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  • FIRST POST
    • Alikay
    • By Alikay 9th Aug 18, 11:29 AM
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    Alikay
    Best way to help sons buy flat together?
    • #1
    • 9th Aug 18, 11:29 AM
    Best way to help sons buy flat together? 9th Aug 18 at 11:29 AM
    Our two sons are both working in London and each paying 1000 pcm rent on shared flats. They're discussing buying a 2 bed ex LA flat in an area they like and are v familiar with, and we'd like to help them.

    DS 1 has 85k deposit, DS2 has 15K. They could manage 200k mortgage between them (shared 50/50) and we could put in the rest, which, depending on the specific flat will be somewhere around 60k.

    What would be the best way to do this? It can't be a gift as we have other children and would want outright gifts to be equal. We don't need the money for the forseeable future, nor do we need the interest on it (though want to be fair to all our children, an interest free, repayment-deferred loan isn't ideal - particularly if property prices increase and one child benefits when others have paid market-rate interest to banks).

    60k would be about a sixth of the flat value, so potentially we could loan DS2 a third of his half of the flat, and take back a 6th of the selling price (from DS2's share, obvs) when the boys sell it (which they will do at some point in the future if one needs to relocate or set up home with a partner).

    What is the best way to do this which is fair, legal and doesn't involve extra costs like higher rate stamp duty etc? We don't want to be named on the deeds as it'd be their home, not ours. We are aware that property prices, particularly in London may fall, but are willing to take that risk (and offset it against the high rents they're currently paying). Thank you - am open to all suggestions
Page 1
    • pleasedelete
    • By pleasedelete 9th Aug 18, 11:35 AM
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    pleasedelete
    • #2
    • 9th Aug 18, 11:35 AM
    • #2
    • 9th Aug 18, 11:35 AM
    They must be on a very low income to only manage a 200k mortgage between them-are they really in a position to buy?
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    • Pixie5740
    • By Pixie5740 9th Aug 18, 11:43 AM
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    Pixie5740
    • #3
    • 9th Aug 18, 11:43 AM
    • #3
    • 9th Aug 18, 11:43 AM
    There are lenders who will accept a borrowed deposit from parents but not many. A mortgage broker will be able to steer you in the right direction. Your sons should also think about setting up a Declaration of Trust which would cover things like unequal deposit amounts, who pays for maintenance and repairs, what happens when one wants to sell, etc.
    • Alikay
    • By Alikay 9th Aug 18, 11:44 AM
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    Alikay
    • #4
    • 9th Aug 18, 11:44 AM
    • #4
    • 9th Aug 18, 11:44 AM
    They must be on a very low income to only manage a 200k mortgage between them-are they really in a position to buy?
    Originally posted by pleasedelete
    They could afford a bigger mortgage jointly as DS1 is paid significantly more. DS2 is just 24 and earns around 35k but likely to increase in time. We discussed the dynamics of unequal shares but decided against it for various reasons. Prior to the stamp-duty changes, we would've simply bought the flat 3 ways, each of them plus us but now that'd be too costly as we own our home in Derbyshire.
    • tacpot12
    • By tacpot12 9th Aug 18, 11:58 AM
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    tacpot12
    • #5
    • 9th Aug 18, 11:58 AM
    • #5
    • 9th Aug 18, 11:58 AM
    I would suggest you loan them the month at the same rate of interest as the mortgage they end up getting, and put a second charge on the property to ensure you get this money back. This will cost them about 150 each on top of the mortgage.

    You need to get a loan agreement drawn up by a solicitor to ensure the proportion of ownership of the flat is clear at the outset and how this will change as the mortgage is paid. I would set a repayment schedule to ensure you get the money back within, say 20 years. Your sons need to document how the flat can be sold if one of them wants to sell and the other doesn't.

    A solicitor will charge for the loan agreement, but I would not go ahead with one. It would be foolish in the extreme. You should be able to use the same solicitor who does their conveyancing in order to simplify matters. If your sons want to pick their conveyancing solicitor now, you can get half an hour free with the solicitor to check that you can achieve what you want to via a legally binding loan agreement and second charge.

