Treatment of parental funds

ProfPlum

Hi All,

Looking for a bit of advice on mortgage application.

My parents have offered to provide my wife and I, with additional funds for the purchase of our house. Agreement is we would have effectively an early inheritance – provided we pay interest at the current rate – and this would be written into a codicil of their will.

I would therefore like advice on how best to treat this with the mortgage application. Specifically, I would like to avoid having to declare this as a loan. Advice from a broker was that we could include as a dependency. Is this correct or is there a more effective or alternative approach to take?

Many thanks,

ACG

It is not so much how you would treat it, but how the lender would treat it.
Not quite the same, but I have had an enquiry recently where parents are gifting their daughter a property. Dad is completely happy to give up his share, mum wants a charge over the property for her half.

I had 3 different responses from 5 different lenders. One would do it, one would do it with a particular restriction and the others would not do it at all.

Just trying to show how things are viewed differently by the lender so it is more a case of finding a lender for your circumstances.

Thrugelmir

ProfPlum wrote: »

provided we pay interest at the current rate

What determines the current rate?

What happens if you fail to pay the interest?

Is the potential advance a considerable sum?

Keep_pedalling

The fact that you will be paying interest makes this a loan, both for the purposes of getting a mortgage and for IHT purposes.

If your parents estate is likely to be above their joint nil rate band then the sensible thing for them to do would be to make this an outright gift.

The_Real_Cheddar_Bob

your parents want to charge you interest? !!!!!! bank of mum and dad actually trying to be a bank

Primrose

How old are the parents? If this involves a considerable sum of money, one of them has a stroke or similar drastic disability and needs to go into residential care, giving you this sum could be regarded as deprivation if assets from a parental point of view if it's a gift which could have serious repercussions on the funding of their residential care. Is this the sort of dilemma you're prepared to inflict on parents?

Celesse

We were in same position. Mum and Dad able to help but initially wanted it as a loan or investment rather than to gift. We looked at different ways of doing it and ended up with them gifting a lower amount and taking this off inheritance.

Our mortgage provider wanted a signed declaration that it was a gift and our solicitors have done ID checks on my parents the same as they did for us as part of money laundering checks.

AnotherJoe

Do you really mean interest*? Or do you mean the value of the pseudo-loan increases in line with interest?

I have done similar, the value of the "loan" rises in line with the value of the house and this is accounted for in my will so that other siblings are fairly treated.

(eg as an example and to keep figures easy, suppose house is worth £200k and I provide £50k, one quarter. When I die lets say house is worth £500k. The loan is written off, the other siblings get the same value of £125k (1/4 value of house) from my estate, and then the rest of the estate is parcelled out equally to all.)

There is a second charge on the house in the LR to ensure that recipient doesn't sell house and run off with the money :eek:

Santander and Nationwide appear to be OK with this set up (its on its second mortgage now).

* If you did mean "interest" eg parent wants paying as you would the mortgage then that opens up an entire different can of worms the largest of which is that you likely wont get a mortgage anyway.