Lending money to daughter to buy a house (Bank of Mum & Dad question)

ProDave

Daughter is wanting to move out, but does not currently earn enough to get a mortgage or pay private rental.

We are considering lending her the money to buy a house (house will be in her name, we do NOT want to be her landlords)

What are the legal implications of this?  Is it indeed possible without getting hit by a stupid amount of red tape?

HampshireH

Outright? 

If she cannot afford to rent how will she afford to run a house and pay you back?

sheramber

If you lend her money she will have to declare that , if she needs a mortgage., which will affect her affordability.

if it is gift, with no obligation to replay it, you would have to sign a document confirming that.

You might  have to produce bank statements to show where the money has come form,

Or, are you intending to lend her enough to buy outright?

user1977

ProDave said:

What are the legal implications of this?  Is it indeed possible without getting hit by a stupid amount of red tape?

Not much red tape really, assuming you mean there isn't also a mortgage involved. She'll need to evidence to her solicitors where all the money has come from, so be prepared to produce ID and bank statements.

Do you want security i.e. a legal charge over the property, so she can't run off into the sunset without paying you back? Do you want regular repayments, interest? Probably income tax for you to consider if you are paid interest.

BikingBud

ProDave said:

Daughter is wanting to move out, but does not currently earn enough to get a mortgage or pay private rental.

I know it is difficult given the extortionate prices for houses but if she cannot afford the mortgage or the rent how is it expected to work?

I want an Aston ...........!

ProDave

It would be to buy a house outright.

It would work by us being flexible.  We have the money legitimately in  our retirement pot.  Our only criterea is the interest she pays would be slightly above the best savings rate we could get, which would put it well below a normal mortgage rate.

Keeping a track of money in, money out interest added and balance left is easy 

So it would avoid her having to save for a deposit, give her a cheaper interest rate and more understanding / flexible lenders.

Yes we probably would want some form of charge over the property, that I guess we have to discuss with a solicitor how to do that (we are in Scotland)

BikingBud

ProDave said:

It would be to buy a house outright.

It would work by us being flexible.  We have the money legitimately in  our retirement pot.  Our only criterea is the interest she pays would be slightly above the best savings rate we could get, which would put it well below a normal mortgage rate.

Keeping a track of money in, money out interest added and balance left is easy 

So it would avoid her having to save for a deposit, give her a cheaper interest rate and more understanding / flexible lenders.

Yes we probably would want some form of charge over the property, that I guess we have to discuss with a solicitor how to do that (we are in Scotland) 

You can do mortgages for family

I would suggest that the best saving rate might be above the available mortgage rates but if you are prepared to lend where  commercial lenders my not ie affordability or deposit problems then it might work.

Although I do wonder if she cannot afford commercial terms which might be > 30 years what will be paid back and what might over the longer period pass to her and any siblings as part of your estate?

Not sure what the answer is but I'll keep watching.

comeandgo

if you are adding interest to the loan then you have to declare it to HMRC.

Brie

The bank will take into account how much you are lending her as well as how much she needs for the mortgage.  They don't care that you are being flexible.  If she can't afford to pay both she can't afford to buy.

Of course if you say it's a gift and then mention something in your will about it that's a different thing.

user1977

Brie said:

The bank will take into account how much you are lending her as well as how much she needs for the mortgage.

There's no bank mortgage involved.

RogerPensionGuy

You say want just over best interest rate possible. 

What happens if you can get 8% interest later this year, can family afford say 8.5% payments. 

And the big one, what will actually occur if child just stops paying interest to you.

If house price drops a 100K and child moves out and house sold. What happens to the proceeds of the sale and the missing 100K.

Potentially very messy, good luck.