Helping children on the property ladder

gerispringer

My son and his girlfriend want to buy a flat together. Both are in well paid jobs so shouldn't have any trouble paying a mortgage. They need help from bank of mum and dad to get a decent deposit together. Her parents are well off so she can get a decent sum from them, we could dip into our retirement pot and loan him £50k. How do we protect this money so that if they split up we can get this back ? Are there any tax implications her?

anselld

They can sign a deed of trust to determine how money is split on separation (but you would have to trust you son) and it gets more complicated if they ever get married.

Possible problem with loan (as opposed to gift) is that repayments will be taken into account by the mortgage company when they calculate affordability and may result in them reducing the amount they lend.

No tax implications so long as it is interest free.

[Deleted User]

gerispringer wrote: »

we could dip into our retirement pot and loan him £50k.

Just to check, are you of retirement age? I'm assuming so based on the average age of house buyers but if you're not then you won't be able to take that money from your pension.

gerispringer

It's retirement savings so we can dip into it, yes we are retired. We wouldn't expect him to repay it unless they split up , I suppose I thought this might make it protected as it's our money then not his as it would be if it were a gift, if that makes sense.

ognum

if her parents are giving/lending an equal or larger amount you may just be able to arrange a trade off if they split, each half recovering their parents money.

The main problem is mortgage companies do not like deposit loans, you may be required to write a letter saying this is a gift, in which case it is difficult to say its a repayable loan.

martinsurrey

if you trust your son, gift it to him and get a deed of trust drawn up between him and the other half, setting out what happens if they split up.

of course if they do split up and sell the house, the money would legally be your sons, and it would be up to him what he did with it, he COULD give it back to you as a gift, but he wouldnt have too...

Simon11

So your loaning £50k and the other half parents £50k?

Why so much?

Surely if they are purchasing a £200k place, with 20% deposit they only require a total of £40k?

I wouldn't put all my savings into one pot, it is rather risky! It could be a very long time before you receive the money back.

hazyjo

If the house value decreases, how will you get your money back if they split up? What if, by the time the mortgage, etc is cleared, there's not enough left to pay you the amount still outstanding that they owe you?

Also, they may remortgage then split - that would also possibly eat into that £50k...

Agree with above - it's an awful lot to lend!

If they're on decent salaries, why haven't they saved their own deposit (or have they?)? Are they both living with parents or do they rent together?

Jx

hazyjo

PS is her money from parents a gift or loan?

[Deleted User]

If I was in your position, I'd be wanting to look at their finances and attitude to finances before I loaned them any money. Are they spending a lot of money on going out, expensive things they don't really need and then turning round and wondering why they haven't got much of a deposit? This would need fixing before I loaned any money.

The bottom line being if they are both in well paid jobs I'd be looking at why they still can't afford to buy a property? Are they looking at expensive areas? Are there alternatives? Are they wanting to jump in higher up the property ladder than they can afford?

I am not saying that they are.., and I have no idea where your son and his gf are living.

Also think .., can u afford to lose this money if you gift it to them and they get married, have a child.., split, divorce and he can't sell the house because of a divorce agreement? What happens if one of you need to go into a residential home and can't afford the fees, but for one reason or another they haven't paid the loan back. These things need to be thought about and agreements made (which will be difficult to enforce if you gift the money to him but call it a loan).

Sorry to be so pessimistic

dimbo61

Agree with others re gifting £50K from both sets of parents.
However have you looked at offset mortgages! From YBS and friends and family.
You and the other parents help top up kids deposit to get mortgage and then put rest into offset accounts ( In your name!!) but offsetting the kids mortgage!
I do not work for YBS but do have a offset mortgage with them and they have some of the best rates on the market.
In this way you have control of your savings and kids save paying Interest on ALL the mortgage