Bank of Mum and Dad to the rescue??

Victorthe2nd

Hi, we're hoping to give one of our children a helping hand to get on the property ladder and wondered if anyone had guides to how we protect ourselves. Presumably, any loan we give and any repayments we receive are all tax-free (ie to the child and to us??). We're lucky enough to be able to give a loan out of our own savings and have agreed that this will attract monthly "repayments" at a rate that reasonably equates to what we'd expect to earn if we invested the funds with a Building Society. The issue here is getting the deposit together- the combined repayments (i.e proposed mortgage and our "repayment") are manageable and we've worked out what sort of property value / mortgage (already agreed in principle by his Bank) is affordable in order that he can retain enough disposable income to pay bills and still have some left each payday. Naturally, we're completely comfortable that our investment is secure....but it benefits everyone if we can make a formal agreement of some sort. That way, he knows that he has obligations and, if the worse really came to the worse, we'd have legal recourse to our money from any equity if he had to sell the flat and / or moved (at which point we can decide between us if he wants to repay the capital or retain the loan). The amount we're prepared and able to offer is £20k / £30k, so it's not our life savings but nonetheless a decent chunk of dosh. Has anyone done this and, if so, what form of legal agreement did you agree on? Any help or advice is very welcome, thanks in advance!

kingstreet

If you lend this money to your child it will cause them significant problems getting a mortgage as you will be deemed to have an interest in the property.

Lenders hate loans. They accept gifts.

Victorthe2nd

So, can I treat it as a gift in the lenders eyes but privately as a loan? I assume I don;t have to register my interest in a legal sense (e.g as a second charge) so how would a lender know? If the borrower simply said "here's my deposit", is the lender fussed about where he / she got it from?

holly_hobby

To explain .. as part of the mge application process the lender will ask your Son the source of his deposit.

A gift (that is a sum given without requirement of repayment, or in exchange for consideration) is fine - of which you as the Donor will have to sign a disclaimer confirming this to be true.

A loan (even if a personal one between family members) is a no-no due to possessionary interest issues as a result of it being used to pch the property.

Of course, some indvidiuals may declare it as "gift" but have an altogether and un-disclosed private arrangement (having their solicitor draw the terms of any personal agreement) - but that would be for their own conscience and fallout if the lender somehow got wind of it - of which neither myself nor Kings. could or would condone of course ....

Hope this helps

Holly

jennifernil

Also note, if you do lend the money, any interest you receive, even if only at a .........

"rate that reasonably equates to what we'd expect to earn if we invested the funds with a Building Society"

will have to be declared for tax purposes.

McKneff

Do you have enough for a rainy day to enable you go actually give them the money, along the lines of they are going to get it eventually anyway.

paso11

Victorthe2nd wrote: »

So, can I treat it as a gift in the lenders eyes but privately as a loan? I assume I don;t have to register my interest in a legal sense (e.g as a second charge) so how would a lender know? If the borrower simply said "here's my deposit", is the lender fussed about where he / she got it from?

Would that not be mortgage fraud?

Your son would be understating his debt to the lender

Yorkie1

If the source of the deposit is a loan, and your son states it is a gift in his application, then he is committing mortgage fraud.

When you write the letter to the lender, confirming that it is a gift and not a loan, that is also mortgage fraud.

Entirely up to you whether this is the route you wish to go down.

Victorthe2nd

Thanks for all those helpful replies. I had a chat with NatWest Mortgages (both my son and I are bank customers and they are the proposed lender) and explained the situation to them. Their response was that, when my son was describing where his deposit came from as part of his overall application, that they (NatWest) weren't actually bothered if we decided, between my son and us, to treat things as a private agreement between ourselves. Their view was that, because they would hold a first charge on the property as security, then any private arrangements would rank behind them as an unsecured debt (we have no intention of formally registering our interest in the property) and, if things got really dreadful, we'd simply have to wait and see what, if any, equity was left after a sale. and repayment of monies to NatWest. I certainly don't want either of us to get involved in anything that was fraudulent and thought the response from NatWest was perfectly sensible.

GMS

Ask Natwest to put it in writing.

How do you declare the deposit for the application? Loan or gift?

Victorthe2nd

Don't know, forgot to ask that! I've now spoken to two different people at NatWest and they have both confirmed that, as long as the arrangement is a private affair between us and no formal registration of our interest in the property is made, then they're comfortable. The second advisor went away to ask his supervisor, just to make sure. They have simply suggested that any amount our son agrees to pay us should be declared on his statement of outgoings so NatWest are fully aware of affordability before they advance the funds. We've told them that we would not therefore view things as a formal loan per se but more as a gift, subject to us just wanting a nominal amount paid to us each month that effectively covers the sort of return we'd get if the money invested. And, yes, we'd apply the same rules on our tax return as we would for any "normal" investment. So, we're not viewing the monthly payments from our son as "repayments" for a loan. We have no desire to even get a written agreement to repay the capital from our son....we accept that, ultimately, our money is at risk and some may see that as folly...we're fortunate that we're a strong family and whilst I accept that things can change, this is all about helping him and relying on that strength to be a constant. So, in a sense, this is a gift and would be declared as such.