Buying house with parents

alexkerr

My wifes parents own our house outright and we rent from them. We want to move to something bigger using the sale of the house we rent and us obtaining a mortgage to top up the difference. We would still have to pay my wifes parents a return on their investment.

Having spoken to a broker and a lender today, it doesnt seem it is going to be as easy as i describe. The broker said that the lender would see the repayment to parents as a loan and it would reduce the number of lenders willing to lend. The lender said that they wouldn't accept the sale of this house as deposit for the other if the cash wasnt from us.

I didnt discuss numbers with the lender but they are as follows

Predicted cash from sale of this house 110k. Maximum cost of purchased house 220k. 110k mortgage. Maximum we could loan was 220k so we are borrowing half of what we could potentially. Surely this would reduce any risk associated?

Obviously legal advice is the next step but was wondering if anyone else has been in a similar position or anyone could add anything to help me understand more

Alex

NervousHomeowner

alexkerr wrote: »

Maximum we could loan was 220k so we are borrowing half of what we could potentially. Surely this would reduce any risk associated?

That probably isn't the risk that the lenders are worried about. The issue is that the money you are putting down as the deposit isn't yours and isn't gifted either. Therefore, your wife's parents will have a vested interest in the property and could potentially cause problems down the line for the lender. I know they probably won't, but the lender can't be certain of that.

Is there no way you can stay put for a few years and save up a deposit of your own?

kingstreet

Who is buying the property?

Who is applying for a mortgage?

Who will live in the property?

alexkerr

I came across this article which seems to suggest that parents can loan money as a deposit with us paying them back. I guess how the money is raised from their perspective is irrelevant whether from the sale of a house or not

"The easiest way to help is to give your child enough money for good sized deposit as a gift – in the current mortgage market, that is likely to be around 25% of the value of the property however (though even 10% will open the door to a broader choice of mortgage deals). At present, there are no immediate tax implications as you can give as much money as you like to your children tax free. However, if you die within seven years of making the gift, the loan will be treated as part of your estate and may be subject to inheritance tax.

If you do not want to simply give your children the money, there are other options:

You can loan them the money and charge interest each month.
How much interest you charge is entirely up to you (you could make it an interest free loan if you wanted), but clearly it would need to be less than the market rate or the loan wouldn’t really help. If you do provide your children with a loan, you should think about setting down a repayment schedule at the start and formalising the arrangement via a ‘promissory note’ which would need to be drawn up by a property"

Is it that this really isnt a deposit but just an amount of money that would go towards the house and we would need to put down a deposit of our own on the 110?

zzzLazyDaisy

alexkerr wrote: »

Is it that this really isnt a deposit but just an amount of money that would go towards the house and we would need to put down a deposit of our own on the 110?

The issue is that you have no deposit.

You are borrowing 100% of the purchase price from two different sources - the commercial lender, and your parents-in-law. No lender will lend on that arrangement for two reasons - 1) affordability and 2) the interest that your PiL's have, or may have, in the property.

EDIT: I am unclear about your reference to 'the 110'? The purchase price of the property is £220k. Assuming that you are buying the property in your own names and not jointly with the PiLs, this means that you need to find the deposit on £220k not £110k

If you plan to buy the house jointly with the PiLs, that throws up a whole new set of issues.

00ec25

alexkerr wrote: »

Is it that this really isnt a deposit but just an amount of money that would go towards the house and we would need to put down a deposit of our own on the 110?

you don't seem to be getting this. A deposit cannot come from borrowed money, the article you quote does not state the money loaned by the parents is for a deposit because that is simply not allowed

parents can of course lend money to their children instead of the children taking a mortgage from a bank but that is not the same as children not having a deposit to start with and borrowing the deposit money from the parents. The property would then be funding by 100% borrowed money and no lender will allow that

if your parents cannot afford to give you 5% - 25% of the purchase price (so you can get the rest via borrowings at a good rate from a lender) as a cash deposit which is an outright gift then your plan to buy @220K is impossible and you will have to find somewhere cheaper

if you have no money for the deposit yourself then most mortgage lenders will require your parents to sign a form saying the money is a gift not a loan

Annisele

Potentially the PiL could buy the new house, entirely in their own names, and you could rent it from them - just like you've been doing with this house.

That brings up its own issues; for a start they'd need a regulated buy-to-let mortgage (because they'd be letting to their child) and they'd be liable for income tax and CGT. But I think it's much more likely to work than your initial plan.

Duskylady

Your parents will have to sign that this money is a gift and agree that they have no interest in the property. Then the mortgage lenders will be happy.

Whatever personal agreement you make is up to you but your parents cannot reclaim the money back from the house should it all go wrong or force a sale.

Yorkie1

kingstreet wrote: »

Who is buying the property?

Who is applying for a mortgage?

Who will live in the property?

These questions have not been answered.

The posts above may, or may not, be accurate depending on the answers.

For example, if the parents plan to live in the property afterwards then that brings a whole load of extra issues, I think.

alexkerr

Yorkie1 wrote: »

These questions have not been answered.

The posts above may, or may not, be accurate depending on the answers.

For example, if the parents plan to live in the property afterwards then that brings a whole load of extra issues, I think.

Who is buying the property?
Technically both parties. Us with mortgage, PIL with cash for investment purposes (from sale of home we currently live in and pay rent to them for.

Who is applying for a mortgage?
Us

Who will live in the property?
Us, not them


Does anyone have any opinions of this

http://www.firstmortgage.co.uk/family-equity-loan-plan/

zzzLazyDaisy

alexkerr wrote: »

Who is buying the property?
Us with mortgage, PIL with cash for investment purposes (from sale of home we currently live in and pay rent to them for.)
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You need to be clear what you mean by this. Either the three of you are buying the property together or you're not.

So, is this a correct summary:

You and your OH, and your PiL are buying the house together.
PIL is using cash to buy his share
You and OH are taking a mortgage to fund your share.
All three of you will be named on the deed (presumably as tenants in common with a deed of trust setting out the respective shares in the house that you each own?)