Family Mortgage

Willsie01

Wife and I are weighing up buying a house with our daughter and her family. We have the funds to buy the house but they will need to pay us back for their share of the house. How could that work. They could pay us back as if we had given them a mortgage but how would we set the interest rate so that it was fair to us and to them?

dimbo61

No replies so far !
Has your daughter and her partner got any savings ? maybe a 15/20% deposit 
Have you looked at Offset mortgages and Friends and family 
Lenders do not like a Loan as a deposit but happy with a GIFT 

silvercar

It isn't clear if you intend to live with your daughter or whether you are offering some funding but living separately.

Annisele

There might be no need for them to pay you back "as if" you'd given them a mortgage. If you have funds to purchase the entire house, you can lend them that money secured on the house - and that's an actual mortgage.

But there can be all kinds of legal and tax complexities with that kind of arrangement. Their precise flavour depends on things like whether you'll be living in the house too, where the money comes from, and much more. But you'll likely need paid for professional advice from at least a solicitor, and possibly an accountant too.

Setting the interest rate in a way that's fair is a relationship question as much as a financial one. You could choose to track Bank of England base rate (or, for easier maths, choose to fix for a year at whatever BoE rate was on 1 January each year). Or you could say that since this is a family loan you want to make it interest free. Or you could agree whatever seems fair to all parties. But dont' forget to account for the tax on any interest you charge.

(Edited to take account of @Jonboy_1984's comment below. I'm not sure whether this would be a regulated mortgage loan regardless of the interest rate chosen. If you were living in the same house, then possibly you wouldn't be seen as acting for business purposes (and therefore the regulations around lending might not be in play). But I'm not at all sure about that, and you'd want to take advice!)

Sncjw

Why do you want to profit from them? 

Also if your going to charge interest why can't they just go to a bank to get a mortgage? 

Also what happens if they stop paying you? 

Willsie01

dimbo61 said:

No replies so far !
Has your daughter and her partner got any savings ? maybe a 15/20% deposit 
Have you looked at Offset mortgages and Friends and family 
Lenders do not like a Loan as a deposit but happy with a GIFT 

They’ve got a deposit.
From what I remember of Offset mortgage I’m not sure how one would help but I’ll look.
With other children that have wants and needs, plus our own, a gift of the magnitude needed is not generally fair all around.

Willsie01

In reply to Silvercar

Sorry if I wasn’t clear. We buy a multigenerational home together. We can finance the whole project but daughter and husband can’t raise a big enough mortgage to buy their share.
I was looking for how I could loan them the money in a fair way. I don’t want to make a profit out of them but the money will be drawn from a share portfolio so I want an arrangement which minimises my potential losses and the interest they will pay. Hope this makes sense.

Willsie01

Reply to Annisele

That’s given me ideas. Thank you.

Willsie01

Sncjw said:

Why do you want to profit from them? 

Also if your going to charge interest why can't they just go to a bank to get a mortgage? 

Also what happens if they stop paying you? 

I don’t want to profit. I want something that is fair to them: cheaper the they’d get on the commercial market. But also fair to our other children: they money is coming out of our estate.

Rising interest rates have reduced the amount they can borrow. In effect they can’t proceed with the house they were aiming for.

Stopping payment wouldn’t happen but if it did then their equity in the house would stop growing.

Jonboy_1984

There are special rules regarding lending for property and interest rates, over 2% and it it likely suppose to be a regulated loan: 

https://www.samconveyancing.co.uk/news/conveyancing/borrowing-money-from-family-10024

silvercar

Willsie01 said:

In reply to Silvercar

Sorry if I wasn’t clear. We buy a multigenerational home together. We can finance the whole project but daughter and husband can’t raise a big enough mortgage to buy their share.
I was looking for how I could loan them the money in a fair way. I don’t want to make a profit out of them but the money will be drawn from a share portfolio so I want an arrangement which minimises my potential losses and the interest they will pay. Hope this makes sense.

If they can afford the mortgage payments, but can't afford on paper to be given the mortgage, then you would need to think of going on the mortgage paperwork with them. That would allow them to borrow what they need. In any case, if a lender is going to give them a mortgage with you living in the property, then you would need to sign a disclaimer that you won't stand in the way of a repossession. That is if the lenders will even lend on a property where not everyone is on the mortgage. There is a thread running similar to this question here: https://forums.moneysavingexpert.com/discussion/6427409/joint-tenants-single-mortgage#latest