Loan to son for house purchase

RMurphy195

One of those aggravating things happened this week - my son has had an offer accepted on a house for his partner and children.

Last week thier APi (or whatever its called) allowed them a mortgage which would give them plenty of headroom.

Hot on the heels of his offer on a property being accepted, the lender changed theier criteria so now his borrowing limit is much reduced, to the point where he has a small shortfall instead!

So I want to help him out by making up the difference from my savings, BUT I don't want to make it a gift, partly due to IHT considerations and partly due to making sure that the beneficiaries of our estate (hopefully many years hence!) aren't disadvantaged.

So - a loan seems to be the best way out. We are talking here about a £15k loan on a 300k property, for which the LTV with theier mortgage lender will be about 35%. Without going into any more detail, we feel that for my son and his family to lose out due to such a relatively small amount, would be a shame to put it mildly! But I digress ..

I want to avoid

    IHT considerations (so not a gift)

    problems with the lenders as far as possible (so no repayments in parallel with the mortgage)

So I'm thinking that we could make the loan to him, to be repaid either when the house is sold, or back into our estate if both my wife and myself die before then (he is one of the benefciaries of our estate). A nominal rate of interest to ensure it is not interpreted as a  gift and to ensure that out other beneficiaries  don't lose out. flexibilty for my son to repay the loan in chunks as and when he feels able to.

We will of course once its settled be talking to our solicitor about our wills.

I don't want him compelled to repay either the capital, or any interest, if he is not able to before either of the two major events.

He is talking to his morgage adviser today (his offer was accepted yesterday so he needs to be able to prove availability of funds to the vendor), but if anyone can add 'owt to this, and, especially, point me to a downloadable loan template that would be great - one that I don't have to enter sensitive information onto online (yup, you guessed, I've been looking!). Oh, we're in England.

user1977

Not much point doing anything else until you find out what the mortgage adviser says, as lenders tend not to be fond of the deposit including loans from third parties.

Flugelhorn

as far a IHT is concerned 15K is still 15K whether it goes to him or remains in your estate. Best it to him and he gets 15K (+ whatever you feel is appropriate) less out of the estate when the time comes. 

propertyrental

Mortgage broker might suggest an alternative lender.

Not sure where the IHT issue comes from. Whether you loan or gift the money is morea decision about whether you want it back.

If you gift it, all you need do to protect the other beneficiaries is put something in your will so they get £15K more than him.

If you charge interest (even nominal) on the loan, you'll have to pay tax on the income. And calculating the interest can be a mathematical challenge (banks have super-computers).

No need to alter your wills if it's a loan. Just have a clear loan agreement and store it with your wills - your executors will have to reclaim it into your Estate before distribution (or subtract it from his inheritance.)

diystarter7

Hi OP
Come back when you know for sure what will happen.
There are many threads like this on MSE, so in the mean time look them up
if you wish.
Thanks

user1977

Think you might be confused about the IHT issue - if you lend it then it's still going to be part of your estate. If you gift it then it at least potentially won't be chargeable to IHT if you survive long enough. And if you keep the money then obviously it's part of your estate anyway. Gifting it doesn't mean more IHT.

eddddy

So to summarise...

• For IHT purposes - a gift is likely to be better than a loan. (If you survive 7 years, no IHT to pay on the gift)

• Mortgage lenders generally don't like loans for deposits. They are generally happier about gifts.

• You can adjust your will to say that your son receives £15k less than other beneficiaries (or whatever)
  
  

mi-key

You can always give him the money as a gift, which is quite common these days with parents helping their kids with house purchases.  If at some point he decides to give you a similar amount back  as a gift, that is nobody elses business apart from yours and his. 

Flugelhorn

mi-key said:

  If at some point he decides to give you a similar amount back  as a gift, that is nobody elses business apart from yours and his. 

I think that is fine in most families but sadly there are plenty of threads where the donor  believed that the money was a loan and not a gift whereas the recipient always understood it was a gift and has no intention of paying it back. 

MEM62

Most lenders will not accept a borrowed deposit.  If you want to help, keep things simple and just gift it.  You can sort out the rest internally as a family.    

mi-key

Flugelhorn said:

mi-key said:

  If at some point he decides to give you a similar amount back  as a gift, that is nobody elses business apart from yours and his. 

I think that is fine in most families but sadly there are plenty of threads where the donor  believed that the money was a loan and not a gift whereas the recipient always understood it was a gift and has no intention of paying it back. 

Well there will always be those cases, but as long as the father and son sit down and make it clear between themselves then there shouldnt be any problem