Redundancy money for buying freehold & paying back parents? 8 October 2018 at 1:24PM in Redundancy & redundancy planning 11 replies 1.7K views

Commandante

Hello everyone,


I've just been told I'm due to be made redundant in the next month. I'm due a decent payout (although I know it can quickly vanish!) and my instinct is to use some of it to clear some payments and put myself in a better situation long-term. My specific issues are these...


I bought a new-build house two years ago (when I moved for my new job!!!) using mostly my own money but also borrowing some money from my parents, and therefore do not have a mortgage. I pay them back £1k a month and will have finished payments by early next year. My instinct is just to pay him back in one lump sum to clear the deck. Also I feel like in a situation of unemployment, there's nothing to be gained by having massive savings (beyond what you need to get by) because this prevents you from getting various benefits, so I may as well use those savings for something useful. Is this the best plan?


I am aware that you can get help with mortgage payments if you're on JSA but I'm assuming that doesn't extend to this sort of arrangement?



Secondly, my house is leasehold. There's been a massive ongoing debate on the estate re Freehold vs Leasehold as some people have it and some people don't, and many were lied to. I've been at the centre of this as I run the Residents Association. After much lobbying we got the developer to agree to offer everybody the option of buying freehold at the original price of £3,750 and to retain that same offer for a number of years rather than selling it to an ever-escalating management company. I've tried to negotiate this down (on the basis that some people got it for free anyway and I've had multiple issues) but without success.


So my additional question is: Is it worth me spending £3750 of my redundancy payout on buying the freehold and getting it over and done with? Primarily, will it likely increase the value of my property by at least that amount, should I need to sell it? (which I might if i have to move away for work again!) I assume that if it increased my property value by £4k then there's nothing to lose? ... I also know there's been a big nationwide campaign I've played a bit of a role in and which has led to some wins in terms of preventing outrageous freeholds in future. There was some talk of them being backdated but I don't know how serious this is. Would I be stupid to jump the gun and pay now, if the law changes and I could have been given it anyway?


Thanks in advance for any advice and guidance

Ozzuk

I'd hold off paying parents back until you have a new job, but it does depend on how quick you think you can secure a new role. Keep in mind you'll have no employment protection in new role for 2 years.

So i would be more careful with the first part. Similar story for second part, but depending how much of a percentage of your savings this is I'd likely want to own the freehold as soon as possible. I doubt there is any mileage in getting it for free - without knowing the full background they could have been better negotiators, or maybe you got a larger price discount, they got freehold instead.

WYSPECIAL

Assuming your parents aren't desperate for the money and you're not paying interest why not just continue with the present arrangement? You can always review it when you find work or sell up to move. Unless of course you feel duty bound to repay them ASAP.

As far as the leasehold goes I don't know if it will increase the value of the house by the same amount but I do know with all the bad press that if I were a buyer I wouldn't even consider it, especially not when there are freehold properties in the same area.

Commandante

Well, the main thing I'm considering is that I believe if you have savings over £16k it prevents you from getting certain benefits. So in a sense I'm better to use the cash to pay off something I owe/might put me in a better long term position than have it sat in a bank where it counts against me.

sangie595

Commandante wrote: »

Well, the main thing I'm considering is that I believe if you have savings over £16k it prevents you from getting certain benefits. So in a sense I'm better to use the cash to pay off something I owe/might put me in a better long term position than have it sat in a bank where it counts against me.

That is exactly what "deprivation of capital" is - trying to get rid of money to claim benefits! Pay off anything that you don't have to, it is deprivation of capital and you are treated as still having it.

Commandante

Surely the sensible thing is to repay any debts first, thats what this website always says

sangie595

Commandante wrote: »

Surely the sensible thing is to repay any debts first, thats what this website always says

Not if you then go on to claim benefits it doesn't.

Undervalued

sangie595 wrote: »

That is exactly what "deprivation of capital" is - trying to get rid of money to claim benefits! Pay off anything that you don't have to, it is deprivation of capital and you are treated as still having it.

Yes but surely an interest free loan from family is repayable on demand unless it could clearly be shown that a more formal fixed period had been agreed?

If so, then if they demand their money back the the OP is obliged to pay them? Theoretically, if the OP refuses, the parents could sue and as the OP has the money a court would order them to pay in full immediately.

Commandante

Well, my Dad being very formal about these things did draw up a formal agreement to pay back a minimum per month etc, but outside of that there's no agreement re a final date of payback but its nearly finished. It's more a matter of clearing the decks and also worrying that my redundancy payout would prevent me from being entitled to JSA, however I've now been told that there's 6 month contributory payment regardless of savings.

elsien

This is true. You won't get any other benefits with savings over 16K but contributions based JSA is payable for the first 6 months regardless.
And if you don't have a mortgage, the only other benefit you might get later on is council tax benefit. Personally I'd rather have the savings as a back up and get a new job as quickly as possible. JSA is such a small amount of money you may well need those savings to top up in future.
Decisions such as the freehold should be carefully considered, not rushed into because of a speculative benefit situation further down the line.

trailingspouse

Personally I would organise my finances to give me the maximum possible benefit - and if that means that I'm not on benefits, surely that's a good thing?
Your parents appear to be happy with the arrangement as it stands, so continue to pay it, it sounds like it's going to be fully paid off soon anyway.
The freehold/leasehold thing isn't really an issue until you want to move, so if you can I would hold off forking out for that until you've found another job. At that point, if you have any savings left, you can think about buying the lease.
So effectively you'll be keeping your redundancy money to live off until you get another job - which is what it's for.