Family Problem

greco_2 · 29 April 2008 at 6:20AM

My mother-in-law recently bought a small bungalow and must now sell the family home which she has owned for 50 years.

My brother-in-law wants to buy it but is apparently unable to obtain a mortgage. The agreed purchase price is £325,000 which is £50,000 less than it was valued last summer and he has about £220,000 as proceeds from the sale of his previous home. His income is, we estimate, about £40,000 and he also owns a buy to let property which is rented to students. As far as we know, he has an existing mortgage on this property.

As he is unable to raise a mortgage, my mother in law has suggested that she offers him a private mortgage for £105,000. The family have concerns about this and we are trying to get our heads round the potential pitfalls.

Any thoughts?

Kavanne · 29 April 2008 at 6:26AM

I leant some money to my mother so she could pay off her mortgage and retire. We went to a solicitor who drew up a doc saying she owed me £30000 secured on her home.. blah blah I am not really sure, all I know is I signed it and now she pays me each month into an account I set up especially to receive the payments.

Anyway, a solicitor will know what to do if you decided to go ahead.

cogito · 29 April 2008 at 10:57AM

I have a number of thoughts on this so bear with me.

First off, he has a deposit of more than two thirds so even in the current climate, there seems to be no good reason why he can’t raise the money. Just because he has been turned down once doesn’t mean that all lenders would say no.

Second, your mother in law MUST treat this as a business transaction. Lending money to family members is NEVER a good idea in my experience as it can lead to endless family friction. What happens if he has an accident, loses his job, becomes ill or doesn’t make the payments? Is your mother in law going to repossess the house? Can she contemplate losing her retirement nest egg or is she so wealthy that it doesn’t matter?

Before committing herself to this rash action, she should insist that all possible avenues are explored to see if the money can be raised from a commercial lender. If the money can’t be raised, the only conclusion can be that lenders view him as an unacceptable risk. That, in itself, should serve as a red warning light. Does he have any adverse credit history that he hasn’t disclosed or is he already over extended because of his buy to let property? If he is and wants her house so badly, shouldn’t he be selling his other property?

If, despite this, your mother in law is still minded to proceed she should ensure that she retains title to the house until it is fully paid for to protect her own interests and also those of any other people who she may want to benefit from her estate.

There are also tax implications as any payments which she receives would be treated as income and any state benefits may also be affected. At the very least, she needs to obtain the best legal advice – and to take it.