    Have you considered loaning DS2 70,000 so that he can put down the same as DS1? He will have to make payments of 300 month than DS1, but at least he will have equal equity in the flat.
    • Alikay
    • By Alikay 9th Aug 18, 12:48 PM
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    Alikay
    • #6
    • 9th Aug 18, 12:48 PM
    • #6
    • 9th Aug 18, 12:48 PM
    Have you considered loaning DS2 70,000 so that he can put down the same as DS1? He will have to make payments of 300 month than DS1, but at least he will have equal equity in the flat.
    Originally posted by tacpot12
    Thank you. Yes, this is something we'd considered. We would charge him some interest (maybe equivalent to what we'd get from a savings account), but not as much as the bank's mortgage rate: His siblings would be in agreement with this as they've had support from us through higher education, free childcare etc whereas DS2 was straight into HM forces from school.

    The "second charge" you mentioned is recorded at the Land Registry I believe, like a mortgage? That sounds a sensible idea.

    We have fully discussed what happens if life events mean one wants to sell and the other doesn't, plus the impact future partners may have, and we will be drawing an agreement to cover that. Can that be made legally binding/official?

    You mention the loan agreement being foolish in the extreme - sorry to seem dim, but what bit is foolish? Using a solicitor or making a loan to start with? We have no experience of these matters, that's why I'm asking, in preparation for speaking to solicitors and mortgage brokers. Our parents were never in a position to loan us anything, so our financial dealings have always been straightforward mainstream products through high street banks. There will be no inheritances coming our way to help the kids either, so we want to get this right for all concerned.
    • pleasedelete
    • By pleasedelete 9th Aug 18, 1:06 PM
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    pleasedelete
    • #7
    • 9th Aug 18, 1:06 PM
    • #7
    • 9th Aug 18, 1:06 PM
    At 35k he can borrow more than 100,000

    Not sure why you are chipping in

    They can do a 40/60 split or a 30/70 split with one paying more deposit and more mortgage and so owning a larger share?

    That would seem more logical. They are not even in terms of deposit or earnings and trying to make them so is going to disadvantage the higher earning/larger deposit son. He would be better buying alone and renting a room to his sibling.
    Last edited by pleasedelete; 09-08-2018 at 1:26 PM.
    June challenge 100 a day 3161.63 plus 350 vouchers plus 108.37 food/shopping saving

    July challenge 50 a day. 1682.50/1550

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    • pleasedelete
    • By pleasedelete 9th Aug 18, 1:12 PM
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    pleasedelete
    • #8
    • 9th Aug 18, 1:12 PM
    • #8
    • 9th Aug 18, 1:12 PM
    If son 1 has an 85k deposit them presumably he will want to be paying off the mortgage quite rapidly. How will that work?

    I think it is a nice idea but impractical. Your 24 year old is on a low income for London (if wanting to buy) with little deposit and isn't in a position to buy anywhere. You are basically putting his brother in a worse position than he is now in oder to subsidise him. Someone with an 85k deposit and a good income in London should be thinking of their own future prospects longer term. He may well lose money if prices drop.

    If 1 wants to marry, move in with partner of have a child then will a family plus 2 sons fit in the flat?

    Oldest son should buy a 2 bed flat and rent out a room. Younger brother should move somewhere cheaper to buy or save up until he has a better paying job.
    Last edited by pleasedelete; 09-08-2018 at 1:18 PM.
    June challenge 100 a day 3161.63 plus 350 vouchers plus 108.37 food/shopping saving

    July challenge 50 a day. 1682.50/1550

    October challenge 100 a day. 385/3100
    • pleasedelete
    • By pleasedelete 9th Aug 18, 1:18 PM
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    pleasedelete
    • #9
    • 9th Aug 18, 1:18 PM
    • #9
    • 9th Aug 18, 1:18 PM
    There is a lot of 'we' in your posts. This is really about them and not you.

