Cash from Family towards a deposit.

6022tivo

House purchase £400k
Couple buying it have a £100k Deposit
They are going for a £240k mortgage
A family member wants to help with £60k

Family member doesn't want the money back and it will pass upon death, but just want it protected if something happens etc. 
They are thinking of a 2nd charge on the property for the value, or more likely the percentage. 

Is this the most sensible approach?? 
What are the implications of the charge?
Will the 60k still form part of the family members estate, will that charge on the said property need to be stated and left to the home owners? 
The main aim is that if the home owners relationship fails and the house is sold as a failed venture, they would want their money protected after debts, and mortgage have been paid assuming there's still value in the house sale. 

Any better way of dealing with this situation? 
Thanks in advance. 

silvercar

Mortgage lenders are generally only happy with gifts, rather than loans. So they may not entertain the idea of a second charge on the property. Also a loan would form part of an estate and may incur IHT liability.

user1977

When you say "their money", whose do you mean? The partner whose "side" contributed the money should get it back if the relationship breaks up. If the gifter doesn't want it back then it doesn't make sense for them to get a charge registered in their name, and as said the lender is unlikely to agree to that anyway - they expect any gifts to have no strings attached.

6022tivo

silvercar said:

Mortgage lenders are generally only happy with gifts, rather than loans. So they may not entertain the idea of a second charge on the property. Also a loan would form part of an estate and may incur IHT liability.

Ok thanks. 
Will have to look at the wording and terminology then I guess. 
It won't be expected to be paid back at any point, and as far as the mortgage goes it will just form part of the deposit. 

As far as I recall back in the day when I've done this before (20 years ago), when the solicitor sends the paperwork to the land registry, as long as the Mortgage lender is the 1st in the list, a second charge can be added with no concerns of the 1st? 

Does this still sound about right?

diystarter7

Hi OP

From what I know, it's either a gift or not.
Lenders as stated by Silvercar are not happy with setups like that.  Just ask yourself, someone gives you 60k/etc, its not a gift, but it is a gift. The person lending/gifting the money may want it back the next day, next week, month, etc.  What would happen if the person wanted their money back three months into the mortgage, I think you know the answer and lenders rightly so are not fans of stuff like this.

Thanks

Keep_pedalling

The thing about gifts is that they are absolute and once given you loose control. 

The couple could take ownership of the purchase as tenants in common with a deed of trust with an uneven split in ownership. 

youth_leader

I've given my son and daughter a money gift towards a house deposit, and have sent them a Declaration letter I found on line.  When they are ready to apply for a mortgage I'll be getting my solicitor to do a Deed of Trust for both.  

6022tivo

Thanks for that @youth_leader
I'll have a google. 


The reason for the initial question was around 20 years ago I was involved in a house purchase and the partners family chucked some money towards it, and the solicitor simply added a 2nd charge (After the mortgage company had been financially satisfied) of that said amount to the person who chucked the money in. 

They got it back when the house was ever sold if that makes sense. 
It was a very simple process that if I remember rightly didn't even go via the mortgage company as it wasn't a charge that would affect them in any way.youth_leader said:

I've given my son and daughter a money gift towards a house deposit, and have sent them a Declaration letter I found on line.  When they are ready to apply for a mortgage I'll be getting my solicitor to do a Deed of Trust for both.  

6022tivo

youth_leader said:

I've given my son and daughter a money gift towards a house deposit, and have sent them a Declaration letter I found on line.  When they are ready to apply for a mortgage I'll be getting my solicitor to do a Deed of Trust for both.  

After a quick google. 

Looks like they should buy/register the property as "Tenants in common" and then a solicitor would draw up a "deed of trust"

So for the above, would this change anything about the mortgage offer at all? Or how the house is registered with the mortgage company. 

youth_leader

As far as I understand it many mortgage lenders do like it to be an uncomplicated no strings 'gift'.  Once my kids go to a mortgage broker, for money laundering regulations I think their solicitor will ask me to prove my gift with ID etc and a paper trail, which I've already got ready after much effort, wish I hadn't gone paper free for statements.  

Gavin83

As a few others have said, it's either a gift or it's not. You can't pick and choose the benefits of both. If it's truly a gift then there should be no charge on the property as that would suggest it was a loan, a gift meaning the money then belongs to the other party with no strings attached. If it is a loan then it shouldn't be declared as a gift to the mortgage company as that would essentially be fraud.

They need to decide whether it's a gift or a loan and act accordingly. This is also assuming there's no possibility of the person gifting the money requiring care anytime soon otherwise deprivation of assets would come into play too.