Parents Lending money to Children for mortgage - Declaration of Trust / Second Charge

kn0bby · 17 June 2008 at 11:59AM

Hi

Wonder if you guys can lend some advice, personal opinion on the following..

I am looking to buy a house with my girlfriend. I currently own my place, a 2 bedroom flat. My girlfriend is unable to move out of her parents place because she has a dog and my lease states I am not allowed pets. My place has been on the market since november, we have just sold for 153k, my mortgage is for 162k with NR, I will also incur a 4k redemption fee by ending the NR deal early. We have just secured an offer on a 3 bedroom house for 195k, my girlfriend is going to put 16k cash in and i shall put 5k cash in, this leaves us a little short so my girlfriends parents are going to be 10k in to help us out.

My girlfriends parents want to secure their money. They have been to a solicators and they have suggested doing a tenants in common agreement as well as putting a second charge on the house to secure there 10k. The mortgage company will not allow us to put a second charge on the property until the mortgage and purchase are complete. I am not keen on putting a second charge on the property as her parents then have the power to force a sale on the property. My solicators have said a declaration of trust is sufficient. I will be paying 70% of the mortgage and my girlfriend 30%, my solicator says this should be taken into account but theirs have said it makes no difference.

If we complete a declaration of trust what do we put in it? first things first, my girlfriends parents will be paid the 10k if the house is sold, or if we split up. Then my girlfriend gets her 16k back and i get my 5k back, if there is anything else left how do we split it, 70/30? We only want to put the declaration of trust in place to secure ourselves should we split up and also to secure her parents 10k.

I know I have brought a negative figure to the deal but i am only selling so we can be together and my girlfriend cannot come to live with me because of her dog. I put 16k into my property and i am selling it at a loss so i am missing out in this respect by selling early.

Would really like peoples views on this situation, how we should split figures should we split up and how my girlfriends parents can secure there money without going over the top.

Thanks in advance.

Cheers

Knobby.

silvercar · 17 June 2008 at 12:28PM

What is the new house costing and how much mortgage will there be?

By the sound of it you will need there to be equity of 10+16+5=31, but what happens if there isn't at the time of a sale?

You may agree now to do different splits of the mortgage but legally you will both be jointly liable for all the mortgage. Are you both aware of that?

kn0bby · 17 June 2008 at 12:37PM

The new house is costing 195k, the new mortgage will be 182k.The mortgage will be fixed for 5 years. We have had the offer accepted on the new place and our mortgage approved. we just need to finalise declaration of trust. I am aware if the property prices fall further we will both be liable for the mortgage.

silvercar · 17 June 2008 at 12:43PM

You could just put the first 10k going to her parents and then the 16k and 5k and not specify the split of the remainder. Remember to write in that the solicitor fess and estate agent fees need to be deducted first.

I presume you are paying more of the mortgage because you earn more. This can change over time and there comes a point where living together means shared finances, otherwise you will end up going out for dinner and only you can afford to drink the wine.

kn0bby · 17 June 2008 at 12:52PM

I understand this.. My only problem is i am moving out of a flat that i put 16k into.. If we sold after 2 years at just over enough to cover all that everyone put into it.. they would come out with 10+16 and i would take out my 5k.. They havent lost a penny but i have lost 16k. We are both happy to do a 40/60 split in my favor, but her parents are not keen on this. I understand how earnings can change and I am happy to share my wages as i do earn alot more. But i just dont want to be shafted should she split up with me in the future.

What would you suggest for her parents and how to secure there money? Is a 2nd charge taking it too far and should a declaration of trust be enough..

poppysarah · 17 June 2008 at 1:04PM

First time living together? I'd rent.

kn0bby · 17 June 2008 at 1:13PM

Yes first time living together. Althought over the last 18 months my girlfriend stays with me all weekend and we have been on many holidays where we spend all week together. Our relationship is very strong and I do not think this will be a problem i am just trying to cover ourselves if anything does happen. It seems to be common practice these days to write a declaration of trust clearing stating the split of figures. My sister has just split up with her BF of 5 years and thats cost alot of money so i've seen it first hand and want to protect us both.

puddy · 17 June 2008 at 6:48PM

why isnt the NR mortgage portable, then you could save 4k, plus, why are you buying such an expensive property (compared t the one you are selling), buy something cheaper then you give yourself room for manouvre and dont have to rely on in laws (which is bound to present a problem at some point seein as you cant agree already on how this is going to work)

strongboes · 17 June 2008 at 7:14PM

Your already in negative equity and prices haven't really started falling properly yet, and you want to buy somewhere else with your gf parents putting cash in aswell. Do yourself a favour and save yourself at least 50k and rent somewhere. Pull out of your offer, if you proceed then i'm sorry but you are a complete idiot.