    Your oldest son is being really silly to get into this. It cannot be in his best interest. Are you and younger son encouraging him? He needs to step back and think what he wanted when he started saving for a deposit . At the start as he saving 85k with the intention of buying a flat with his brother? or was he thinking of buying alone? with a possible future partner? having a family?

    It is silly to jump in too quickly. What size mortgage could he get alone? If the flat is 360 he would need a 275 mortgage plus stamp duty/fees. Is that possible? Could you lend some to him alone? He could then rent to his brother who could save up and buy when he could afford it- which isn't now.
    June challenge 100 a day 3161.63 plus 350 vouchers plus 108.37 food/shopping saving

    July challenge 50 a day. 1682.50/1550

    October challenge 100 a day. 385/3100
    • Cakeguts
    • By Cakeguts 9th Aug 18, 1:37 PM
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    Cakeguts
    Beware of buying ex LA flats in London. Some of them have really big service charge bills sent to leaseholders that run into the 1000s. This is one of the reasons why they look cheap to start with.
    • pleasedelete
    • By pleasedelete 9th Aug 18, 1:41 PM
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    pleasedelete
    Beware of buying ex LA flats in London. Some of them have really big service charge bills sent to leaseholders that run into the 1000s. This is one of the reasons why they look cheap to start with.
    Originally posted by Cakeguts
    I thought that. Plus if work is required such a window replacement the 2nd son isn't really in the position to be able to pay for his half.

    To buy an ex council flat in a falling market with such different financial positions would seem very unwise.

    Better option:

    Son 1 buys a flat using his deposit, mortgage and cash lent by you. He has saved 85k so he must be a good saver and you say that mortgage will be cheaper than rent (assuming he rents out 2nd room). He pays you back over next few years

    You then use the money you have been paid back to support son 2. By that point he will earn more and will hopefully also have saved a sizeable deposit as he will be paying a lower rent than he is now.

    More sensible all round.
    Last edited by pleasedelete; 09-08-2018 at 1:57 PM.
    June challenge 100 a day 3161.63 plus 350 vouchers plus 108.37 food/shopping saving

    July challenge 50 a day. 1682.50/1550

    October challenge 100 a day. 385/3100
    • Alikay
    • By Alikay 9th Aug 18, 2:41 PM
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    Alikay
    Thanks. Yes, the service charge/ground rent thing is a worry and we don't know a lot about it. The flats they like are 1930's so potential for costly repairs.

    DS1 couldn't buy alone as his pay fluctuates: He works for start-ups, sometimes on very low pay as he loves the buzz of developing new things. The 85k deposit is mainly (though not entirely) the result of selling shares he's received in lieu of salary for some of those start-ups which grew and later floated on the stock market, rather than saving from a consistently high salary. DS2 couldn't buy alone as he earns too little and hasn't got a large deposit.

    Anyway, thanks for all the input. It's only an idea at present, driven by DS1 who has 85k burning a hole in his pocket and an eye on a nice flat in his block at Whitechapel. DS2 is only 24 which is young for home ownership these days anyway.
    • AnotherJoe
    • By AnotherJoe 9th Aug 18, 3:06 PM
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    AnotherJoe
    What would be the best way to do this? It can't be a gift as we have other children and would want outright gifts to be equal. We don't need the money for the forseeable future, nor do we need the interest on it (though want to be fair to all our children, an interest free, repayment-deferred loan isn't ideal - particularly if property prices increase and one child benefits when others have paid market-rate interest to banks).
    Originally posted by Alikay

    No reason amount "repayable" cant be dependent upon house prices, eg if the house has increased by 20% they would need to repay 60k + 20% = 75k.


    And they wouldnt necessarily have to repay as such, if the family/you are content to wait until your death, you can subtract that amount from the son(s) before apportioning the rest in whatever way you see fit. That's what Ive done in a similar situation. The child that didnt need the loan gets more out of the will.



    No need for names on deeds.



    As said, it does restrict the lenders.
    • Pixie5740
    • By Pixie5740 9th Aug 18, 3:28 PM
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    Pixie5740
    No reason amount "repayable" cant be dependent upon house prices, eg if the house has increased by 20% they would need to repay 60k + 20% = 75k.

