Family Loan to Purchase a Property Outright

LSEarn11

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

user1977

If he's borrowing the entire price from you then yes, of course he can use it to buy the property.

Not sure what you mean by "all of his checks" - the source of your funds will need to be verified by your son's solicitors, so be prepared to produce your ID and a paper trail for the money.

Keep_pedalling

To protect your loan you should put a charge on the house.

Bigphil1474

The financial checks are less onerous if there's no mortgage. The solicitor will just check for anti money laundering. Agree with above.

Hoenir

LSEarn11 said:

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

Over 10, 20, 30 years inflation will erode the value of the capital being returned to you considerably. Reducing the buying power. 

LSEarn11

Hi all, thank you for your responses.

Yes apologies, all of his checks i was referring to the source of funds, so this in theory should be him confirming he has this in a loan from me. And I will likely then need to provide ID and proof of my withdrawal from my pension pot? 

Do myself and my son need to declare the interest free loan we have set up to any credit referencing agencies for example, or is it sufficient enough that we agree and document this.

Thanks

LSEarn11

Keep_pedalling said:

To protect your loan you should put a charge on the house.

Thanks for the response, what is a "charge", is this just simply stating in the loan that if he is unable to pay the property must be sold to cover the remainder of the loan? Thanks in advance

LSEarn11

Hoenir said:

LSEarn11 said:

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

Over 10, 20, 30 years inflation will erode the value of the capital being returned to you considerably. Reducing the buying power. 

Thank you for your response, when you say "reducing the buying power" do you mean in the sense that pound for pound what is recieve in return will have less value for me? If this is the case I am comfortable with my pension, to not worry about the value at the end, but also don't want to gift this money to my son as I want to have the total returned eventually. More of a principal rather than a financial requirement 

Brie

I've yet to see any credit report that shows loans between family members.  So no you wouldn't be reporting anything to them.  

I just want to add to the thought of putting a charge on the property.  What if your son stops paying you?  (gets married, has kids, loses job, all those life things)  What if your son get married and then divorced and has to sell the property to give his ex a half?  

So basically - how desperate will you be to get the money back if things don't go according to plan?  If you've got zillions in the bank then no worries.  If you'll be struggling on just the state pension and using the food bank then maybe you need to think again about your plans.

Albermarle

LSEarn11 said:

Keep_pedalling said:

To protect your loan you should put a charge on the house.

Thanks for the response, what is a "charge", is this just simply stating in the loan that if he is unable to pay the property must be sold to cover the remainder of the loan? Thanks in advance

Basically yes.
When you have a mortgage the mortgage company do the same, so they can repossess the house if the monthly payments are not made.
In your case it would also be a protection in case of some future situations with your son that might develop ( dodgy partner for example).

LSEarn11

Brie said:

I've yet to see any credit report that shows loans between family members.  So no you wouldn't be reporting anything to them.  

I just want to add to the thought of putting a charge on the property.  What if your son stops paying you?  (gets married, has kids, loses job, all those life things)  What if your son get married and then divorced and has to sell the property to give his ex a half?  

So basically - how desperate will you be to get the money back if things don't go according to plan?  If you've got zillions in the bank then no worries.  If you'll be struggling on just the state pension and using the food bank then maybe you need to think again about your plans.

Thank you Brie for the response. Im confident in the fact that if something was to happen in his life I could still cope well with my pension pot. I think the main reason I want to do this as an interest free loan rather than a gift, which would be possible also, is so that I am not gifting him a property as a whole, but rather supporting his journey. 

He is currently employed in a senior position and has been with the company for over 10 years, but he is currently renting which is meaning he is paying off someone else's property, rather than working towards owning his own property which this would allow him to do and be more financially secure long into his future.