Borrowing money for house from parents

sparxy

Hi all, bit of advice required!

Looking to purchase a house soon, as am realising that paying rent is not actually going to get me any tangible asset at the end of it.

On discussion, my parents have offered to lend me the rest of the money (aside from the deposit), and then for me to pay them back + a small interest amount. Working this out on the rough house price I am looking at means that at £650 a month I will have paid it off in circa 15 years (not to mention that I can pay an increased amount to pay off quicker). Also, have also suggested potentially allowing a lodger allowing to pay off quicker.

I also have a Help to Buy ISA on the go.

Questions:

1) Is this a sensible option?

It will expose me to less interest than a financial organisation, less fees (none), and flexibility to pay more. For my parents, they get more interest than in savings. A cash purchase of the house would also potentially speed up buying.

2) Could I still claim the HTB ISA bonus, without a mortgage product?

Looking through information online, i'm still not 100% sure. If not, would taking a small mortgage with low fees/early repayment fees, then pay off nearly immediately - be justified to get the bonus - worth approx £1000 at present?

3) What Tax implications will this incur for my parents?

I have looked and noted that the loan amount will be tax free, but the interest not. Would this count within the personal savings allowance (interest) for tax purposes?

4) Should we get a solicitor to draw up a formal agreement

Or would a formal agreement template (edited to suit) signed by us all, and copies kept by all parties suffice?

Thanks guys!

jennifernil

1. It could be a good idea if handled properly.

2. I very much doubt it would qualify. I doubt another mortgage lender would be happy if you also had a loan from parents.

3. Possibly, best check with HMRC. How big will the loan be and what rate of interest? Interest received will certainly be taxable as you have discovered.
However, your parents could be earning between 1.5 and 3% interest on their savings, and there are mortgage rates lower than that. What rate did you all have in mind and what happens when rates in general increase?

4. Make it official with a loan agreement laying out interest rate etc, and your parents should place a charge on the property as any other mortgage lender would do.

A solicitor should be able to do all this for no more than around £300.

I paid £180 to have exactly this done about 4 years back.

AnotherJoe

jennifernil wrote: »

1.

2. I doubt another mortgage lender would be happy if you also had a loan from parents.

You misunderstood the OP. They meant, take out a mortgage to get the bonus, then pay off the mortgage and take parents loan.

To which the answer is, the fees involved would much more than cancel out the £1,000 bonus.
Fee for mortgage, survey, conveyancing/solicitor, close off mortgage fee, searches and no doubt several others, plus the hassle, delay and paperwork.

sparxy

Thanks guys.

A figure of 2% had popped up between us. Looking on various comparison sites - rates of 3.74 after the initial 1.?% figures have popped up.

Another reason for the familial borrowing was that mine shafts are common around where I am looking to buy - and obviously some borrowers are more strict than others on lending to properties with mine shafts in the vicinity.

The bonus is not so much of an issue - it is money I have never had, so not really lost. I only wish I was able to save more than the £200 a month or i'd have my entire deposit amount in there too!

AnotherJoe

Rates after the initial period are usually irrelevant since in most cases you'll remortgage and get another lower rate anyway.

AnotherJoe

sparxy wrote: »

Another reason for the familial borrowing was that mine shafts are common around where I am looking to buy - and obviously some borrowers are more strict than others on lending to properties with mine shafts in the vicinity.

There is a good reason for that !!!

sparxy

AnotherJoe wrote: »

There is a good reason for that !!!

Ive done a lot of research into mine shafts and issues - the current property has the nearest shaft 10m from the building, no history or signs of subsidence and the shafts from the 1880s. Price will obviously have to reflect the mine shafts presence. Aware of the coal authorities' obligation to repair damage also.

Obviously if only a handful of mortgage lenders would lend, this would also effect trying to remortgage!

jennifernil

I am charging quite a bit more than 2%, but the saving on fees and the flexibility I offer on payment dates and overpayments makes up for that!

In this case however it was a remortgage of a property owned outright, so no uncertainty regarding searches and surveys as they were done on original purchase. As said, there are reasons to be cautious.

You should really offer them at least the rate they could otherwise achieve, which, depending on the amount involved could be as much as 3% at present.

For a couple, you could have at least £46500 earning 3%, and another at least £15k earning 2%.

The rate you agree could track the base rate to take care of rate changes in the future.

sparxy

jennifernil wrote: »

I am charging quite a bit more than 2%, but the saving on fees and the flexibility I offer on payment dates and overpayments makes up for that!

In this case however it was a remortgage of a property owned outright, so no uncertainty regarding searches and surveys as they were done on original purchase. As said, there are reasons to be cautious.

You should really offer them at least the rate they could otherwise achieve, which, depending on the amount involved could be as much as 3% at present.

For a couple, you could have at least £46500 earning 3%, and another at least £15k earning 2%.

The rate you agree could track the base rate to take care of rate changes in the future.

Hi Jennifer,

Thanks for your advice, the 2% figure was a brief suggestion based on the amount i'm getting on my savings at present. Where might they be getting 3% on 40k?

At one point in time my parents were quite thrifty with their money, happy to split among multiple accounts - now I think they're happy just knowing exactly where it is, even if it is getting a slightly lower rate of interest.

They already have a property invested in, with tenants, getting a reasonable amount of rent p/m which I helped refurbish when I could. This has been another idea but put to the side as costing them much more to purchase directly than me to purchase, loaning the money from them, even after all the tax relief they may be able to claim.

Cheers for all the information so far

:beer:

jennifernil

3% on up to £15k per person on BOS Vantage accounts.So £30k for a couple.

3% on up to £1500 on TSB Classic Plus, a couple can have 3 accounts, so £4500.

3% on Tesco Current accounts, you can have 2 each. So £12k for a couple.

Probably others too, but those are the ones we have.

Club Lloyds pays 2% on up to £5k, a couple can have 3 accounts, so £15k.

There are also Monthly Savers paying 3-5% for new accounts.

We OAPs need our money to earn as much as possible!

dharper81

Does BOS Vantage pay 3% on £15k each? The website says 3% on £3-£5k balances.