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

getmore4less

We currently live in Suffolk, but in about a year or so plan to move back down to Sussex, nearer to family.

Presumably this is to be nearer the ones you are thinking about gifting to.

given you have also said

The max they will lend him is around £165k, so with their £20k that means looking for a house in Sussex for no more than £185k. There is nothing that would be vaguely suitable in Sussex, including commute to his work, for that sort of money. So they need a boost to their initial purchasing power.

what if they decide sod this expensive area lets move somewhere cheaper so we can live in a decent house thye ups sticks and move away.

MWT

reheat said:

Yes, sounds good. Would this still leave the option open for our son and Dil to still voluntarily pay some of our LM off along the way if they wished, in order to reduce what gets deducted from their inheritance at the end, or would that complicate things again? It feels like that would be an ancillary issue so far as their lender would be concerned, but not sure. Also not sure if that would be deemed payments to my wife and I, and therefore some tax implications.

There are no tax implications on your children deciding to gift money to you at some point in the future and no relevance in such a gift for their current mortgage lender.

Only time it would come up as a potential issue is if in the future they were seeking to re-mortgage and their bank accounts showed they had been making regular payments to you, as those would then probably be factored in to the affordability calculations for that new mortgage.

As I said earlier, try not to paint yourself into a corner with the 'what-if' questions...

If the only way this works requires your children pay the interest, then you can't say it is a gift and the debate ends there.

If you can make a gift to them and at some future point your children decide for what ever reason to send you money then it isn't a problem...

 

 

reheat

mark55man said:

sorry late to the conversation, and thanks everyone for the education about a range of products I hadn't considered

this thread strikes a chord as I have kids all in the early 20s, so some earlier fecclessness (sic - to avoid the !!!! of shame) I am not sure I can provide as much help to my kids in this respect as I would have liked, as (see signature) I am clearing my last credit card (this year) and mortgage  (three years to a mortgage neutral pot, 6 years before paid off).  

That said, I think you are putting your whole retirement at risk just to help you DS get a foot up on the ladder.  I think that is a step too far and he just needs to rent/wait a bit longer, and save a bit harder.  I do see myself helping before legacy, but not in the short term

of all the options discussed, the least worst seems to be gathering up an extra boost (eg from savings, from taking tax free lumpsum from your pension pots) but that lump sum won't leverage them up too far in terms of property given their max loan figure - but would improve LTV and mortgage rate.  Seriously the best thing they could do is work on getting a bit more salary in, that with a top up from mum and dad would clinch it I'm sure.  

I do know Sussex (have relatives there), and my final observation was are they looking in too nice an area, there are a lot of cheaper areas so could they lower their sights a little to get on the ladder - and then improving their position is their problem not yours

All sorts of reasons why they are strongly linked to the part of the world they are in. "Save harder" is very easily said when you don't know the people or circumstances - our son has been slogging his guts out for a good many years to get his savings to where they currently are; saving "harder" is not at all viable. Similarly with "getting a bit more salary in".

"improving their position is their problem not yours". My wife and I love them very much, so from our perspective it is a problem we would like to share if we can, and help them sooner rather than a lot later.

reheat

MWT said:

reheat said:

Yes, sounds good. Would this still leave the option open for our son and Dil to still voluntarily pay some of our LM off along the way if they wished, in order to reduce what gets deducted from their inheritance at the end, or would that complicate things again? It feels like that would be an ancillary issue so far as their lender would be concerned, but not sure. Also not sure if that would be deemed payments to my wife and I, and therefore some tax implications.

There are no tax implications on your children deciding to gift money to you at some point in the future and no relevance in such a gift for their current mortgage lender.

Only time it would come up as a potential issue is if in the future they were seeking to re-mortgage and their bank accounts showed they had been making regular payments to you, as those would then probably be factored in to the affordability calculations for that new mortgage.

As I said earlier, try not to paint yourself into a corner with the 'what-if' questions...

