Buy Grandparents' House, Feuding Kids?!

Sea_Shell

JSR21 said:

OK so some great comments, thanks so much.

Some clarity needed from me I think.

• Charge on the house – Good suggestion, and I don’t want to profit from my grandparents, but lending them the money interest free would prevent us investing it, so in effect it’s a hefty cost to us.  If I was really ruthless I could see it as me buying a kitchen and bathroom for their children, not them.  Doesn’t seem right somehow.

Just on this element.   It doesn't have to be interest free, or you don't have to have the capital repaid, it could be an either or both scenario.     Could they afford to pay you anything, per month, for the loan?    Alternatively the loan can roll up, like ER, and so your charge is for whatever the outstanding balance is on the debt at the end of the day.    You in effect ARE investing it, in their home, and you get to decide the return!

EG, you agree to lend them £50,000 against a charge for that amount (plus any agreed interest) on their home.    If they make no "repayments" and there is no "interest", then the £50,000 remains as is.    However, if you wrote into the agreement that say 2% interest would be due, then after the first year, you'd be owed £51,000, then £52,020 after 2 etc etc.    Obviously if they could make any payments to you, that would offset either the capital or the interest.

You'd need to keep meticulous records, provide them with statements, and be totally transparent with family if asked, to avoid any nasty surprises.


You'd also have to bear in mind depending on the loan to value of the house, and the time scales involved, you may end up with a charge worth a larger and larger (if not ALL) of the value of the home!!!!    Compound interest effect.

kuratowski

If this is a bad idea then fine – I’ll just invest in something else.

I think that is the near-unanimous opinion, yes.  Let them sort out their property - you can offer your non-financial support, but don't get involved financially.  Financial transactions with family members are usually advised against, with good reason.

Keep_pedalling

JSR21 said:

I’m just looking for the best option for them, not me....  

I’m just looking for a mechanism that would work and is best for everyone, with as little risk as possible for me ...

If you do this you have to be aware that this is not an investment, you money is not going to be worth more in real terms in 10 years time, as it would likely to be if you had put the money into a well diversified equity fund. At best you might be able to keep up with inflation if you charge a small amount of interest, an interest free loan would see you lose money in real terms.

Sea_Shell

Keep_pedalling said:

JSR21 said:

I’m just looking for the best option for them, not me....  

I’m just looking for a mechanism that would work and is best for everyone, with as little risk as possible for me ...

If you do this you have to be aware that this is not an investment, you money is not going to be worth more in real terms in 10 years time, as it would likely to be if you had put the money into a well diversified equity fund. At best you might be able to keep up with inflation if you charge a small amount of interest, an interest free loan would see you lose money in real terms.

I agree.    OP needs to decide on how much of a personal hit they are prepared to take on their own finances (if any) to help out another.

OP could charge them 7% a year interest, rolled up, which after 10 years could mean an initial loan of £50,000 could turn into £100,483.

JSR21

Deleted_User said:

JSR21 said:

I’m just looking for the best option for them, not me....  

I’m just looking for a mechanism that would work and is best for everyone, with as little risk as possible for me ...

You'll need to choose between these two conflicting desires.

Equity release would seem by far the best solution for them, but perhaps not for you or others.

I'm trying find a solution that doesn't result in the desires conflicting.  Obviously doesn't exist, which pretty much puts the nail in the coffin for the original idea.

So why is ER the best solution for them?

JSR21

Keep_pedalling said:

JSR21 said:

I’m just looking for the best option for them, not me....  

I’m just looking for a mechanism that would work and is best for everyone, with as little risk as possible for me ...

If you do this you have to be aware that this is not an investment, you money is not going to be worth more in real terms in 10 years time, as it would likely to be if you had put the money into a well diversified equity fund. At best you might be able to keep up with inflation if you charge a small amount of interest, an interest free loan would see you lose money in real terms.

Do what?  The charge on the house?  Or buy the house?  Buying the house is the same equity gamble I'd take doing any other buy to let, the same gamble the millions of other landlords take every day.  Are you suggesting a pension is better than property investment?  Thread drift, apologies.

[Deleted User]

JSR21 said:

Deleted_User said:

JSR21 said:

I’m just looking for the best option for them, not me....  

I’m just looking for a mechanism that would work and is best for everyone, with as little risk as possible for me ...

You'll need to choose between these two conflicting desires.

Equity release would seem by far the best solution for them, but perhaps not for you or others.

So why is ER the best solution for them?

Because it ticks all their boxes.

It lets them stay in the house.
They get cash.
They don't need to make any loan repayments.
They can do up the bathroom, kitchen, whatever they want.
They don't need to worry about having a landlord and being given notice to leave, whether by intent or circumstance. 

xylophone

Your grandparents want to stay in their property and will not consider moving.

They want their property improved. They want a new car.

They do not have the capital to cover the improvements or to buy the car.

Equity release could be a possibility - have you investigated on their behalf to see what would be available?

Or (it appears that you have spare capital). you lend them the money against a first charge on the property.

You could charge them interest - it would not be necessary for this to be paid monthly as you could opt for it to be paid when the house was finally sold.

However, if you opted for rolled up interest, it would be taxable in the year that you received it.

As an alternative, you could opt for the loan to be set against the capital value of the house on sale - however, this would be subject to CGT in the year of the gain.

Your grandparents will need to take advice from an  equity release adviser if they go the ER route.

https://adviserbook.co.uk/        Tick "confirmed independent" and "equity release" when the menu comes up.

https://www.moneyadviceservice.org.uk/en/articles/equity-release

If you go down the loan from you route, you should take the advice of a solicitor so that a  legally watertight agreement can be drafted and the charge properly registered at the Land Registry.

Your solicitor may require evidence that your grandparents have also taken legal advice.

pickledonionspaceraider

I think this has arguments and stress all over it. Personally - I don't invite drama in to my life, so I would not even consider this

Sea_Shell

OP, You might always be in a lose lose situation here, as you may still get blamed if they go ahead with ER and there ends up being little or no inheritance left for the feuding family!!!