Loan to our first time buyer son

Colin61

Hi,

Our son is about to buy his first property; he has a £50,000 deposit and earns £30,000.

We are considering loaning him approximately £20,000 so that he could benefit from a better LTV and afford a more expensive property.

We intend to formally document and witness this loan which would be 20 year, interest-free and payable via a balloon payment. We do not anticipate placing a charge on his property.

What are the mortgage implication of the above? Are there better ways of helping him?

Regards, Colin
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MovingForwards

https://forums.moneysavingexpert.com/discussion/6019486/intra-family-loan-for-house-purchase

You have had some responses on your other thread.

silvercar

Better placed on this board I think.

If it was a gift that your son then decided to repay in 20 years time, it would make finding a mortgage a lot easier.

tacpot12

Does he need a more expensive property or can he afford a property that meets his foreseeable needs?

You also need to think about what will happen if your son marries, and then later falls out with his wife and divorces. The wife will be entitled to half the equity that you son owns in the house, but will not be liable for half the debt your son owes you. Your son many not be able to pay you back if this happens.

I would suggest that rather than loan him the money to buy the house, you buy £20,000 of the house with him, and provide a mechanism whereby he can make regular repayments, say starting in 5 years time, to buy your equity off you.

csgohan4

tacpot12 wrote: »

Does he need a more expensive property or can he afford a property that meets his foreseeable needs?

You also need to think about what will happen if your son marries, and then later falls out with his wife and divorces. The wife will be entitled to half the equity that you son owns in the house, but will not be liable for half the debt your son owes you. Your son many not be able to pay you back if this happens.

I would suggest that rather than loan him the money to buy the house, you buy £20,000 of the house with him, and provide a mechanism whereby he can make regular repayments, say starting in 5 years time, to buy your equity off you.

That would not be tax efficient, the OP would be liable to extra stamp duty on the assumption they also own a house, they will be older than the son and therefore mortgage term shorter and therefore more expensive monthly payments

What if Son doesn't pay the mortgage? OP will be also jointly liable as well

Money and family should never mix in principle,

dimbo61

Check out Yorkshire building society Offset mortgages and friends and family.
Your son uses his money to put down the deposit and takes out a Offset mortgage with YBS.
You open an offset account saving him interest on his mortgage each month.
The offset savings account is in your name which he has No access too.
You can take money out of add more money in as and when you want to.
If he meets a new partner they can't touch your money