by myself and my family obviously want to protect their investment ? and how do you arrange this with a solicitor if this is possible ?

Any input greatfully recieved. :beer:

mnorton2k

anyone any thoughts on this ?

00ec25

This Q crops up frequently for some reason at the moment

What is your relative’s expectation re their lump sum as this absolutely controls what is or is not possible.

1. if relative wants to stake in the property (ie to own a set %) then your mortgage company will NOT let relative own a share of the house unless they are also liable for the mortgage along with you - ie you will need a joint mortgage with them. (Relative will also be liable for Capital Gains Tax because they don’t live there)

2. is it a loan with or without an associated interest rate? If yes then it is not a gift, it is a repayable loan and will affect how much you can borrow on your own mortgage


3. if relative wants to protect their lump sum but does not want to be on the mortgage then they cannot be listed as an owner, but can (try to) take a second charge to ensure the property cannot be sold without them getting their money back. Note they will not get a share of any increase in value unless you agree an interest rate for this funding and your mortgage company may refuse to allow a second charge. Relative would not be liable to CGT

mnorton2k

1.if relative wants to stake in the property (ie to own a set %) then your mortgage company will NOT let relative own a share of the house unless they are also liable for the mortgage along with you - ie you will need a joint mortgage with them. (Relative will also be liable for Capital Gains Tax because they don’t live there)

When you say liable for the mortgage, I presume I can still make all payments to the mortgage, just that if I default on them the family member is just as responsible for them as myself. Do you happen to know the thresholds for CGT as it will only be a 10% investment I'm guessing that this limit might not affect them ? are there any other taxes to be aware of ?

carefullycautious

I think they would have to have a charge on the property so that when you sell the money is paid back.

Someone will correct me if I am wrong

You really need to speak with a solicitor.

I know someone who sold a house at a lower price to their child and had a charge put on so that when that house was sold the amount was paid back. Slightly different.

kingstreet

The OP mentions "shared equity" in the thread title and this is exactly what the Government and developers do in 00ec25's description;-

3.if relative wants to protect their lump sum but does not want to be on the mortgage then they cannot be listed as an owner, but can (try to) take a second charge to ensure the property cannot be sold without them getting their money back.

However, the second charge is repayable as a percentage of the selling figure, rather than a finite £ amount.

It's debatable whether you could;-

- do this with a private "investment"
- get a mortgage lender to accept it for someone other than a newbuild developer.

As stated, they cannot own a portion of the property without being a party to the mortgage and that means being jointly and severally liable for the lot if you don't pay.

00ec25

mnorton2k wrote: »

Do you happen to know the thresholds for CGT as it will only be a 10% investment I'm guessing that this limit might not affect them ? are there any other taxes to be aware of ?

your relative would pay CGT if her 10% share grows by more than 10,600 using the 11/12 allowance rates. you get an allowance (£10,600) which you deduct from the gain, if the net figure is >£0 you pay CGT on that net figure.

The allowance is a use it or lose it amount - you cannot carry over unused amounts and it is a total for the whole year not just for each transaction.