Help children to buy in London - is this too ambitious?

LL_USS

I am consulting the principle of how to use the money first before asking about where/what is best to buy
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I have luckily accumulated a decent amount of excess asset that I would like to pass on to my children to manage once they reach their adulthood. I should still have enough left for myself, with a decent projected DB pension, a fine DC pension pot, ISAs and LISAs.
I am thinking of selling my house and move back to our former home, which was smaller and would fit perfectly as the kids leave home. THey don't seem to want to stay in the same city and would love to find their jobs/ start their young years somewhere else. Without any experience in Stocks and Shares, I'd rather let them manage the excess money and gradually giving it away (note: I don't mind giving the whole amount away early, I am just worried about giving away too early and the children wouldn't try as hard as they would be without any help). For now they seem to be hard working and have decent abilities and they very much appreciate how much I've worked for us.

With the money from the sales, I am thinking of helping the first kid to buy in their name a property without mortgage, then as the second kid is ready to buy, remortgage the first property and add to whatever left from the family house sale, and add a bank mortgage to buy (in their name). I am searching for an appropriate way to have a combination of gift and loan (long-term loan) for each of them when they buy.

EssexHebridean

My current thinking for when that happens ideally, I would share a pot of XXX as long-term loans for each of my two children, encourage them to take a mortgage of about XXX to buy their own property (so value of each mortgaged property is about XXX).

It's likely they will struggle to get a mortgage with a loan of that size from a family member.  

(The quote above is an excerpt from the OP’s original post, which they have now edited. As they have removed the actual figures from their post now, I’ve also removed them from the quote) 

EssexHebridean

The lender will see that as you having a claim on the property I suspect. It might be that some specialist lenders might be wiling, but I think they will struggle with finance from high street lenders I'm afraid. 

Hoenir

Lenders will require written confirmation that the money is gifted without reservation. In legal terms this will be set in stone. 

EssexHebridean

LL_USS said:

EssexHebridean said:

The lender will see that as you having a claim on the property I suspect. It might be that some specialist lenders might be wiling, but I think they will struggle with finance from high street lenders I'm afraid. 

Thank you @EssexHebridean. I have anticipated lots of problem with "the ideal plan" and I am just trying to see if there's a way around.

Okay, so at least I should try to see if there's any lender for a case of "long-term loan that does not need to pay back unless property is sold, and parent to have no claim on the property" (I will live in my own place not in their property anyway)?. And if no lender then try to see how much must be as "gifted portion"?. Or as an extreme just state all is gifted (and hope the kids will do the right thing). As I said, secretly I wouldn't mind giving away a lot or even all, I just don't want the gift to become a burden somehow, or to have bad impact on them.

That is encouraging your children to commit mortgage fraud - not what most people would consider to be "the right thing" I wouldn't have thought? 

The standard gifted deposit letter requires you to state as Hoenir says that the gift is just that - a gift, and that you will have no claim on the property. Expecting that the money is paid back as and when the property is sold will be seen as a claim on the property - as indeed it is! 

If you are happy to just gift them a deposit, then just go that route - don't attach any strings and certainly don't expect them to start their home-ownership by telling porkies to their mortgage lender!  

LL_USS

Hoenir said:

Lenders will require written confirmation that the money is gifted without reservation. In legal terms this will be set in stone. 

Thank you @Hoenir.

I have been using this guide: https://hoa.org.uk/advice/guides-for-homeowners/i-am-buying/bank-mum-dad-help-children-buy-home/

It says:

Can I gift my child money to buy a home?

Yes. The majority of parents give their children the gift of cash to make up the shortfall in their deposit and boost their borrowing power so they can access a cheaper mortgage deal and/or borrow more.

Most banks will accept a deposit that has been gifted (or partly gifted) but they may ask for written confirmation from you stating it is a true gift. There are two reasons for this. Firstly, for affordability calculations they want to know the money isn’t a loan that requires regular repayments. Secondly, they want to know that if the worst came to worse and they had to repossess the house, you don’t have an interest in the property.

LL_USS

EssexHebridean said:

LL_USS said:

 Or as an extreme just state all is gifted (and hope the kids will do the right thing). As I said, secretly I wouldn't mind giving away a lot or even all, I just don't want the gift to become a burden somehow, or to have bad impact on them.

That is encouraging your children to commit mortgage fraud - not what most people would consider to be "the right thing" I wouldn't have thought? 

The standard gifted deposit letter requires you to state as Hoenir says that the gift is just that - a gift, and that you will have no claim on the property. 

If you are happy to just gift them a deposit, then just go that route - don't attach any strings and certainly don't expect them to start their home-ownership by telling porkies to their mortgage lender!  

@EssexHebridean Sorry when I said "state all is gifted" I just referred to the statements/ conditions in the bank document for the purchase. I meant as an extreme I will just give all as a true gift (vs keeping a part as a long term loan), and hope the kids would do the right thing, meaning still work as much as I did in the past to make my own money.

EssexHebridean

Ahh all good then - glad we were able to answer at least some of your questions anyway! 

Good luck with your future planning for you and the children! 

LL_USS

@EssexHebridean thank you very much. I will try not to plan too much and see how things will go.

All the best with yours too :-)

silvercar

We gave both our offspring a gifted deposit to enable them to buy a property. My OH also went on the mortgage, but not the deeds, of one offspring’s purchase in order for him to get the required mortgage as he was buying alone. The mortgage is affordable as he has a lodger.

JC2068

What if your first child buys the property. You gift the amount you want first child to keep and not have to repay. As for the remainder, you enter into a Deed of Trust in which you stipulate that X amount you will contribute but retain as a beneficial/equitable owner. First child would be the legal owner but behind the scenes, you own part of the equity. You can add a restriction on the title in which you have to give consent to any dealings of the property. This protects your money/the other kids entitlement.  (From inheritance tax view you still own the money though). 

Alternatively, first child gets his gift now and takes the mortgage now (if affordable). Remaining children’s money is placed in a trust fund for when they’re ready. Saves upheaval of first child having to remortgage or sell, protects funds for the other children, and could reduce IHT.