Lend money for house deposit

eevie

Can anyone advise on the best way to do this?

My daughter and her partner want to buy their first house, they can afford the repayments but it would take a long time to save a decent deposit to qualify for a lower interest rate.

I have agreed to lend them enough money to bring the amount they have to botrrow to 85%.

I will have to take the money out of an ISA, paying low interest. I would like to have my daughter pay me interest, at a lower rate than the mortgage, on the amount I lend.

How should we do this? I would like to avoid paying tax on the interest. I would like to make sure my loan is secure if anything should happen to my daughter's relationship.

I will not be needing the money back within the next few years. When their mortgage deal finishes in 2 or 3 years we will re-assess the loan if house prices have increased or they have managed to save more money etc. I do not want to directly gift her the money as this is our pension fund and we have 2 other children who we would like to treat equally should the need arise.

angelsmomma

Who are they hoping to mortgage with? Most will not allow loans as part of the deposit on a mortgage.

Annisele

eevie wrote: »

I have agreed to lend them enough money to bring the amount they have to botrrow to 85%.

I will have to take the money out of an ISA, paying low interest. I would like to have my daughter pay me interest, at a lower rate than the mortgage, on the amount I lend.

How should we do this? I would like to avoid paying tax on the interest. I would like to make sure my loan is secure if anything should happen to my daughter's relationship.

I think you're going to struggle with that - as angelsmomma says, lenders aren't keen on borrowed deposits. Plus, if your daughter is actually paying interest to you (and you're a taxpayer) then tax is due on that interest.

An alternative might be something like Lloyds' Lend a Hand mortgage. (NB I am NOT recommending that, I'm just saying it exists. There are similar products in the market, and possibly all or none of them are suitable for you).

Thrugelmir

eevie wrote: »

I will not be needing the money back within the next few years.

If they would struggle to save for a deposit. Can they realistically afford to repay you? Perhaps give them a leg up once they've built some savings of their own. Saving is a good discipline to learn.

Dave_Ham

Ok, actually you lending them money for a deposit is acceptable to some mainstream lenders. It would need to be affordable and measured as an ongoing credit commitment, such as a normal loan.

This would need to be affordable on the banks affordability and not just a "we can afford to pay it" basis.

You will have issues around protecting this money though. It is unlikely the mortgage lender would sanction a charge on the property and a deed of trust could be used, but will not be watertight in this situation.

You amend the ownership in favour of your daughter, assuming you are happy to trust her.

My overriding opinion would be that if this is a 5% loan, to get them from 90% to 85% loan to value then it is just not worth the extra grief.

Rates of 4-4.5% spread over a long term (based upon age) may be a better option and then review in 2 years..

Just some thoughts, good luck

amnblog

Hi Eevie

If they have 5% deposit themselves you can keep the 10% on deposit and they can get a 85% with a mainstream lender.

That way they are using the money but you are not putting it into their property.

If this sounds like a suitable idea PM me and I can send you a link to further details about this type of arrangement.

eevie

Thanks for the replies

They will have saved around 5% but then they will have to pay stamp duty legal fees etc, so some of their savings would have to go on this. They are renting and saving at the moment so I know that this is affordable. The reason I am willing to lend the money is so they don’t have to save for another 18 months - 2 years for a deposit . Their mortgage outgoings will be much less than the rent plus the amount they are presently saving each month.

I want to lend the money so they could get a better mortgage rate with a bigger deposit eg 85% LTV. At the moment interest rates are so low that my money is earning very little, if they did pay me interest this would also save them money as they would pay me less than the mortgage rate.

When they remortgage in 2 years they will have improved the house, so it will likely increase in value so the next mortgage won’t require such a high LTV.

I have looked at the Lloyds lend a hand scheme, but have found it impossible to get the rates, not online, not in branch, daughter made appointment they cancelled, asked someone to phone me they left message, but no rates, phoned Lloyds they can’t tell me. I have founds rates on other (not Lloyds) websites but can’t be certain they are correct and have found 2 different rates from 2 websites that were both from Sept 2013.