Sell my house to my kids?

Spacechimp

Currently my long term girlfriend and business partner are living with her father in his house (We are both 33years old and he is in his mid 60's). This came about a few years ago. We were all but ready to move out with our house deposit in hand when suddenly I was made redundant. It wasn't the end of the world as we'd already started to work on a business plan and this just speed the process up. We sunk the house deposit money into the business and moved in with my girlfriends father to help with the bills and save a good amount on rented accommodation. My girlfriend left her job and joined me in the business and now 4 years on we are making a healthy profit and have once again saved our deposit.

Now for the tricky part, the banks are still not overly confident to offer us a mortgage, that's not to say we can't get one but they are not as much as we'd like when you consider we'd ideally like some office space to continue working from home.

My proposed solution was that we ask my girlfriends father if we can buy his house for the remainder of his mortgage thus making him mortgage free and leaving us with a small manageable mortgage of our own which after a while would go some way to proving our worth in the eyes of the lenders and increasing our mortgage amount. Plus it seems to make sense to put at least some of our savings into property at the moment. As there is only about 16% of my girlfriend fathers mortgage left to pay (around £26k +early payment fees etc), the plan would be to keep the property for another year or so and then sell up dividing the profits by percentage.

I realise all three of us would require wills and I'm guessing we'd need a solicitor to help us write up a document to say that the lions share of the property would return to my partners father when the property sells.

This seems like an elegant solution but I'm sure it must be more complicated, so the question is:

What am I not thinking of?

Ps I should also point out that my girlfriend and I don't have children an wont be having any, so please don't worry to include that as a possible concern in your answers.

Many Thanks!
Spacechimp

~Beanie~

I don't really see what is in it for your girlfriend's father? Have you broached the subject with him at all, is he agreeable to the idea?

Spacechimp

Yea he likes the idea because it means his mortgage stops and he can carry on working and save the would be mortgage payment to add to his pension. He wants to downsize and at the moment truthfully the only thing stopping him is us living with him. Though I think he prefers us with him for the company.

beecher2

I don't see how having a mortgage would make any difference to how much a lender would allow you to borrow. In addition you're not likely to make much profit in a year.

Annisele

Spacechimp wrote: »

My proposed solution was that we ask my girlfriends father if we can buy his house for the remainder of his mortgage thus making him mortgage free and leaving us with a small manageable mortgage of our own.

Fortunately for your girlfriend's father, what you're suggesting isn't possible.

You can't get a mortgage to buy 16% of a house; you'd have to buy the whole house. Since you'd be buying at an undervalue, the bank wouldn't lend to you unless her father confirmed he was gifting the other 84% to you - which he can't do, because it isn't a gift. Since he's remaining in the property he'd also have to confirm that he has no interest in it - and again he can't do that, because it's not true.

Can't you just pay him rent equivalent to his monthly mortgage payment?

Spacechimp

@Annisele Yes we could do, in fact we do pay rent and that covers more than half of the mortgage and all the bills.

This was an idea that came up over dinner between the three of us. We realise that as it may take up to a year (or more) for us to find a property of our own and for him to find a downsized property our savings, in that time would all but cover the cost of the outstanding mortgage amount.

The benefits we thought we'd get from this would be that:
1, He wouldn't have a largely reduced mortgage which would be totally covered by our continued rent.
2, Our savings would increase more than in our cash ISA's we currently have (we also have an investment ISA we pay into monthly)

He then suggested selling us the house for the mortgage remainder.

The further benefits of my girlfriend and I getting a mortgage, though I realise I may be wrong on these points were:

1, Being mortgage payers would help us with our next mortgage as we would no longer be "first time buyers"
2, He would be completely mortgage free.

So I guess from what's been said so far we come back to our original idea of paying it off with our savings until we are all ready to move.

We will at some point go to see a mortgage as clearly we're not totally savy on these things but before that we thought it best to ask an expert here. After all you don't learn unless you ask.

Annisele

Spacechimp wrote: »

The benefits we thought we'd get from this would be that:
1, He wouldn't have a largely reduced mortgage which would be totally covered by our continued rent.
2, Our savings would increase more than in our cash ISA's we currently have (we also have an investment ISA we pay into monthly)

I don't really understand what you mean by your first point. On your second, I know house prices have been zooming upwards recently but it is possible for them to go down - and the house might be worth less in a year's time.

There's also the issue of maintenance. Who will pay for a new boiler, or to replace the roof tiles, or for the other things that can go wrong with a house?

The further benefits of my girlfriend and I getting a mortgage, though I realise I may be wrong on these points were:

1, Being mortgage payers would help us with our next mortgage as we would no longer be "first time buyers"
2, He would be completely mortgage free.

You seem to be saying that having a mortgage would benefit you, but disadvantage him - you can't have that both ways!

Admittedly a history of paying a mortgage on time does make you look slightly more attractive to a lender, but IMO that's fairly minor. Much more important is affordability, loan to value, and whether you have a history of NOT paying your debts on time.

As an FTB you do have some significant advantages - one of which is that you're chain free, so you're more attractive as buyers.

For him, if he was chain free that would help him - but he won't be chain free, because he'll need your house to be sold first. Realistically, he won't be able to buy until you have - but what if he finds the house he likes before you find yours?

CLAPTON

makes no sense at all


he can simply use your rent money to overpay the mortgage


then when ready to sell he gets the money and buys a new property for himself


if he wants to give you some cash then he can or not if he doesn't want to


madness

Yorkie1

You will not be able to get a mortgage if he remains in the house after selling it to you. Lenders don't like previous owners staying after sale because it makes it more difficult to repossess if necessary.


He loses any security once he no longer owns his house.


He won't be able to claim means-tested benefits if he gives away 84% of the value of his house.


As others have said, this isn't a viable option.

Spacechimp

@Annisele The first point was that my girlfriend and I give all of our savings to MGF, who would in turn use them to pay his mortgage. His mortgage would be down to the last 5% or so and our continued rent would cover that completely, with plenty left even after bills.

I realise property is risky but the miserly amount we earn on ISA's makes the gamble more appealing.

At the moment maintenance is covered by all of us equally I don't imagine that would change.

Having a mortgage for us would be a plus because, as you said, you look slightly more attractive to a lender but I openly admit I wasn't sure by how much pull this had with lenders and this was the main reason for coming to this forum in the first place.

@Clapton @Yorkie Thanks

I'm concerned at the tone of these responses so just to be clear no one of the three of us are looking to take money from the others or leave anyone in a bad situation. We are all looking for a way to help one another. What we are asking for here is advice on the best course of action for us all to make and/or keep as much money as we can with the resources we have. Our current situation is we have savings he has a mortgage. We are currently staying with MGF on his request because he needed help with bills/mortgage repayments (work seems to have picked up for him again now) He refuses our offer to pay that mortgage preferring to pay his own share but we compromised and along with rent which covers a little over half the mortgage also pay the bills. What seemed like a sensible suggestion was to put the savings into the house but as you have all pointed out that's not as good an idea as we all thought. Whatever the suggestion it would have to be legally tight because even though we are all physically fit and well and are all in a good relationship with each other things can change and in regards to money it's always best to be sensible.

So suggestions people?

Thrugelmir

Continue as you until such time as you are in a position to move on. Until then you all appear to benefit from the arrangement as it's mutually beneficial.