Adult kids buying into equity of our house?

kidmugsy

It's a big plot: is there any way the children can buy some of the land and you keep the house and a smaller plot?

getmore4less

So the problem is how to finance/fund the 40% needed to keep B.

How much could you pay off in the 7 years, any pension lump sums
could the kids fill the gap with loans/gifts.

Could you raise more funds from A

The problem is having the kids invest in the house long term may conflict with their own needs to borrow money in the future. Especialy if it is tied up in a place they will never want to live in.(remeber you need succession planning or your kids will have te same problem when you pass it on.

Check your CGT on A, if you have lived there some of the time it may not be too bad.

There may be an option where you refinance that with the kids and release some equity so get B debt free sooner but also realise some of the CG under this years allowance and next years.

As long as the rental numbers still stack up it should not impact the kids getting future lending.

This also avoids CGT issues on the property you expect to make more gains on in the future. probably best to restrict any borrowing/ownership of B to those living in it.
How long is the one kid likely to stay living there.


The key to options seems to be the exit plans for each person involved.

if the house is likley to be of use to a family member in the future then keeping it makes sense

Thrugelmir

Sadie_Su wrote: »

If as a family we hold and improve the asset over the next 20 years, then it's going to be worth a LOT more money than it is now, and the kids have a vested interest in making that happen.

That needs to be weighed up against the amount of interest you are paying.

Over 20 years property will also require expenditure on maintenance and upkeep. So isn't necessarily the gain to be made one envisages.

Your children may find saving a deposit and buying their own homes. A better "investment".

holly_hobby

Sadie_Su wrote: »

House B has been the family home for 50 years now, and we like living here. But mostly it's a financially led decision chain. House B is a bit of a fixer-upper, in a prime location and on a big plot. If as a family we hold and improve the asset over the next 20 years, then it's going to be worth a LOT more money than it is now, and the kids have a vested interest in making that happen.

Kids will be exposed to CGT on gain (less annual CGT relief) if upon disposal it is not and never acted as their primary residence pre sale (although any exposure may be mitigated to a degree if between ownership and sale it has acted as their primary residence - in the form or primary residence relief in conjunction with annual CGT allowance).

Sadie_Su wrote: »

OH and I have no problem paying the interest only mortgage, but we can't afford to convert it to a short term repayment one - and because of our age, we won't qualify for a long term repayment mortgage, not without the kids on board.

If you are party to the mge (ie remain on the deeds as legal owners in respect of the 51%), then the max term is unaffected by the involvement of your children - as max term is based on the age of he oldest applicant, not the youngest.

Interest only arrangements are also the subject of review for existing borrowers, with lenders under the recent FSA review having to at least once during the lifetime of the mge, validate the repayment vehicle (of which the sale of property A, may be accepted if mge free and the ltvs are ok).

If you remortgage, interest only may not be an option (many have already withdrawn from this business) - so you will have a 7 yr repayment mge, or upto age 75 yrs, if this is longer, (if income is accepted and sustainable during retirement) - which I guess on a 7 yr term C&I may blow the monthly budget and affordability of all involved.

For several reasons, this really isn't a viable go'er in my opinion - not in its current format anyhow.

Hope this helps

H

Sadie_Su

kidmugsy wrote: »

It's a big plot: is there any way the children can buy some of the land and you keep the house and a smaller plot?

Unfortunately (AFAIK) the kids wouldn't get a mortgage for purchase of land without property. We have already been given the middle finger by the local authority about getting planning permission to build a second house on the plot, although the thought of doing that at some undefined point in the future is one of the motivators for sitting tight and finding a way to avoid selling in the current climate. At the moment, though, without planning permission the plot we could potentially put on a separate deed is only worth about 20% of the outstanding mortgage - so even if they could raise the money, it wouldn't solve the problem.

CLAPTON

how much is the mortgage for?
what salaries do people earn?

Sadie_Su

getmore4less wrote:

There may be an option where you refinance that with the kids and release some equity so get B debt free sooner but also realise some of the CG under this years allowance and next years.

As long as the rental numbers still stack up it should not impact the kids getting future lending.

This also avoids CGT issues on the property you expect to make more gains on in the future. probably best to restrict any borrowing/ownership of B to those living in it.

Now, this is an interesting concept! We could gift 10% of the equity in House A to the kids, then they borrow the other 80% on a 25 year repayment mortgage. Maybe less than 80%, if they put some savings in as well. Online mortgage calculator indicates that repayments on 80% would be covered by rental income. We would come away with enough capital to pay off half the mortgage on House B, and converting the other half to repayment over 10 years would cost about £200 a month more than we pay at the moment. We lose the current rental surplus we get on House A, but we have to pay income tax on that anyway, so it's not a huge loss.

Sadie_Su

CLAPTON wrote: »

how much is the mortgage for?
what salaries do people earn?

I've deliberately kept it to a percentage based discussion on the thread, Clapton, but am happy to message you the actual figures if that would help?

holly_hobby

Sadie_Su wrote: »

Now, this is an interesting concept! We could gift 10% of the equity in House A to the kids, then they borrow the other 80% on a 25 year repayment mortgage. Maybe less than 80%, if they put some savings in as well. Online mortgage calculator indicates that repayments on 80% would be covered by rental income. We would come away with enough capital to pay off half the mortgage on House B, and converting the other half to repayment over 10 years would cost about £200 a month more than we pay at the moment. We lose the current rental surplus we get on House A, but we have to pay income tax on that anyway, so it's not a huge loss.

Max LTV for FT landlords on BTL is 75%, and they have to have a current mge or be a prev property owner.

Furthermore in my experience gifted deposits aren't permitted by many, if not most BTL lenders - whether this could be argued to be a preferrential pch/family sale, and the lender then accept the deposit as not monetary based, would be a suck it and see exercise, but as its semi-comm lending what would normally fly on residential criteria may not be the case where the property is not primary residence of the mortgagor .

My advice, is to spend an hour and yes it will cost a fee, with a whole of market broker to sit and work out the best stratergy.

Hope this helps

Holly

Sadie_Su

Thanks, we do plan to get proper one-to-one advice, but I wanted to stick a finger in the air here first. Google had already indicated that it might not be as straightforward as we had hoped.