Investing parents saving in property

huckocs

Hi all,

I'm in the process of selling a flat in London that will give me a decent profit, 70k, enough to buy another property with a mortgage. That's the simple bit.

My mother sold her house and downsized and has roughly 80k sat in various low interest savings accounts.

I've been thinking that if she were to invest a sizeable chunk of that 80k along with my deposit, I could by a 2/3 bedroom flat, get a lodger or 2 in and then pay her a substantially better return than the paltry interest rate she currently gets, and get some help with the mortgage.

In theory the investment from her could be a gift, or I guess we could each own a share of the property (which I expect makes things more complicated).

I would obviously speak to a solicitor to do this properly, but to be honest i've no idea if this is feasible or what I should be asking.

Does anyone have any experience of this, or any guidance?

Thanks in advance!

Rob

Yorkie1

huckocs wrote: »

Hi all,

I'm in the process of selling a flat in London that will give me a decent profit, 70k, enough to buy another property with a mortgage. That's the simple bit.

My mother sold her house and downsized and has roughly 80k sat in various low interest savings accounts.

I've been thinking that if she were to invest a sizeable chunk of that 80k along with my deposit, I could by a 2/3 bedroom flat, get a lodger or 2 in and then pay her a substantially better return than the paltry interest rate she currently gets, and get some help with the mortgage.

In theory the investment from her could be a gift, or I guess we could each own a share of the property (which I expect makes things more complicated).

I would obviously speak to a solicitor to do this properly, but to be honest i've no idea if this is feasible or what I should be asking.

Does anyone have any experience of this, or any guidance?

Thanks in advance!

Rob

You will have to declare the source of funds for your deposit on the new place.

What you have described is a loaned deposit. It would therefore be mortgage fraud on the part of both you and your mother (who will have to sign documents as part of the process) if you were the only purchaser and you declared her money was actually a gift.

If you told the truth and declared it as a loan, this would impact on affordability calculations and might make a difference as to whether the lender would lend you the amount you needed.

If you are the only person on the mortgage, she cannot be a joint owner of the property - the lender will not allow it. Her investment would not be protected.

The alternative is for her to be a joint applicant on the mortgage and therefore a co-owner on the property deeds. However, depending on her age this might be complicated because lenders won't lend beyond the older borrower's xx birthday (where xx varies according to lender).

Finally, you should be aware that lodger income won't be taken into account by the lender when deciding whether they are prepared to lend to you.

somethingcorporate

What if your mother needed access to that money?

Property is a very illiquid asset.

huckocs

Thanks for detailed reply.

So I understand about the loan vs gift scenario. I suppose I was thinking that although I would be paying her money from any lodger, it wouldn't be 'repayment of the loan' but 'an income from the investment'. Although I suspect the law wouldn't see it like that and I'm been naive.

Is it just a pipe dream then?

In terms of the access to the money, yes I appreciate that can be an issue, though there is access to money in other accounts.

Thanks again

G_M

Your mother needs to consider carefully her entire financial position.

* what other funds, investments, assets does she have?
* How liquid? How secure?
* what income does she have? What income does she need?
* what debts, loans, mortgages?
* What planned major outgoings might she want? eg holiday/new car?
* What various future scenarios might arise requiring access to funds? (eg illness, care home, care helpers at home, job loss, 2nd late mariage). Think laterally about all potential scenarios

Advising on the advisability of this idea for her is impossible in isolation of the above, though clearly it has benefits to you.