Best way to help sons buy flat together?

Alikay

Our two sons are both working in London and each paying £1000 pcm rent on shared flats. They're discussing buying a 2 bed ex LA flat in an area they like and are v familiar with, and we'd like to help them.

DS 1 has £85k deposit, DS2 has £15K. They could manage £200k mortgage between them (shared 50/50) and we could put in the rest, which, depending on the specific flat will be somewhere around £60k.

What would be the best way to do this? It can't be a gift as we have other children and would want outright gifts to be equal. We don't need the money for the forseeable future, nor do we need the interest on it (though want to be fair to all our children, an interest free, repayment-deferred loan isn't ideal - particularly if property prices increase and one child benefits when others have paid market-rate interest to banks).

£60k would be about a sixth of the flat value, so potentially we could loan DS2 a third of his half of the flat, and take back a 6th of the selling price (from DS2's share, obvs) when the boys sell it (which they will do at some point in the future if one needs to relocate or set up home with a partner).

What is the best way to do this which is fair, legal and doesn't involve extra costs like higher rate stamp duty etc? We don't want to be named on the deeds as it'd be their home, not ours. We are aware that property prices, particularly in London may fall, but are willing to take that risk (and offset it against the high rents they're currently paying). Thank you - am open to all suggestions

pleasedelete

They must be on a very low income to only manage a £200k mortgage between them-are they really in a position to buy?

Pixie5740

There are lenders who will accept a borrowed deposit from parents but not many. A mortgage broker will be able to steer you in the right direction. Your sons should also think about setting up a Declaration of Trust which would cover things like unequal deposit amounts, who pays for maintenance and repairs, what happens when one wants to sell, etc.

Alikay

pleasedelete wrote: »

They must be on a very low income to only manage a £200k mortgage between them-are they really in a position to buy?

They could afford a bigger mortgage jointly as DS1 is paid significantly more. DS2 is just 24 and earns around £35k but likely to increase in time. We discussed the dynamics of unequal shares but decided against it for various reasons. Prior to the stamp-duty changes, we would've simply bought the flat 3 ways, each of them plus us but now that'd be too costly as we own our home in Derbyshire.

tacpot12

I would suggest you loan them the month at the same rate of interest as the mortgage they end up getting, and put a second charge on the property to ensure you get this money back. This will cost them about £150 each on top of the mortgage.

You need to get a loan agreement drawn up by a solicitor to ensure the proportion of ownership of the flat is clear at the outset and how this will change as the mortgage is paid. I would set a repayment schedule to ensure you get the money back within, say 20 years. Your sons need to document how the flat can be sold if one of them wants to sell and the other doesn't.

A solicitor will charge for the loan agreement, but I would not go ahead with one. It would be foolish in the extreme. You should be able to use the same solicitor who does their conveyancing in order to simplify matters. If your sons want to pick their conveyancing solicitor now, you can get half an hour free with the solicitor to check that you can achieve what you want to via a legally binding loan agreement and second charge.

Have you considered loaning DS2 £70,000 so that he can put down the same as DS1? He will have to make payments of £300 month than DS1, but at least he will have equal equity in the flat.

Alikay

tacpot12 wrote: »

Have you considered loaning DS2 £70,000 so that he can put down the same as DS1? He will have to make payments of £300 month than DS1, but at least he will have equal equity in the flat.

Thank you. Yes, this is something we'd considered. We would charge him some interest (maybe equivalent to what we'd get from a savings account), but not as much as the bank's mortgage rate: His siblings would be in agreement with this as they've had support from us through higher education, free childcare etc whereas DS2 was straight into HM forces from school.

The "second charge" you mentioned is recorded at the Land Registry I believe, like a mortgage? That sounds a sensible idea.

We have fully discussed what happens if life events mean one wants to sell and the other doesn't, plus the impact future partners may have, and we will be drawing an agreement to cover that. Can that be made legally binding/official?

You mention the loan agreement being foolish in the extreme - sorry to seem dim, but what bit is foolish? Using a solicitor or making a loan to start with? We have no experience of these matters, that's why I'm asking, in preparation for speaking to solicitors and mortgage brokers. Our parents were never in a position to loan us anything, so our financial dealings have always been straightforward mainstream products through high street banks. There will be no inheritances coming our way to help the kids either, so we want to get this right for all concerned.

pleasedelete

At £35k he can borrow more than £100,000

Not sure why you are chipping in

They can do a 40/60 split or a 30/70 split with one paying more deposit and more mortgage and so owning a larger share?

That would seem more logical. They are not even in terms of deposit or earnings and trying to make them so is going to disadvantage the higher earning/larger deposit son. He would be better buying alone and renting a room to his sibling.

pleasedelete

If son 1 has an £85k deposit them presumably he will want to be paying off the mortgage quite rapidly. How will that work?

I think it is a nice idea but impractical. Your 24 year old is on a low income for London (if wanting to buy) with little deposit and isn't in a position to buy anywhere. You are basically putting his brother in a worse position than he is now in oder to subsidise him. Someone with an £85k deposit and a good income in London should be thinking of their own future prospects longer term. He may well lose money if prices drop.

If 1 wants to marry, move in with partner of have a child then will a family plus 2 sons fit in the flat?

Oldest son should buy a 2 bed flat and rent out a room. Younger brother should move somewhere cheaper to buy or save up until he has a better paying job.

pleasedelete

There is a lot of 'we' in your posts. This is really about them and not you.

Your oldest son is being really silly to get into this. It cannot be in his best interest. Are you and younger son encouraging him? He needs to step back and think what he wanted when he started saving for a deposit . At the start as he saving £85k with the intention of buying a flat with his brother? or was he thinking of buying alone? with a possible future partner? having a family?

It is silly to jump in too quickly. What size mortgage could he get alone? If the flat is 360 he would need a 275 mortgage plus stamp duty/fees. Is that possible? Could you lend some to him alone? He could then rent to his brother who could save up and buy when he could afford it- which isn't now.

Cakeguts

Beware of buying ex LA flats in London. Some of them have really big service charge bills sent to leaseholders that run into the £1000s. This is one of the reasons why they look cheap to start with.

pleasedelete

Cakeguts wrote: »

Beware of buying ex LA flats in London. Some of them have really big service charge bills sent to leaseholders that run into the £1000s. This is one of the reasons why they look cheap to start with.

I thought that. Plus if work is required such a window replacement the 2nd son isn't really in the position to be able to pay for his half.

To buy an ex council flat in a falling market with such different financial positions would seem very unwise.

Better option:

Son 1 buys a flat using his deposit, mortgage and cash lent by you. He has saved £85k so he must be a good saver and you say that mortgage will be cheaper than rent (assuming he rents out 2nd room). He pays you back over next few years

You then use the money you have been paid back to support son 2. By that point he will earn more and will hopefully also have saved a sizeable deposit as he will be paying a lower rent than he is now.

More sensible all round.