Help with deposit

Susan1942

My Son is currently renting a property which he moved in to when he moved to a new area. As his house was in negative equity he has rented it out and the rent covers his mortgage repayment. The rent he pays for the current house is more or less what he was paying for the mortgage,
They want to buy sometime next year but obviously saving for the deposit is hard with 3 young children.
I would like advice on how I can best help them. I understand that making a cash loan from me is not permitted. I am wondering how I can give them the money and what the tax implications would be.
They are sensible in that they will buy what they think they can afford and hope to maybe buy a repossession . They have a 4 bedroom 3 bathroom 2 public room but would settle for a 3 bedroom semi with one public room. Would the deposit be somewhere in the 10% region. I am just doing my sums and I can gift them the money now . The other option would be for me to buy a house and let them live in it but again capital gains tax would perhaps come into play.
They will start to have a look again after Christmas as they have a year lease on the rented property which will end in May. They would have the option to extend that.

Any advice would be helpful.

Sue

Foxy-Stoat_3

You can gift him the money, best let him talk to a broker first to advise the level of deposit he will need as he already has a +100% mortgage.

10% may be a bit low but a whole of market broker should be able to help, explain to them where the deposit is coming from at the start though.

Tax implications on gifting cash would only apply in an inheritance situation. If he has a partner then a deed of trust would be a good way forward if its going in joint names.

John1993_2

As you said in the other thread,

"also at this stage in life I may need the money if I should need to go into care in the future."

This is quite an important point. If you gift the deposit, it has to be really that, a gift. It can't come with conditions or strings, so you can't lend it with the "understanding" that they pay it back later when they can, or when you need it.

Hopefully people more familiar with this will suggest what can be a workable solution, I'll just repeat that you do need to be careful to do it properly, so that everyone is able to be honest and upfront about what is going on.

Ryantymon

Forgive me as im a little unclear on 1 thing. Are they going to keep there current residential mortgage that they are renting out or sell this property, even though their is likely to be negative equity?

The reason i ask, whether this be a problem or not is that the lender will work the affordability calculators based on the property they are currently letting out and the property loan amount they are about to purchase if they keep their existing property.

It sounds like they are going down the route of purchasing a "second home" in the eyes of the lender, which will require a 10% deposit as a minimum.

As John has mentioned though, if this is a gifted deposit then it is likely that the lender will require a letter outlining this is a gift and you are not expected to be remunerated for this.

Thrugelmir

The issue of the existing property needs to be addressed before purchasing another property. Very quickly it could turn into a mill stone around their necks.

Susan1942

Thanks for your responses I am going to take some advice on this and also ask my Son to do likewise. I think he is talking about having to change the current mortgage to buy to let not really sure if they have already done this. Northern Ireland is really bad for selling. Buying there are a lot of repossessed property that are put on the market a few at a time but there are some affordable prices due to this. I don't have the opportunity to talk to him at length. I could actually buy another house and let them rent from me but this would deplete my savings etc. I am easily able to give them the deposit they need but I think my Son thought it should be a loan. Now I know that this is not possible I will make plans accordingly. I just want everything to be up front and above board. Do not want to give myself anything to worry over. It was actually me who offered to help rather than them asking me. They are married and it will be a joint mortgage I think? Thanks again. I am glad that I raised the question and grateful for the advice given

Sue

Ryantymon

Susan1942 wrote: »

Thanks for your responses I am going to take some advice on this and also ask my Son to do likewise. I think he is talking about having to change the current mortgage to buy to let not really sure if they have already done this. Northern Ireland is really bad for selling. Buying there are a lot of repossessed property that are put on the market a few at a time but there are some affordable prices due to this. I don't have the opportunity to talk to him at length. I could actually buy another house and let them rent from me but this would deplete my savings etc. I am easily able to give them the deposit they need but I think my Son thought it should be a loan. Now I know that this is not possible I will make plans accordingly. I just want everything to be up front and above board. Do not want to give myself anything to worry over. It was actually me who offered to help rather than them asking me. They are married and it will be a joint mortgage I think? Thanks again. I am glad that I raised the question and grateful for the advice given

Sue

Changing the mortgage to a BTL unfortunately doesn't sound like a option as you would typically need 25% deposit.

You could get potentially get permission from the existing lender to let the property, though as mentioned other lenders will work the affordability multiples based on both outstanding loans then which may or may not pass?

Please dont be offended by this last sentence but you did mention care in a previous post so im guessing your in the "later" stages of life, again the reason i say is with purchasing a BTL property you need minimum incomes of typically £25k PA and most lenders tend to have a maximum age of 70/75.

I sound very negative with all of this but i think its best talking to a adviser to get a clearer picture of you and you're sons predicament / ambitions as its quite possible they will be able to help.

Susan1942

Thank you so much for such good advice. I don't think my son has really thought this through but I think it is important to take more advice on this. He has a BIL who owns a lot of property which he rents long term.
I would fit the age and deposit criteria re buying and in fact I could actually buy cash if it is less than £100,000 but would I want to probably not
What would the situation were he to decide that he does not want to keep the first property Could he just hand it back to the bank or would he need to sell and make up the negative equity.?
Would the bank sell and then he would want to pay the bank the difference.
As you say I need to look into all this carefully as I don't want to compromise either myself or my Son.
I really do appreciate your views and advice Sue

Susan1942

I have a which membership and spoke to them regarding some of the issues I have expressed. They have said more or less what people on here have been saying.
I need to talk to my Son and get him to realise the implications of what the various options he has been thinking about.
Thanks for leading me in the right direction and advice

Sue

Ryantymon

Susan1942 wrote: »

Thank you so much for such good advice. I don't think my son has really thought this through but I think it is important to take more advice on this. He has a BIL who owns a lot of property which he rents long term.
I would fit the age and deposit criteria re buying and in fact I could actually buy cash if it is less than £100,000 but would I want to probably not
What would the situation were he to decide that he does not want to keep the first property Could he just hand it back to the bank or would he need to sell and make up the negative equity.?
Would the bank sell and then he would want to pay the bank the difference.
As you say I need to look into all this carefully as I don't want to compromise either myself or my Son.
I really do appreciate your views and advice Sue

You could potentially buy a second home then with a lender who doesnt mind you having family in the property.

Again though this can cause quite a few issues moving forward such as CPT

Yorkie1

Susan1942 wrote: »

What would the situation were he to decide that he does not want to keep the first property Could he just hand it back to the bank or would he need to sell and make up the negative equity.?
Would the bank sell and then he would want to pay the bank the difference.

If he just hands it back to the bank, they will sell it at probably less than he would get for it. He would owe the costs of sale plus the amount left. They have 12 years to come after him for any amount outstanding.

Better for him (of the two options you've mentioned) to sell it and pay the bank the difference - they won't let him sell it unless he clears the mortgage owed.