If the only way this works requires your children pay the interest, then you can't say it is a gift and the debate ends there.

If you can make a gift to them and at some future point your children decide for what ever reason to send you money then it isn't a problem...

The only requirement would be that any inheritance would have the LM amount owing deducted from our house sale, before the balance was then released to family. I think from what you are saying that would be well outside the scope of interest for our son and Dil's lender; it's much more a contractual agreement between my wife and I and our LM lender. The only thing our son and Dil's lender would see is a gift from my wife and I to our son and Dil, with no requirement for them to make any repayments on it out of their normal income. I would not see any problem signing a letter stating it was a no-strings-attached gift in that case. I think many people must be using a LM in order to gift money to their children, and it does of course then reduce their inheritance, but presumably that hardly counts as a contractual requirement for their children to "repay" it back.

In fact the only way this could work at all for us, would be for there to not be any obligation for our son and Dil to repay any interest along the way. 

MWT

reheat said:

The only requirement would be that any inheritance would have the LM amount owing deducted from our house sale, before the balance was then released to family. I think from what you are saying that would be well outside the scope of interest for our son and Dil's lender; it's much more a contractual agreement between my wife and I and our LM lender

Your lender has a first charge on the house so that part is taken care of.

Just remember that the trigger for the LM to be repaid is either death or long term care of the last life on the agreement, so in the case of long term care, the balance after sale of the house would be for the benefit of the one in care, not the family at that point.

mark55man

reheat said:

mark55man said:

sorry late to the conversation, and thanks everyone for the education about a range of products I hadn't considered

this thread strikes a chord as I have kids all in the early 20s, so some earlier fecclessness (sic - to avoid the !!!! of shame) I am not sure I can provide as much help to my kids in this respect as I would have liked, as (see signature) I am clearing my last credit card (this year) and mortgage  (three years to a mortgage neutral pot, 6 years before paid off).  

That said, I think you are putting your whole retirement at risk just to help you DS get a foot up on the ladder.  I think that is a step too far and he just needs to rent/wait a bit longer, and save a bit harder.  I do see myself helping before legacy, but not in the short term

of all the options discussed, the least worst seems to be gathering up an extra boost (eg from savings, from taking tax free lumpsum from your pension pots) but that lump sum won't leverage them up too far in terms of property given their max loan figure - but would improve LTV and mortgage rate.  Seriously the best thing they could do is work on getting a bit more salary in, that with a top up from mum and dad would clinch it I'm sure.  

I do know Sussex (have relatives there), and my final observation was are they looking in too nice an area, there are a lot of cheaper areas so could they lower their sights a little to get on the ladder - and then improving their position is their problem not yours

All sorts of reasons why they are strongly linked to the part of the world they are in. "Save harder" is very easily said when you don't know the people or circumstances - our son has been slogging his guts out for a good many years to get his savings to where they currently are; saving "harder" is not at all viable. Similarly with "getting a bit more salary in".

"improving their position is their problem not yours". My wife and I love them very much, so from our perspective it is a problem we would like to share if we can, and help them sooner rather than a lot later.

sorry you took my post so personally, but I don't think its a requirement that to love your children you literally mortgage your future retirement and possibly creating all sorts of difficulties downstream with legacy and care. It is not on my agenda - I have always tried to be as generous and supporting as I can, and have already planned to support with deposit as necessary by building slack into my mortgage neutral plans, and when possible but later with gifts of regular income when possible.  if necessary/desparate I would consider working a little longer as well, but not committing myself to a life time of support

And "save harder/spend less/earn more" is always possible, its the essence of this whole site. clearly I don't know the exact circumstances, but when advice fits a situation 99% of the time, I don't think its inappropriate to suggest it as a line of questioning. Certainly worth as much as dealing with products  as complicated as these and a little fraught with risk and devised by the same people who bought endowments, and PPI to the world.     

reheat

mark55man said:

reheat said:

mark55man said:

sorry late to the conversation, and thanks everyone for the education about a range of products I hadn't considered

this thread strikes a chord as I have kids all in the early 20s, so some earlier fecclessness (sic - to avoid the !!!! of shame) I am not sure I can provide as much help to my kids in this respect as I would have liked, as (see signature) I am clearing my last credit card (this year) and mortgage  (three years to a mortgage neutral pot, 6 years before paid off).  

