Paying back mortgage deposit to parents

stir_crazy

Hi All,

Sorry for the long post. I'm not sure where to put this as I'm usually on the Marriage boards, but didnt think it would be appropriate there.

We had been living in rented accomodation until my dad offered to lend myself and DH a deposit to buy a house. The loan was for 1/3 of the house value, approx £34,000. The house was to be done up to sell within 10 years and 1/3 of the selling price to be repaid to my dad.

We bought the house in 2009, so we have until 2019. The houses in my area are not selling as well as we thought they would, so if we sell the house we would not be making much of a profit (to be used as a deposit for the next house) by the time we pay my dad back, and pay off the remainder of the mortgage.

I had an idea to just save the money and pay my dad back after getting the house valued in 2019, which I am sure he will agree to. My husband is on board with this. As it is a large amount, we would need to begin saving this year in order to have anywhere near the amount needed.

My question is: I'm not sure whether to pay my dad back in installments or as a lump sum, as I'm not sure if there would be tax implications either way? I need to make sure that he is not affected adversely by the decision. Thanks for any help and advice.

Foxy-Stoat_3

As you were going to pay him back a lump sum in 2019 anyway I would stick to that.

Put £550 a month in Premium Bonds now and for the next 5 years and cross your figures your numbers come up!!

stir_crazy

Thanks Foxy-Stoat, I wasnt sure if I was over thinking it or not Good idea about the Premium Bonds too!

silvercar

If your Dad is charging you interest then it makes sense to pay back as much as you can as soon as you can. If it is all interest free, then you could put savings away and snowball the interest to make reaching the target that bit easier.

Do have a conversation with your Dad, sometimes dates are flexible and your Dad may want you to keep the money to move to a bigger home and provide him with grandchildren

stir_crazy

He's not charging interest, just 1/3 in, 1/3 out, which is why we'll need to get the house valued in 2019.

I know he'd be happy to get the money back "whenever", as I've talked to him about the house lots of times over the years - updates about decorating, mortgage rates, etc. But I want to be fair to him and make sure that we have it ready to give to him in case he is planning on using it for something. I'll be suggesting my idea to him later on in the week.

questionss

I'd def get the money saved that way even if prices have risen and you want to sell to pay him back you have extra money to add to your next deposit

Foxy-Stoat_3

Did you crunch the numbers 5 years ago?

House value in 2009 £102,000
Dad's deposit £34,000
Mortgage in 2009 £68,000
Mortgage in 2019 £50,000 after 10 years of capital repayments.
House value £120,000 in 2019 - guess
Pay your Dad back £40,000 ( One third )
Balance £80,000 less say £2000 fees, less mortgage = £28,000 for the next property.

You would probably need to save anyway as you will want to get a bigger place and be on the same LTV % to get the cheapest interest rate on the next mortgage.

stir_crazy

You're right, my main concern is that we would need a pretty big deposit for a larger house. We got our house fairly cheap because it had been on the market for a long time and the seller had reduced the price in order to sell. There is a large increase in price between two bedroom properties (which I have just now) and three bedroom properties, without factoring in the reduced cost of my house.

Another advantage (in my mind) for us effectively buying out dad is that we wouldnt have to rely on the house selling quickly in order to pay him back if he does actually need the money, and we would be able to wait until the right house came along.

dimbo61

Does Dad need the money ?
Even if you only repaid £500 a month that is £6000 a year and a little extra income if Dad needs the money.
You could have most of the debt repaid in 5/6 years

Mojisola

I didn't think mortgage providers allowed a loan as a deposit.

stir_crazy

Mojisola wrote: »

I didn't think mortgage providers allowed a loan as a deposit.

We had to sign a legal document stating that we would be pay back the deposit after 10 years. Technically, although it is my name on the deeds, dad owns 1/3 of the house.

Does Dad need the money ?
Even if you only repaid £500 a month that is £6000 a year and a little extra income if Dad needs the money.
You could have most of the debt repaid in 5/6 years

Right now he doesnt need it, but it will form part of his savings to boost his pension when he retires in the next five or six years. That's why I'm not sure if it would be better for him tax wise if he got it as a lump sum or as installments. Thinking about it, perhaps that is not an issue for the mortgage board...