Family Loan to Purchase a Property Outright

jennifernil

I do not see a problem with putting a charge on the property, it should be done using a solicitor .

The OP said he wants to get the money back, but having a charge put on does not stop him from giving his son some flexibility with repaying should he, for instance, lose  his job , it just means that any outstanding  loan has to be repaid when the house is sold, so any partner looking to get a share of the proceeds would only get a share of what was left.  

I did this for my daughter about 12 years back, though I did also ask for interest to be paid, at a favourable rate to her, linked to what my savings earned.  The property was sold last year and her solicitor dealt with the charge and asked me if I needed her to transfer the outstanding amount, which would incur a fee, or whether I trusted my daughter to hand over the money.  I chose the latter.  

twopenny

It's a lovely thing you are doing for him.

It's been briefly touched on but you need to put in place protection for yourself and your son.
I've seen many times men who've got a woman pregnant, who already have children of their own and all moved in together.
Then they split and money and residence becomes an issue. 
However sensible the man may be it's still a mess and frequently becomes more as time goes on.

You need some way of ensuring that the house remains his and no other call can be put on it.

Brie

twopenny said:

It's a lovely thing you are doing for him.

It's been briefly touched on but you need to put in place protection for yourself and your son.
I've seen many times men who've got a woman pregnant, who already have children of their own and all moved in together.
Then they split and money and residence becomes an issue. 
However sensible the man may be it's still a mess and frequently becomes more as time goes on.

You need some way of ensuring that the house remains his and no other call can be put on it.

is that even possible?  If the son has repaid the entire loan then the house is his entirely and an soon to be ex spouse (or debt agency etc) could put a claim on it.  If the son has only paid back half the loan then presumably the ex etc would only be able to claim on his half.  But they would still be able to claim something - I believe.  But hopefully this is all un-necessary chatter.

Albermarle

Brie said:

twopenny said:

It's a lovely thing you are doing for him.

It's been briefly touched on but you need to put in place protection for yourself and your son.
I've seen many times men who've got a woman pregnant, who already have children of their own and all moved in together.
Then they split and money and residence becomes an issue. 
However sensible the man may be it's still a mess and frequently becomes more as time goes on.

You need some way of ensuring that the house remains his and no other call can be put on it.

is that even possible?  If the son has repaid the entire loan then the house is his entirely and an soon to be ex spouse (or debt agency etc) could put a claim on it.  If the son has only paid back half the loan then presumably the ex etc would only be able to claim on his half.  But they would still be able to claim something - I believe.  But hopefully this is all un-necessary chatter.

I thought the same.
The house would be his in his name, but future partners, children etc could be entitled to some of it.
The charge only means that if the house was sold, the parent would have first call on the money to pay off any of the loan still outstanding.

Albermarle

OP - have you considered the issue of inheritance tax?
Now you may not be rich enough to have to pay it, but if you are an outright gift ( rather than a loan) could reduce potential IHT liability for your estate in future.

saajan_12

LSEarn11 said:

I have recently recieved a large payout from my pension and would like to support my son in purchasing a property without a mortgage. I would like to know the following-

- I would like to do this on an interest free loan basis to cover the cost of the property and some additional money to cover the fees, formally written up and agreed and signed by myself and my son. He will pay me back monthly in agreed terms until completion of the loan, with no additional funds to be recieved, just the value of the loan.

- The property will be between £150-190k. If I were to lend 100% of the property value, via the interest free loan, the total purchase price to my son (plus a small extra amount to cover fees) could he purchase the property in his own name? 

-Would the interest free loan document be enough to ensure he would pass all of his checks? I could also provide proof of the drawdown of the pension to him.

-I am aware the pension amount will not increase in value and I will lose out on interest from the bank.

Is there anything else I need to be aware of to support him.

Thank you

You can absolutely loan the full value - essentially a private mortgage. Few implications to think about: 
- Son can't use LISAs etc towards the purchase price as they preclude private mortgages. But if you're loaning 100% of the value then perhaps he doesn't have one. 
- The solicitor will want to run AML checks to establish the source of funds. what you describe is likely going to be fine, though up to the individual solicitor. 
- Advisable to set out clear, written terms eg the payment schedule, what happens if he wants to move house, what happens if he can't pay, whether you can demand faster repayment, etc. This should mitigate it but there's always the risk of family rifts when theres stresses on life (eg he loses a job, you give some breathing space but then think he should try harder to get back into work and resume paying him back). 
- You should place a charge on the property reflecting the loan, so you have the option to enforce repayment if/when he wants to sell. You can always decide later to loosen the terms. 

Rosa_Damascena

twopenny said:

It's a lovely thing you are doing for him.

It's been briefly touched on but you need to put in place protection for yourself and your son.
I've seen many times men who've got a woman pregnant, who already have children of their own and all moved in together.
Then they split and money and residence becomes an issue. 
However sensible the man may be it's still a mess and frequently becomes more as time goes on.

You need some way of ensuring that the house remains his and no other call can be put on it.

I am going to offer an alternative perspective. At 43 I found myself desperate to relocate but unable to secure a mortgage, despite considering myself to be a financial "catch". Having lost out on two properties I was getting disheartened and realised that the only way I was going to get what I wanted was through a cash purchase but I had no plans to sell the roof over my head and renting a property instead.

I was incredibly lucky - step forwards my parents with a very considerable sum. They have scrimped and saved all their lives and helped me out when I needed it. I sold my "London residence" less than eighteen months later privately (in time to get a stamp duty refund) and returned the money immediately. They knew I am not flighty so could be could be trusted and it all worked out. Within 5 years of moving in I spent a similar sum on refurbishing and extending the place which is ready for them whenever they choose to move in. That was never part of any deal, it is simply the right thing to do.

Having said that, my friends with nasty son-in-laws have always fretted over their wills knowing there is no way of bequeathing to one child without the SIL walking away with half. Being childless its not a dilemma I will ever have to face.

LSEarn11

Thank you all for your comments, experiences and ideas. 

ian1246

Only thought I have, having got divorced 2 years ago, is speak to a solicitor about how to go about the loan in a manner which protect both yourself and son in the event he gets married in the future and subsequently divorced (its a coin toss - divorced rate stands at close to 50%).

Possibly look into holding it as a Trust with him recieving the beneficial interest?