My sister wants to invest cash in a property I will buy but how?

Foggy999

So I am trying to buy a flat at the moment (looking). I have a decent deposit and the rest will be a mortgage.
My sister wants to invest a 33% share as cash. She will not be on the mortgage. So for example (with round numbers) Property of £300000 value. I put in 100K as deposit and my sister invests 100K of her cash as a 33% investment. So I am thinking it will be in the form of a deed of trust? But at what stage do I try to implement this. Just wondering if anybody has experience/advice with doing this. 
Be gentle I am totally rubbish at this sort of thing : )

km1500

the mortgage company will need to know you have a 100k loan on the property as well as their loan. They may not give you a mortgage.

aside from this, you (ie your solicitor) draws up an iou or whatever saying you owe your sister £100k and at what  interest rate and at what repayment terms.

If your sister wants security the loan can be registered as a second charge on the property

eddddy

As above, the first step might be to see a mortgage broker and ask them if there is a lender who is prepared to offer a mortgage on this basis:

• £300k property purchase, funded by...

• £100k deposit from you
• £100k loan from your sister (perhaps protected by a charge on the property)
• £100k mortgage

A lot of mortgage lenders don't like that type of arrangement. (It would be much more acceptable if your sister gave you a gift of £100k, rather than a loan of £100k - but I guess your sister isn't up for that!)

pumas

Don't do it!
Do you need your sister's money? Could you afford to refund her investment without selling?
The flat will never feel 'your's'

Sea_Shell

You need to think very long and hard before you agree to do this....(and then still say no!)

Especially around the issues of her getting her money back (assuming she will want it back), plus interest/growth etc.  Sounds like she wants it to be an investment, so she want's her slice of the pie.

On the flip side, what if the flat loses money?    Is she also happy to take her share of any losses?

What timescales?  2 years, 5, 10, whatever.
What if her circumstances change and she needs it sooner?
What if she were to die?  Who inherits her share?

Or does she want a monthly repayment, so her "share" of the property would need to be constantly adjusted to reflect payments made?  

Even if she didn't want any monthly payment....and you did go ahead...then I'd seriously suggest trying to save and ringfence some cash in a separate account as a sort of endowment, so that one day, you might be in a position to buy her out.


The more you think about all the 'what ifs' the worse an idea it becomes IMO.

SDLT_Geek

Foggy999 said:

So I am trying to buy a flat at the moment (looking). I have a decent deposit and the rest will be a mortgage.
My sister wants to invest a 33% share as cash. She will not be on the mortgage. So for example (with round numbers) Property of £300000 value. I put in 100K as deposit and my sister invests 100K of her cash as a 33% investment. So I am thinking it will be in the form of a deed of trust? But at what stage do I try to implement this. Just wondering if anybody has experience/advice with doing this. 
Be gentle I am totally rubbish at this sort of thing : )

Others have suggested that if you do this, it be structured as a loan, rather than your sister having a share in the property. 

One factor against her having a share in the property is that it is likely to make the stamp duty position worse.  For example, if you are buying in England so the relevant tax is stamp duty land tax, then the whole price is likely to be subject to an extra 3% SDLT if your sister has other property interests.

Schwarzwald

you can do this.
hard to believe this is a commerically v smart move, for both of you.
I would not do it.
i have similar conversations with my partner (not married yet).
there are many reasons i think it is a bad idea, at least very sub-optimal from lots of commerical perspectives.

why does she not simply buy her own?

_Penny_Dreadful

Foggy999 said:

So I am trying to buy a flat at the moment (looking). I have a decent deposit and the rest will be a mortgage.
My sister wants to invest a 33% share as cash. She will not be on the mortgage. So for example (with round numbers) Property of £300000 value. I put in 100K as deposit and my sister invests 100K of her cash as a 33% investment. So I am thinking it will be in the form of a deed of trust? But at what stage do I try to implement this. Just wondering if anybody has experience/advice with doing this. 
Be gentle I am totally rubbish at this sort of thing : )

You will struggle to find a mortgage lender who will accept this arrangement.  If the plan is for your sister to be a joint owner (both legal and beneficial) of the property I believe she will need to be named on the mortgage even if she isn't legally responsible for repaying the mortgage.  Joint ownership opens up the higher rate of SDLT assuming your sister already owns a property and eventually CGT down the line when she disposes of her share of the property.

You could set it up a loan arrangement which would avoid the tax implications but you will still have issues finding a mortgage lender who will accept this arrangement.

You have a decent sized deposit so personally, in your shoes, I would say thanks but no thanks to your sister.  Buy the flat on your own and let your sister find something else to invest her money in.

Foggy999

Wow. I didn't think it was THAT bad an idea. It would reduce the size of my mortgage substantially. I would live there but if circumstances change I could sell. This is just a short term investment. 
Thing is even with a substantial deposit I am struggling to find somewhere in London that I would want to live in. Market is dry as a bone. Without this setup I will be forced to leave London and my job. I actually asked HOW this could be done not if was a good idea. Surly a deed of trust or something like that could be put in place?

user1977

It would be somewhat easier if was a joint purchase (although I expect lenders may still have a difficulty with a non-resident "investor" being involved). What was the thinking behind your sister not being on the mortgage? She'd presumably want to be able to step in if you defaulted on the payments.

fewcloudy

Foggy999 said:

Wow. I didn't think it was THAT bad an idea. It would reduce the size of my mortgage substantially. I would live there but if circumstances change I could sell. This is just a short term investment. 
Thing is even with a substantial deposit I am struggling to find somewhere in London that I would want to live in. Market is dry as a bone. Without this setup I will be forced to leave London and my job. I actually asked HOW this could be done not if was a good idea. Surly a deed of trust or something like that could be put in place?

tbf, some of the answers do say how it could be done.  And I'm sure they are all telling you why it's a bad idea with your best interests at heart.