Does this count as ‘buying with a mortgage’?

bowlhead99

Zorillo wrote: »

Why would they need to know it was a loan? As far as they're concerned the £100k deposit in your account by your parents is a gift, surely?

The fact that you've agreed to pay it back with interest is between you and your parents.

And the taxman in respect of tax on the interest income, and IHT consequences etc

The bank will only require proof that the £100k is there and that you're able to make the repayments on what they lend you.

Not just proof that it is there, but also a signed declaration from the parents that the money is an outright gift and that the parents will not have a financial interest in the property (which you can then use to screw your parents out of their money later if you are dastardly and they are foolish enough to lie and say its a gift when actually they want it to be a loan).

If your parents will say it's not a gift and only that it's a loan because that's what you all intend it to be, then that will impact affordability unless they agree to sign off that the loan is not repayable on demand but only has (for example) a second charge on the property to be repaid after the property is eventually sold and the bank mortgage settled in full. And even with that signoff, the bank will still treat it as a somewhat non-standard case, which can restrict what they'll lend or what rate they will offer.

AirlieBird

Have a look at family offset mortgages.

masonic

eddiejones wrote: »

Ok. Would a bank be OK lending me money if I had a loan for 100k as per of my deposit? Perhaps if it was in line with my affordability anyway? E.g. if they were willing to lend me 200k without said loan, they would be willing to lend me 100k with it (or thereabouts)


Edit: I guess I still have a question over what defines a !!!8216;legal mortgage!!!8217;?

I'm confused as to how we've gone from you buying a house with parental help without needing a mortgage from the bank at all to you borrowing £100k from your parents and not even having a deposit to put towards the property? - or perhaps you're considering taking out a very small mortgage with a very large deposit? The point of an offset mortgage is you can take out a larger mortgage initially, but use money held in a savings component to cancel out some of that debt while it sits in there.

AirlieBird has pointed towards family offset mortgages, which would be ideal providing they don't give your parents a legal interest in the property that could disqualify you as a first time buyer.

Otherwise, the steps you would need to go through are:
1) Raise a large enough deposit to secure an offset mortgage from your bank in your own right and without money from your parents.
2) Take out said mortgage and use your LISA towards the deposit.
3) Take out unsecured loan from parents.
4) Pay money into savings component of offset mortgage to reduce your net morgage debt.
5) Pay parents a cut of the money you save in reduced interest charges.

eddiejones

masonic wrote: »

I'm confused as to how we've gone from you buying a house with parental help without needing a mortgage from the bank at all to you borrowing £100k from your parents and not even having a deposit to put towards the property? - or perhaps you're considering taking out a very small mortgage with a very large deposit? The point of an offset mortgage is you can take out a larger mortgage initially, but use money held in a savings component to cancel out some of that debt while it sits in there.

What I was trying to say/ask was if e.g. I have a deposit of 50k, and a bank is prepared to lend me 200k based on my income. Then if I have 150k deposit, and owe 100k to someone (i.e. my parents) at mortgage-level interest rate, the bank would still be prepared to lend me 100k (or thereabouts).

masonic wrote: »

AirlieBird has pointed towards family offset mortgages, which would be ideal providing they don't give your parents a legal interest in the property that could disqualify you as a first time buyer.

Ok. My parents want a legal interest in the property.

masonic wrote: »

Otherwise, the steps you would need to go through are:
1) Raise a large enough deposit to secure an offset mortgage from your bank in your own right and without money from your parents.
2) Take out said mortgage and use your LISA towards the deposit.
3) Take out unsecured loan from parents.
4) Pay money into savings component of offset mortgage to reduce your net morgage debt.
5) Pay parents a cut of the money you save in reduced interest charges.

Right, doesn't seem like it'll really work. FWIW, this is for my parents' benefit... They have some spare dosh which is earning nothing where it is and figured they could act as my mortgage provider and earn what the bank would've earned. They want a legal charge on the property, and I want to be able to use my LISA. If it wasn't for the LISA aspect, this would be fairly straightforward to arrange. But given I want to use that, it sounds like it's not going to work.

eddiejones

masonic wrote: »

Edit: Just checked the ISA Regulations 2017 and in there it specifies a legal mortgage for land in England and Wales. So your parents could not do this.

Sorry, just realised this was more or less the question I was asking .
Why could my parents not do this? What is the definition of a 'legal mortgage for land in England and Wales'?

Obviously this might be a question for a solicitor or similar. Thought it was worth asking here in case I got an answer.
And obviously I've been given some other suggestions, so it's been worthwhile .

masonic

eddiejones wrote: »

Sorry, just realised this was more or less the question I was asking .
Why could my parents not do this? What is the definition of a 'legal mortgage for land in England and Wales'?

I should point out that my statement there is just my novice opinion as I am not fully familiar with all of the legislation, but my understanding is that to offer a legal mortgage your parents would first need to become authorised by the FCA. It would come down to the FCA's view of your parents moneylending activities I suppose.

Some light reading should you wish to research further:
Law of Property Act 1925
Land Registration Act 2002
Financial Services and Markets Act 2000

If you decide to go down this route, it would be handy to get your parents some professional legal advice, backed by professional indemnity insurance. Things could get costly if you get it wrong.

As I said before, winning over the conveyancer will also be key as they would share liability for any wrongdoing.

masonic

eddiejones wrote: »

What I was trying to say/ask was if e.g. I have a deposit of 50k, and a bank is prepared to lend me 200k based on my income. Then if I have 150k deposit, and owe 100k to someone (i.e. my parents) at mortgage-level interest rate, the bank would still be prepared to lend me 100k (or thereabouts).

The first charge holder usually needs to give permission for additional charges to be placed on property, even if they are non-dilutive. This may take you outside the realms of mainstream lending and could end up costing you quite a bit. I think this point has already been made by someone else.

Ok. My parents want a legal interest in the property.

Then I don't think they'll be happy with a second charge mortgage. The first charge holder would have the right to appoint a receiver and accept any fire-sale offer made, including one that repaid them in full, but left nothing to satisfy the second charge.

Right, doesn't seem like it'll really work. FWIW, this is for my parents' benefit... They have some spare dosh which is earning nothing where it is and figured they could act as my mortgage provider and earn what the bank would've earned. They want a legal charge on the property, and I want to be able to use my LISA. If it wasn't for the LISA aspect, this would be fairly straightforward to arrange. But given I want to use that, it sounds like it's not going to work.

Yes, without the LISA they could own a share of the property and charge you rent instead of going down this perilous secured loan route.

Perhaps they could look into peer to peer lending. They could lend at rates of ~6-12% in loans secured on property (often first charge) without any of the legal headaches.