That said, I think you are putting your whole retirement at risk just to help you DS get a foot up on the ladder.  I think that is a step too far and he just needs to rent/wait a bit longer, and save a bit harder.  I do see myself helping before legacy, but not in the short term

of all the options discussed, the least worst seems to be gathering up an extra boost (eg from savings, from taking tax free lumpsum from your pension pots) but that lump sum won't leverage them up too far in terms of property given their max loan figure - but would improve LTV and mortgage rate.  Seriously the best thing they could do is work on getting a bit more salary in, that with a top up from mum and dad would clinch it I'm sure.  

I do know Sussex (have relatives there), and my final observation was are they looking in too nice an area, there are a lot of cheaper areas so could they lower their sights a little to get on the ladder - and then improving their position is their problem not yours

All sorts of reasons why they are strongly linked to the part of the world they are in. "Save harder" is very easily said when you don't know the people or circumstances - our son has been slogging his guts out for a good many years to get his savings to where they currently are; saving "harder" is not at all viable. Similarly with "getting a bit more salary in".

"improving their position is their problem not yours". My wife and I love them very much, so from our perspective it is a problem we would like to share if we can, and help them sooner rather than a lot later.

sorry you took my post so personally, but I don't think its a requirement that to love your children you literally mortgage your future retirement and possibly creating all sorts of difficulties downstream with legacy and care. It is not on my agenda - I have always tried to be as generous and supporting as I can, and have already planned to support with deposit as necessary by building slack into my mortgage neutral plans, and when possible but later with gifts of regular income when possible.  if necessary/desparate I would consider working a little longer as well, but not committing myself to a life time of support

And "save harder/spend less/earn more" is always possible, its the essence of this whole site. clearly I don't know the exact circumstances, but when advice fits a situation 99% of the time, I don't think its inappropriate to suggest it as a line of questioning. Certainly worth as much as dealing with products  as complicated as these and a little fraught with risk and devised by the same people who bought endowments, and PPI to the world.     

Yes, points taken. Many thanks.

reheat

MWT said:

reheat said:

The only requirement would be that any inheritance would have the LM amount owing deducted from our house sale, before the balance was then released to family. I think from what you are saying that would be well outside the scope of interest for our son and Dil's lender; it's much more a contractual agreement between my wife and I and our LM lender

Your lender has a first charge on the house so that part is taken care of.

Just remember that the trigger for the LM to be repaid is either death or long term care of the last life on the agreement, so in the case of long term care, the balance after sale of the house would be for the benefit of the one in care, not the family at that point.

Right ... onto something else I need to understand. In the case of the last survivor going into long term care, even without any LM, does that mean a house sale could be forced in order to fund that long term care, due to local authorities factoring in any equity in the house into their means testing of funding long term care?

I already appreciate that if there is a LM on the property in that scenario, the lender gets first priority of being repaid out of the proceeds, and then local authority assessment would take into account any remaining equity in the house. But I confess I've not thought beyond that to any of the practicalities that might be involved.

getmore4less

You can ring fence 1/2 a property on first death(IPDI trust) but that will interact with the LM as you can't pick who owes that debt.

You also have that lingering deprevation of assets hanging over any gifts although unlikely to happen.

Cheese1990

Another question you have to ask yourself is how would you feel if you both ended up needing care in a care home? As these can eat up any equity in a house quickly as for 2 people you're looking at anywhere from £1500 to £3000 pw. This could essentially mean you make a generous gift to your son and your daughter recieving nothing! Obviously if your happy with that then that's fine.