Helping family member to buy a house

Johnny_R

I've had a look through lots of discussions here about different combinations of family, houses, mortgages, but haven't found anything that matches our situation and I'd appreciate any advice that you can give. Or just a reality check if necessary.

Since his wife died, my elderly uncle has been wanting to move back to the southeast from Scotland to be closer to his remaining family members. The difference in house prices means that there is no way that he can afford to do that on his own but we are looking at how we might be able to help him make it happen.

Between us my Dad, brother and I could afford to contribute enough to buy a suitable house when combined with the value of his existing house (which he has an offer for). We're happy to do this, but it would be using long term savings that we will need back eventually so we need to protect our investments. We're also keen to do this carefully, to avoid any disastrous family feuds in the future.

Current thinking is that we each take a share of the equity in the house, proportionate to what we put in. Uncle lives there for the rest of his life, or until he no longer wants to, and none of us expect to be paid rent for our share. No mortgage is involved, and none of us will be living in the house with him.

Does this sound like a sensible way of proceeding? Or is there a better way to approach it?

What sort of contract would we need between us?

What would the implications be if he was to need to move into residential care at some point?

Is there anything else we need to think about that we might miss?

Pixie5740

It would probably be more tax efficient to set up a private mortgage arrangement between the three of you and your uncle and have a charge placed on the property than own it as tenants in common between the four of you.

saajan_12

I'm very much for helping family, but if this involves taking up a large proportion of your savings which you expect to need to use at some point, I'd think carefully about putting it into a property, something fairly illiquid and indivisible (e.g. you can't just take out or reinvest 17% of the property at will).

*What if your uncle lives longer than expected?
*What if your uncle moves in a new partner who makes that their home - do you wait until both die/move? What if that partner has a child?
*What if one of the 'investors' loses their job and needs to use their savings? Will they get the same benefits if they have equity which they can't access?
*What if one of the 'investors' wants to buy their own house / go on holiday / needs care?
*Will it spoil relationships if the agreement and uncle living there prevents someone moving on with their life? Sure you understood from the start, but when its personal it can cause resentment if the uncle can't be flexible.

I would suggest the uncle goes for a smaller / shared ownership property, so his share is covered by the sale of the current property. Or, he could invest the proceeds from his sale and go into rented accomodation, paid for any income / pension + returns from the investment. That way he preserves (most of) his capital, but doesn't lock up his and other peoples' money. You can still help by being a guarantor and paying whatever you would have lost in interest on the money you put in his house, towards his rent.

Cakeguts

Doesn't he have any friends or interests in Scotland? It is alright being close to family members but it might isolate him from his friends.

csgohan4

Money and family shouldnt never mix, you can't put a price on family.

What if things go sour or you need to buy a property which means more stamp duty to you since you already have an interest in a house.

saajan_12

csgohan4 wrote: »

What if things go sour or you need to buy a property which means more stamp duty to you since you already have an interest in a house.

csgohan raises something I completely forgot about. Owning a share of a property you don't live in raises tax considerations that you don't usually have to worry about.

1) Higher rate Stamp duty (3% extra) on the whole amount of this purchase if any of the joint owners already owns more than a 40k share in another property

2) Higher rate stamp duty on any subsequent purchase by a joint owner who owns atleast a 40k share in this property (unless they are selling their main residence and buying a new main residence)

3) Capital Gains Tax on each joint owner's share of this property when it is sold (except those that live there)

csgohan4

other thing is to try and downsize and find sheltered accomodation or warden controlled so someone is there to watch over him perhaps. Then the money left is for him to enjoy or used for care if the time comes.

But will being closer to family guarantee him not being lonely?? The children and family will probably be working full time and having children of their own, sure they might spend a Sunday with him for a nice Sunday roast.

What exactly does he define by or rather hope from being closer to family? It doesn't necessarily mean he won't still be lonely

Perhaps Age concern may be useful or day centres to keep himself busy.

Cruse is useful for bereavement counselling if he still sad over his loss

xylophone

Some years ago, my then boss asked if I'd call in to see his elderly, widowed and childless godfather who had moved to my area because some relations of his late wife also lived there and "thought it would be better for him" as "they could see him more frequently".

As things turned out, while he had a very comfortable and conveniently situated flat, he missed the church he used to attend, disliked not having his own garden and as for the relatives... let's say I saw him much more often than they did.

That said, it may be that the OP's uncle has thought through the implications of a move.

It might be worth exploring whether a retirement property (whether private or almshouse type) might be available.

Otherwise, once he has sold his house in Scotland, (and so knows how much cash he has available for what might be termed his deposit), his relations could lend him the money to complete the purchase of a new property and take a first charge on it.

This would protect their interest in the event that he needed care and the house had to be sold.

fairy_lights

Couldn't he rent instead? You don't say how old he is exactly, but if he's elderly is he really going to want the hassle of maintenance on a home for much longer?

Johnny_R

Thanks for all the thoughtful replies. Staying put has been carefully considered, but the decision has been made to move out and move on. There are old friends in the new location as well as family, as well as much better access to shops and other services, so it looks like it will be a good thing all round.

We're now just looking at the practicalities of the finances.

Pixie5740 wrote: »

It would probably be more tax efficient to set up a private mortgage arrangement between the three of you and your uncle and have a charge placed on the property than own it as tenants in common between the four of you.

That's interesting. Can you tell me a bit more about how that would work and why it would be better?

saajan_12 wrote: »

csgohan raises something I completely forgot about. Owning a share of a property you don't live in raises tax considerations that you don't usually have to worry about.

1) Higher rate Stamp duty (3% extra) on the whole amount of this purchase if any of the joint owners already owns more than a 40k share in another property

2) Higher rate stamp duty on any subsequent purchase by a joint owner who owns atleast a 40k share in this property (unless they are selling their main residence and buying a new main residence)

3) Capital Gains Tax on each joint owner's share of this property when it is sold (except those that live there)

Thanks. That's exactly the sort of thing I was looking for!

xylophone wrote: »

Otherwise, once he has sold his house in Scotland, (and so knows how much cash he has available for what might be termed his deposit), his relations could lend him the money to complete the purchase of a new property and take a first charge on it.

This would protect their interest in the event that he needed care and the house had to be sold.

What would the pros and cons be of lending rather than having equity in the house?

We're all comfortable with the money being tied up for the long term by the way. Although we accept that there will be no guarantees we would like to get a reasonable return eventually so as not to lose out too much compared to leaving the savings invested.

saajan_12

Johnny_R wrote: »

What would the pros and cons be of lending rather than having equity in the house?

• PRO: As you are not a joint owner, this property doesn't affect FTB status for another purchase (i.e. still eligible for government schemes in the future)
  
• PRO: No CGT and Stamp Duty tax issues highlighted in my earlier post.
  
• PRO: Depending on the size of each person's contributions, with a equity share, someone owning a big share may be able to force a sale or even decide to use the property. With uncle having sole ownership and other monies being loaned, its more clear cut with other owners having no say over the property should there be a fall out. You can specify in the loan agreement that it is to be repaid on sale of the property / when uncle moves out / when uncle dies.
  
• CON: If you set the loan as a fixed amount, you don't benefit from any house price increase. However, you can set the loan as a % of the house to get the exposure to price increases (or decreases).