Lifetime Mortgage in order to provide "bank of mum and dad" help with first house purchase

jimjames

Couple of thoughts, will your daughter need the same sort of assistance and will you be able to borrow more to do that?

What happens in the event that care home fees are needed and the property is sold? Not a nice thing to have to think about but if the money outside the LM is eaten up in fees, it might mean your son has to pay back the total so your daughter receives inheritance.  Might be worth modelling some scenarios so you're clear how the numbers would be affected.

reheat

Valid thought re daughter, though not obvious at this time. It's more a case of responding to a more immediate need. The idea is for this to be an advance on inheritance, so when inheritance time comes, our son's half would get the loaned amount etc deducted from his 50%.

Yes, care home fees, there's a thought. I know that any lifetime mortgage amount still owing would be deducted from the property value that was means tested, and that it only applies once the last person leaves their home. But pretty much in the dark on this I must admit.

Currently also pondering @getmore4less's thoughts re smaller contribution but still pretty good deal for our son. Could possibly stump up £15k out of savings, which doesn't sound like it would make an amazing difference, but it might do, especially as there would not be any loan costs we would feel obliged to pass across to our son, and would still help get the loan rate down.
All very complicated.

MWT

reheat said:

Currently also pondering @getmore4less's thoughts re smaller contribution but still pretty good deal for our son. Could possibly stump up £15k out of savings, which doesn't sound like it would make an amazing difference, but it might do, especially as there would not be any loan costs we would feel obliged to pass across to our son, and would still help get the loan rate down.
All very complicated.

If you can do this from savings then you really should, it avoids a lot of complexities and you can still include an adjustment factor in your will to take account of his 'advance'.

The other issue we haven't discussed that this avoids is the problem that a gift from a parent is totally fine to include in a mortgage deposit (subject proving source of funds), but a loan from a parent is not, and passing on interest costs to your son makes it look a lot more like a loan than a gift from a lenders perspective.

That still leaves you the option to do a Lifetime Mortgage later if you want just to release funds to replace your savings if you have a need, but keeps things simple for now.

MWT

reheat said:

The rate a lender is prepared to offer on a normal repayment mortgage. Is it affected by whether some of the deposit comes from parents of the buyer? So if we contributed £20k, to supplement our son and Dil own £20k on a £200k house, would they still get an interest rate based on a 90% LTV or a 80% LTV?

Sorry, missed this one earlier, yes, if you gift money to your son then the total deposit will be used to determine the LTV, so 80% in your example above.

reheat

MWT said:
The other issue we haven't discussed that this avoids is the problem that a gift from a parent is totally fine to include in a mortgage deposit (subject proving source of funds), but a loan from a parent is not, and passing on interest costs to your son makes it look a lot more like a loan than a gift from a lenders perspective.

That still leaves you the option to do a Lifetime Mortgage later if you want just to release funds to replace your savings if you have a need, but keeps things simple for now.

Ah, something else I had not realised. Do lenders explicitly disallow parental loans being used as deposit support, or do they merely frown upon it. Does it only apply if our son were to pay the interest along the way, or does it even include the case where the interest was all rolled up and deducted from our son's inheritance at the end? Surely that is more an issue for our will than our son's lender.

For my wife and I, moving down from Suffolk to Sussex, we are going to need everything we can to buy our own property. But I am still working and have some pensions, so maybe can work something out, albeit modest. Once I stop working, although luckier than many, our income will be very limited, so no way could have paid the interest ourselves.

MWT

You will have to assert, in writing, that the money is an unconditional gift, free and clear with no reservations.

As long as you are happy to sign a document to that effect then all is good, what may happen in the future between you and your son might change, but clearly nobody is going to advise you to lie about the arrangement.

One of the lenders reasons for ensuring gifts are clearly gifts is that they are forming a judgement on the affordability of the loan they are about to offer, so if a gift was not actually a gift and required interest to be paid then it clearly affects affordability as a minimum...

reheat

MWT said:

You will have to assert, in writing, that the money is an unconditional gift, free and clear with no reservations.

