Parents acting as bank/Private Mortgage

sharper13

Hi

My in laws have been left a house in trust (to brothers and wife) and are planning on moving there, The house they currently live in is mortgage free and has no debts secured on it.
They have 3 siblings my wife and two brothers, the brothers own their houses. Myself and the wife are in rented.

Her parents really want to sell us their house and as we have a poor credit history and unable to get a mortgage they have been told about a family/private mortgage which they seem to act as the lender.

I have looked around on the internet and this seems to be an american thing.

They have offered it to us at a price of £85k (zoopla £120K) with no interest payments. It seems to good to be true the plan would be to move in with them for 4 months paying £1k per month so they could finish up their new place then continue at £600 per month till the 85K is paid.

Deeds will be transfered but held in lieu until payment in full is recieved.

Now they are both getting ready to retire soon 1yr and are not in the perfect health so is this really a good idea?

I am going to a solicitor soon to discuss this but at the moment im looking for answers.

1. Can this be legally done?
2. What sort of implications are there?
3. If something were to happen to them could the Brothers have any form to contest the contract

Any other considerations ideas would be appreciated.

CLAPTON

there seems no legal reasons why they can't sell you a house at a discount to value and then give you a loan.

I'm not sure that you mean about 'held in lieu' ?

the more normal way would be for them to have a charge on the house so you can't sell it until the debt is paid off.

obviously you would both want the details to be legally documented.

sharper13

Held in Lieu might be the wrong term the deeds would be put in my our names but we wouldnt get them until fully paid.

Money_Bunny

Yes, you can do this. I have experience of it and actually its not that difficult.

The solicitor will set up a loan agreement and put what is known as a charge on the property. A charge gives the lender the right to repossess the property if you don't pay (and, as Clapton says, you wouldn't be able to sell the property without paying off the debt). The charge is recorded against the property with the Land Registry.

There could be tax implications. You could have to pay Stamp Duty on the purchase - but I think the price talked about is below the threshold so possibly not. Your parents may have to pay tax on the income - but again as you would be repaying capital only they wouldn't actually be making a profit so probably no tax.

These days there is really no such thing as deeds - its all electronic. So there aren't any deeds to hold.

holly_hobby

Yes, a private family loan arrangement is perfectly do'able.

SDLT will be calculated on the actual consideration (85K), which is below the current nil rate threshold of 125k - so no SDLT liability.

There are certain legal issues/conveyencing issues that both you, your parents-in-law, and their 2 other siblings will want covered.

Firstly, the deeds will be wholly transferred in the name of you and your wife on completion of the pch - BUT - your Parents-In-Law (PIL) should be advised to have a charge for the value of the pch price, placed on the property for their benefit, and until the mge has been redeemed.

The charge and details of the trust deed, will protect both your PIL and your wife's brothers interests as estate beneficiaries (if both PIL die before you have repaid the mge), giving all parties legal protection and piece of mind. And it should be discussed what will happen to any os mge debt upon your PILs passing i.e is everyone in agreeance it will be released on their death, or will your wife's brothers want to have the charge amended to deal with the loss of capital (re the os mge debt) to the estate for division between them (and your wife). So be prepared it could get complicated family wise !

You should effect life cover on yourselves so that if either of you die before the mge is repaid, so that the surivor can repay whats os, and they won't be left with the debt to meet on a single income,.

The capital paid to PIL (as in interest free loan), has to be declared to HMRC, but obv as there is no profit being derived, there will be no income tax liaiblity - but it still must be declared by annual self assessment.

There could be issues with the arrangement and the LA, if either parent (or their represenatives) seek state assisted long term care provision OR any means tested benefits, as they will have effertively disposed of a property, but instead of receiving the sale capital in a traditional lump sum format, they have arranged to instead recieve this over time via a regular relatively small payment fig. (of course this may not be an issue given their financial standing and the receipt of your monthly loan repayments - but worth raising for throughness, and should be discussed with your solicitor for further guidance).

Goes without saying, please ensure thorough professional advice is sought, I would also include the brothers in your discussions with PIL for family harmony sake, before you all jump in feet first !

Hope this helps get the ball rolling

Holly

sharper13

thats great thankyou