Second charge on a house my son is buying

gazz

My son is buying a house and we are going to gift him 40% of the house price. Our intention is to get his money back in the future when hopefully his circumstances improve. If we put a second charge on the house for this money will we have any issues assuming the lender is OK with this.

Is this straight forward? I assume we can write into the charge whatever terms we agree.

Gary

marliepanda

It's a big assumption that the lender will be okay...

Is he declaring this as a loan to his mortgage provider? If he isn't, it's fraud, and whacking a second charge on if the same amount will alert them to this.

Pixie5740

Depends on the lender. Most will not accept a borrowed deposit.

gazz

marliepanda wrote: »

It's a big assumption that the lender will be okay...

Is he declaring this as a loan to his mortgage provider? If he isn't, it's fraud, and whacking a second charge on if the same amount will alert them to this.

It will be done with the providers concent, it will create a very large deposit. It just seemed too difficult to buy 40% of the property, the second charge seemed more straight forward.

I suppose what I am looking for is are their and catches, having half the mortgage seemed straight forward untill I looked into it.

marliepanda

gazz wrote: »

It will be done with the providers concent, it will create a very large deposit. It just seemed too difficult to buy 40% of the property, the second charge seemed more straight forward.

It doesn't though.

It creates a huge loan which impacts on his affordability.

alumende27

Things have doubtless changed, but a house I bought in 2001 had the deposit paid for by my parents, registered with a second charge and Barclays/woolwich were fine with this. They got their money back when I sold the house some years later and the mortgage was repaid.

booksurr

gazz wrote: »

It will be done with the providers concent, it will create a very large deposit. It just seemed too difficult to buy 40% of the property, the second charge seemed more straight forward.

If you were instead to be a co-owner you would mean the whole purchase would be subject to higher rate SDLT since you would be buying an additional property to one (I assume) you already own and when it is sold you would have to pay Capital Gains Tax on your share.

The way you have presented your initial idea suggests all you want back is the capital sum you loaned. You do not want interest (so no income tax liability for you) nor to profit from any property value increase (so no CGT). In which case a loan and second charge is the more secure way to do it - have you got written proof the lender will accept it as it should have a huge impact on your son's affordability calculation given he is effectively taking a 100% mortgage?

gazz

marliepanda wrote: »

It doesn't though.

It creates a huge loan which impacts on his affordability.

OK, so it boils down to is the provider happy.

Thanks for your help.

Gary

Grenage

It's not a gift if you're expecting the money back, so the only way to find out if that is acceptable to the lender - is to ask the lender. An independent mortgage broker could be a good idea.

Jackieboy

gazz wrote: »

My son is buying a house and we are going to gift him 40% of the house price. Our intention is to get his money back in the future when hopefully his circumstances improve. If we put a second charge on the house for this money will we have any issues assuming the lender is OK with this.

Is this straight forward? I assume we can write into the charge whatever terms we agree.

Gary

That isn't a gift.

booksurr

gazz wrote: »

OK, so it boils down to is the provider happy.

Thanks for your help.

Gary

so the lender has not yet given consent?

In which case a loaned "deposit" will be rejected and your son cannot raise the size of mortgage you think he can. The lender will ask him where the deposit came from, if he says you the lender will ask you to sign a legal letter to confirm it is a non repayable gift. You and/or your son could of course commit fraud and lie but would you?