As long as you are happy to sign a document to that effect then all is good, what may happen in the future between you and your son might change, but clearly nobody is going to advise you to lie about the arrangement.

One of the lenders reasons for ensuring gifts are clearly gifts is that they are forming a judgement on the affordability of the loan they are about to offer, so if a gift was not actually a gift and required interest to be paid then it clearly affects affordability as a minimum...

Although if the money were from a Lifetime Mortgage, with no obligation for any repayments to be made until inheritance time, then that would not affect the house buyer's ability to repay their mortgage. Or do lenders not pay much heed to that?

MWT

reheat said:

Although if the money were from a Lifetime Mortgage, with no obligation for any repayments to be made until inheritance time, then that would not affect the house buyer's ability to repay their mortgage. Or do lenders not pay much heed to that?

Just need to avoid painting yourself into a corner with the way you set this up.

You release equity with a Lifetime Mortgage, you give money to your son from that source and the lender will be perfectly happy.

What you can't do is require your son to agree to pay interest on that 'gift' or to return part of the gift at a later date.

What you can do is write your will to adjust the division of your assets between your children taking account of the fact that one of them already received part of their inheritance.

You are trying to do something good for your son, but it does feel like everything is perhaps a little bit too close to the edge if it will only work with him paying interest.

If you limit the gift to a more modest sum like the £15,000 you mentioned, that would still leave you room to release equity for your other child if needed and would hopefully avoid the need for either of them to pay down the interest.

reheat

MWT said:

reheat said:

Although if the money were from a Lifetime Mortgage, with no obligation for any repayments to be made until inheritance time, then that would not affect the house buyer's ability to repay their mortgage. Or do lenders not pay much heed to that?

Just need to avoid painting yourself into a corner with the way you set this up.

You release equity with a Lifetime Mortgage, you give money to your son from that source and the lender will be perfectly happy.

What you can't do is require your son to agree to pay interest on that 'gift' or to return part of the gift at a later date.

What you can do is write your will to adjust the division of your assets between your children taking account of the fact that one of them already received part of their inheritance.

You are trying to do something good for your son, but it does feel like everything is perhaps a little bit too close to the edge if it will only work with him paying interest.

If you limit the gift to a more modest sum like the £15,000 you mentioned, that would still leave you room to release equity for your other child if needed and would hopefully avoid the need for either of them to pay down the interest.

The trouble with a lifetime mortgage is that the interest owing rolls up into the final bill owing at the end, which would then be deducted from the proceeds of our house sale (it having been secured against our house, and being a condition of our LM). In our will we would stipulate that our son's 50% would be less whatever the LM lender had deducted, meaning capital plus interest. I'm not sure if having rolled up interest deducted out of a future inheritance counts as our son and Dil being required to pay interest or not. 

There would be no obligation on our son and his wife to pay any interest during the term of the loan, though if it did not cause problems, it would be nice if they could do so voluntarily. An important reason for this being only voluntary, amongst other things, is that non-payment would not pose a repossession risk for my wife and I. If payments during the term of the loan posed problems, then we would simply not offer that option to our son and Dil, just the £40~£50k advance inheritance, with the whole shebang, capital plus interest, coming out of their share of inheritance later on.

And on a separate note, I realise that the reason for lenders limiting to £160k~£170 loan (as per a previous post) is almost certainly due to the 4.5x to 5x salary limit, and unlikely related to mortgage term.

getmore4less

You need to stop calling it a loan if you want any lender to agree to give them money

IT's a gift you can't afford without putting your house on the line(50% of it)  is that a problem?
if it is don't do it.

Why not go all the way as long as you get to keep your house borrow to the max with a no negative equity clause and gift the lot 50:50 to your kids and let them decide how to spend the money no rather than waiting till you die to maybe get something.