Bridging for my parents' house purchase

Vaticinator

Hi

My parents want to move live closer to me and have found a house they like. They have put in an offer and had it accepted.

Unfortunately they haven't sold their house yet. I have volunteered to bridge them with a mortgage on my house as this is much cheaper than a bridging loan. The mortgage is interest only with no early redemption penalty.

My intention is to put the new house in their name and for them to repay me when they sell the house. Their estate (and the loan) is well below their joint inheritance tax allowance.

My question is 'Is this the right way to do it?'. For instance, what if (god forbid) they both die before they can repay the loan?

Do I need to prepare a formal loan agreement?

I have a sister who is with me the joint beneficiary of their wills on the second death. I want to make sure I am fair to her.

Interested to hear any views and advice.

Thanks.

cte1111

My view would be: don't do it. Unless there is a really pressing reason (not just they want to move), it is would be so much better to wait until they sell their house. I realise they've found a house that they like, but other houses will come along.

How long are you / they able to afford to pay for 2 houses? It's not just the mortgage, it's also the upkeep and other bills. I would steer clear, sorry.

ognum

I am no expert but think you have thought this through and it seems to work out.

I am sure you are aware that your parents will need to pay the bills on their two houses, including council tax now on the empty one. They may also not sell for a while and not at the price they first thought but as long as you are fully briefed on everything then good luck and go ahead.

Vaticinator

Hi

Thank you for your replies.

There is no problem with paying the bills in the medium term.

The key thing for me is that they have found somewhere they can see themselves being happy. They were in their current house for 40+ years so this is very important.

I want to be sure that I am not doing anything silly, particularly with regard to tax, and that I am being fair to my sister.

Regards

Mojisola

Vaticinator wrote: »

Do I need to prepare a formal loan agreement?

I can't believe you'd even consider doing this without a legally drawn-up agreement.

CLAPTON

it would seem very simple to draw up a piece of paper that says you have made a loan of £x
properly witnessed

then if they died before repayment you would be entitled to the loan amount outside any inheritance.

ognum

Vaticinator wrote: »

Hi

Thank you for your replies.

There is no problem with paying the bills in the medium term.

The key thing for me is that they have found somewhere they can see themselves being happy. They were in their current house for 40+ years so this is very important.

I want to be sure that I am not doing anything silly, particularly with regard to tax, and that I am being fair to my sister.

Regards

How lovely you are, I agree I would also want my parents to be content, secure and happy

Ok so the main issue I can see is if your parents own both houses and they die, their estate will then be liable for IHT.

I too think you need legal advice and a contract drawn up that states that you have lent your parents the money and they will repay it within x months at whatever interest rate your mortgage is at.

You can always extend the contract if needed. this would cover you if they die and you could give your sister a copy so she understands the arrangement you have made.

Hope this helps

Vaticinator

Hi

I think a simple loan agreement is the best route.

Somehow it doesn't seem right to sign a loan with your parents who have done so much for you in their lives, but I am sure a proper loan agreement would formalise my right to the money if the worst happened.

Thanks again for the comments.

Regards

Vaticinator

ognum wrote: »

Ok so the main issue I can see is if your parents own both houses and they die, their estate will then be liable for IHT.

Hi

Thank you, good point. Owning both houses would probably push them into IHT without an offsetting loan. I need a loan agreement.

As to me being lovely, I think you mean my wife! She is lovely, and is also prepared to loan her in-laws money so they can buy the house they want. That is my definition of lovely.

Regards