Buying house with parents having equity stake

hayzec

Hi,

My partner and I are looking to buy a house in the next few months. We are in the fortunate position of having parents who are able to help us & my family have said that they would be willing to hold an equity share in the property, to enable us to get a place that will last us for longer.

For instance:

• £500k property (in London)
• Parents put in £125k & own 25% of the house.
• We have £100k in deposit - a further 20%
• The balance of £275k (55%) is covered by a mortgage in mine & my partner's name.
• The property would be occupied by my partner & I, and only us, i.e. there are no buy-to-let / rental income issues to take account of, and we'd be comfortably able to pay for the mortgage from our salaries.
• We would buy my parents out at an undefined point in the future, at or close to the market value of their share at the time of sale.

My parents both turn 60 this year however and we are struggling to work out whether their owning part of the property has an impact on our mortgage, and if so, whether the maximum term for the mortgage will be reduced to 15 years given that that's the gap until they reach 75.

We've spoken with two banks this afternoon and they've given us conflicting views on this, with one saying that the mortgage charge will be over the whole property & that as co-owners their position would impact our mortgage, so that our term couldn't be more than 15 years.

The other said their position shouldn't matter, other than if we wanted to increase the amount of the mortgage where their permission would be required as co-owners. But their age shouldn't have any impact on our mortgage as the mortgage would be in our names only.

Does anyone have any experience of this or know what the impact of our parents helping us in this manner would be, for them and for us?

They know that their share of the property would form part of their estate and therefore the investment would be subject to any IHT requirements. Likewise, they know that if they are legally owners of a share of the property, they'll be subject to capital gains on the eventual sale as it's not their main residence. Equally, if we bought my parents out while remaining in the property, say in 5 or 10 years time, we'll pay stamp duty on the value of the share we were purchasing off them (assuming the thresholds don't change significantly).

Any thoughts on whether their age will impact our mortgage term, and if there are any other considerations we should be aware of would be gratefully received!

Thanks,
Hayzec

Thrugelmir

hayzec wrote: »

[*]The balance of £275k (55%) is covered by a mortgage in mine & my partner's name.

To cut your long post short. This is a non starter.

All parties would need to be named on the mortgage.

Any arrangement regarding the equity in the property would be an issue between the parties to document and agree upon.

hayzec

Thrugelmir,

Could you explain what you mean?

Thanks,
Hayzec

Yorkie1

You cannot have more people on the deeds than on the mortgage, so if the intention is that your parents have an interest in the property's ownership then they need to be on the mortgage too.

Also, it's clear that the money from the parents is not a gift and therefore must be declared as a loan. This may also impact on affordability.

Thrugelmir

hayzec wrote: »

Thrugelmir,

Could you explain what you mean?

Thanks,
Hayzec

Very simply. A mortgaged property cannot be owned in shares. So your parents cannot own 50% by paying in cash and yourselves own 50% with a mortgage. All 4 parties will need to be included on the mortgage application.

robpaton

Have you considered your parents loaning you the money in a separate, legal arrangement from the mortgage? This way you would have no problem with the mortgage as you yourselves would have £225,ooo deposit. You can than arrange to pay back your parents separately.

System

Even then you should declare the loan to the mortgage company when you apply.

Thrugelmir

!!!!!! wrote: »

Even then you should declare the loan to the mortgage company when you apply.

Then the application would be declined.

The money would need to be gifted. The sum involved could cause issues though.

pleasedelete

robpaton wrote: »

Have you considered your parents loaning you the money in a separate, legal arrangement from the mortgage? This way you would have no problem with the mortgage as you yourselves would have £225,ooo deposit. You can than arrange to pay back your parents separately.

What makes you think that? A loan cant usually be used for a deposit.

ethank

A loan cannot be used as a deposit. It does not provide a lender with sufficient security on which to lend.

ms6_2

Did you find a solution? I'm in a similar situation