Buying house with in-laws - calling lawyers and financial experts!

rak5a

We have just had an offer accepted on a house that we intend to live in with my in-laws. They will have a portion of the house which will kind of be a self-contained annexe. Buying price is £1.275m. They will contribute £300k (all-in). We then need to spend about £120k on the annexe. We can technically (just) afford to buy the house on our own with equity and mortgage. What I am trying to figure out is how best to account for the in-laws contribution. My husband has two siblings. This £300k is pretty much all the savings his parents have (the remainder will take care of their living expenses). His parents are 71 and 74 respectively. So in reality we know that they would intend for whatever inheritance to be split 3 ways between the children. What I guess I am asking is what is the most correct, most efficient and most fair way to deal with this arrangement? Their contribution will only account for about 20% of the cost of the house (after stamp duty and improvements) but they will live in about 35% of it. This is not an issue for us, but I don't know that it would be fair on us to give them a 20% stake in the house and then in 20 years time have to owe the siblings the uplift on the £300k. Do you see what I mean? Is there a standard way to deal with these kind of arrangements? And should I be finding a lawyer or financial advisor to sort it out (or both)? Many million thanks for any ideas!!!

davidmcn

Mortgage lenders will have difficulty with third parties having any sort of interest in the property - they might accept that you're getting a contribution from the in-laws, but will expect that to be a no-strings-attached gift. You certainly can't give them a 20% stake in the house (the bank will insist on the borrowers and owners being one and the same).

rak5a

Thank you David! That's a very good point that we had not thought of.

G_M

The parents lend you the money. The agreement being that you will repay them at some point during their lifetime, or will repay their estate on their death. (or perhaps, on the death of both).

With interest?

Of course, unless you have saved £300K by then, you may have to sell the house. But then presumably after their deat you will no longer eed a house with an annexe....?

silvercar

Bare in mind that they will be living with you and occupying a greater share of the property than their input warrants and that the property will need some work doing to create the annex and some work to bring the annex to be part of the main house in the fullness of time.

Add to that future care responsibilities that you will undoubtedly take just because you are on site.

I would say that "fair" is you getting a portion of your inheritance early and the siblings should have a similar amount ear marked for them before any splits of the estate further down the line. After all you will carry any potential down fall in house prices as well as uplift and have the maintenance responsibility for the whole property.

xylophone

It might be better for you to forget about an elaborate annexe - it sounds as if the house is big enough to give your parents a bedroom, sitting room, bathroom and kitchenette - they can make you a gift of enough to make whatever adjustments this arrangement requires and also pay you a rent a room amount annually which would be tax free.

They keep the rest of the money (half each in sole names) and the will of each leaves whatever remains in his/her estate between the other two children?

TBagpuss

If they are contributing 20% of the purchase price it would be fair for them (or their estate) to be entitled to 20% of the value when the house is sold / estate distributed. It would also be reasonable for them to pay 20% of any costs of essential repairs or upkeep.

The alternative is that you treat it as a straight loan of £300K and agree terms, including the interest rate and repayment terms, and what they will pay you in rent. This clearly gives them less security in terms of their living arrangements so may be a lot less attractive to them. They would also need to get independent advice from (preferably) a solicitor who is a member of STEP and Solicitors for the Elderly to ensure that they are fully aware of complications in terms if issues such as Care home fees should those become an issue.

silvercar

TBagpuss wrote: »

If they are contributing 20% of the purchase price it would be fair for them (or their estate) to be entitled to 20% of the value when the house is sold / estate distributed. It would also be reasonable for them to pay 20% of any costs of essential repairs or upkeep.

The alternative is that you treat it as a straight loan of £300K and agree terms, including the interest rate and repayment terms, and what they will pay you in rent. This clearly gives them less security in terms of their living arrangements so may be a lot less attractive to them. They would also need to get independent advice from (preferably) a solicitor who is a member of STEP and Solicitors for the Elderly to ensure that they are fully aware of complications in terms if issues such as Care home fees should those become an issue.

What happens if they can't afford repairs, aren't willing to pay their share of improvements or become unable or unwilling to pay rent?

TBagpuss

silvercar wrote: »

What happens if they can't afford repairs, aren't willing to pay their share of improvements or become unable or unwilling to pay rent?

You have problems.

A well drafted deed would include provisions about how costs were split and could provide for them to be repaid (with interest if appropriate) when the house is sold. Normally you would have provisions requiring all parties to agree, so if you want improvements and your co-owners don't then then you either don't have them, or you go ahead and accept that they get the benefit, or you terminate the agreement and sell up, or you renegotiate the agreement so that your % share takes into account the value added by your improvements.

If they rent and can't pay then you either event them (and they call in their loan) or you lend them the money, or you let them live there rent free.

These are all the kinds of issue that you need to discuss, in depth, and agree on, and are all the kinds of reasons why you need to make sure you are each getting separate and independent advice.

Pricivius

Others have commented on the difficulties in how the ownership is split and how the monies are repaid etc., but have you thought through the many potential pitfalls, for example:

- What happens if you and OH divorce or if the In-Laws divorce? You would probably need to sell the house so that everyone gets what they are entitled to, and would it be clear what everyone is entitled to? If the In-Laws give money to you now, it would probably be seen as a marital asset and split between you, even though it is supposedly your OH's inheritance down the line.

- Living issues: parties, kids, pets, visitors etc.. Ground rules are needed to ensure everyone is comfortable and happy.

- What happens if you and/or OH lose your jobs and can no longer afford the mortgage? It's not just you affected, but two elderly people too. That's alot of pressure.

My grandma lived with us throughout my childhood and it as amazing, but also very difficult at times. She did not like visitors to the house, became dependent on meals at a certain time and liked things done a certain way. There was no being spontaneous or changing the routine, although we all loved her dearly and would have had it no other way. It was tough, though.