Lending parents money against their house

gorka01

My parents are both nearly 80 and were considering equity release on their home.  Due to the fact that the live on a hill and their home is not future proof I thought that this would be limiting their options in the future.  I have offered to loan them money (£30k) which they do not have to repay until the house is sold (maybe after their days).  Is this legal and what do I need to do so that I am entitled to get this money back even if they have to have residential care at some point in the future.   I do not want interest on the loan just a guarantee against the house for £30k

tacpot12

It's certainly legal, but you will want to document the loan via solicitor, who can also put a charge on the home. 

It's worth considering whether £30K will be enough for them. Although interest rates are not favourable at the moment, it might be better to go with a company who is use to lending money. 

Do your parents have Powers of Attorney in place? If not, you might talk to them about the idea of granting Powers of attorney to you or anyone else they would trust to look after their interests if they were not able to do so. 

It's worth them also considering if their Wills are up to date and reflect their wishes.  

propertyrental

Not sure I agree with tacpot12 above.

An interest free private loan is probably preferable to a commercial loan from a company used  to lending money. Assuming of course that there is no negative impact on your own finances from the loss of £30K.

But yes:
* formal documentation of the loan.
* A charge on the property.
* POAs
* Wills

CKhalvashi

I agree fully with both posts above.

This will need to be formally documented and there will need to be a charge.

It may also be worth putting an interest rate at the HMRC Beneficial Loan Rate (or similar tracker such as BoE rate) to ensure you're getting some return, but not high enough to cause arguments with councils/siblings later and lower than commercial rates in any event. This is to protect you as much as them.

TBagpuss

YEs it can be done. You and your parents will both need to get separate and independent legal advice.

You can do it in one of two ways - either a straight cash loan secured on the property, or a loan secured on the property and expressed as a % of the property value (e.g. if you were lending £30,000 and the house is worth £300,000, a loan expressed as being for 10% of the value) You could do it with interest (e.g. simple interest at  0.5% about BofE base rate, or above a specified bank's specific type of interest rate, but doing a % can be simpler and easier to calculate, and means that you get back a higher amount if house prices rise or lower if they fall. It would probably be possible to frame is as £30,000 or 10% of value a date of repayment, whichever is higher" if you wanted to ad if you and they both felt that was fair. 

Either way you would want a formal written agreement which expressly sets out what the circumstances are in which you can demand payment, and then you'd want the loan to be formally registered as a secured loan against the property at the land registry. 

That protects your interests - your debt is secure in the even you were to fall out with your parents, or if one of them died and the other remarried and, or if either of them become liable to pay care fees that may be reclaimed.(and in relation to their deaths, especially if you have siblings or others entitled to a share of the estate when the time comes) 

Equally, it protects your parent interest  by ensuring that you can't just unilaterally decide t demand payment and force them out, and nor can your creditors or ex if you were to divorce or get into debt .

Your own solicitor would be able to advice but you might want any agreement to include provisions for your parents to ensure that buildings insurance is maintained and that the house is kept to the same level of structural and decorative repair as it is now, with provision for you to claim the cost of remedying those things if they don't  - again, while you and your parents no doubt trust one another, it's worth bearing in mind that it may well not be them you end up dealing with, but their executor or the local council if they were to need long term care, so important to spell things out. Equally, they could end up with it being your creditor or ex spouse who was seeking repayment so again, a gentleman's agreement may not be honoured! 

propertyrental

CKhalvashi said:

It may also be worth putting an interest rate at the HMRC Beneficial Loan Rate (or similar tracker such as BoE rate) to ensure you're getting some return, but not high enough to cause arguments with councils/siblings later and lower than commercial rates in any event. This is to protect you as much as them.

The problem with that is that any interest payment is 'income' and needs a) calculating and b) declaring to HMRC for tax.....

CKhalvashi

propertyrental said:

CKhalvashi said:

It may also be worth putting an interest rate at the HMRC Beneficial Loan Rate (or similar tracker such as BoE rate) to ensure you're getting some return, but not high enough to cause arguments with councils/siblings later and lower than commercial rates in any event. This is to protect you as much as them.

The problem with that is that any interest payment is 'income' and needs a) calculating and b) declaring to HMRC for tax.....

£30k at 2.5% will be within the HMRC tax free limits.

CSI_Yorkshire

CKhalvashi said:

propertyrental said:

CKhalvashi said:

It may also be worth putting an interest rate at the HMRC Beneficial Loan Rate (or similar tracker such as BoE rate) to ensure you're getting some return, but not high enough to cause arguments with councils/siblings later and lower than commercial rates in any event. This is to protect you as much as them.

The problem with that is that any interest payment is 'income' and needs a) calculating and b) declaring to HMRC for tax.....

£30k at 2.5% will be within the HMRC tax free limits.

Assuming it's the only income that counts towards the limit.

user1977

TBagpuss said:

You and your parents will both need to get separate and independent legal advice.
 

Or rather, you can't both get advice from the same solicitor (neither of you needs to get legal advice).

TripleH

I would also advise siblings (if you have any) of you lending money to your parents before you finalise anything so that you're open, honest and reduce issues down the line.

gorka01

Thanks for all the advice.  It does seem straightforward.  My sister is fully aware and agreeable so I think this maybe the way to go.