    Originally posted by AnotherJoe
    Wouldn't that make the OP a beneficial owner and therefore the higher rate of SDLT would be applicable plus CGT in the future?
    • TBagpuss
    • By TBagpuss 9th Aug 18, 4:10 PM
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    TBagpuss
    You could have a charge over the property which is expressed as a % of the house value, rather than as a loan + interest. It's very common in situations where a couple are divorcing with one staying in the house. You are lending them (or one of them) the money but your security is different. It doesn't make you a beneficial owner so no extra SDLT but you will, I think, have a liability for CGT when you are paid back, although if the loan is from both you and your spouse then you will each have a CGT allowance you can use.

    It is possible to have a charge for a debt owed by one of the joint owners, so if you want, you could lend 60K to son 2, which would then be secured by way of a charge. The charge would be repaid from his share of the sale proceeds.

    If they go ahead with this, it would also be essential that the two of them have a proper declaration of trust drawn up which should not only deal with their shares in the property but also a mechanism for how either of them can get their share out - e.g. a provision that the house will be sold if either them gives the other x months notice that they wish to sell, and possibly also provisions for the other to have the right to buy them out t open market value if that happens.

    You will need to get advice to have your charge drawn up appropriately to include provision for you to be able t demand repayment if necessary.
    • AnotherJoe
    • By AnotherJoe 9th Aug 18, 8:54 PM
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    AnotherJoe
    Wouldn't that make the OP a beneficial owner and therefore the higher rate of SDLT would be applicable plus CGT in the future?
    Originally posted by Pixie5740
    I don't see why. They do not own the property, they have a loan. And if the loan is eventually nullified via an inheritance the loan is being written off rather than repaid so there's no capital gain.
    • steampowered
    • By steampowered 9th Aug 18, 10:06 PM
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    steampowered
    You say your sons are paying roughly 2,000 of rent a month between them.

    In London that sort of amount rents a property worth something like 650k.

    But your figures suggest you are considering helping them to buy a flat worth roughly 360k - i.e. they will have to move into a much cheaper property.

    This does suggest that renting a cheaper property together could be another option if they wish to save a bit more for a deposit.

    Leaving that aside, if you want to help each child equally, it could be a nice idea to decide on an amount you are prepared to gift each of your children for a deposit. DS1 and DS2 could get that now, and for the others, the money could be held in a separate savings account or investment account until they are ready to buy.

    Another option would be to do a loan to each other brother, perhaps charging a similar rate as the mortgage. Mortgage rates are very low at the moment. Many lenders won't accept a loaned deposit, so the sons should speak to a mortgage broker about this.

    A local solicitor should be able to help you with setting up the loan, as well as doing the conveyancing, and setting up a deed of trust between the two brothers. Don't use a conveyancing factory type place.

    There are lots of people here who suggest wait until DS2 has a better job. I do not think this is a safe option. A quick google search suggest that the median average salary for people working in inner London is 34,473 - so at 35k DS2 is already about average. Depending on his job there is no guarantee that he will be able to earn more in the near future!
    • kinger101
    • By kinger101 9th Aug 18, 10:27 PM
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    kinger101
    Your options are either;

    (a) gift them the money without reservation;
    (b) loan them the money on with the condition it is paid back (perhaps nominal with interest) on sale of the property.

    Equity shares are complicated for tax reasons, and don't help them. They have the expense of maintaining 100% of the property, but don't get the full benefits (or risks) or ownership.

    Lending them money with the expectation of regular interest is self-defeating, as it simply reduces the amount they can borrow.
    • kinger101
    • By kinger101 9th Aug 18, 10:29 PM
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    kinger101
    I don't see why. They do not own the property, they have a loan. And if the loan is eventually nullified via an inheritance the loan is being written off rather than repaid so there's no capital gain.
    Originally posted by AnotherJoe
    An amount repayable based on the resale value of the property sounds very much like beneficial ownership to me. Happy to be corrected by case-law/legislation.
    • Pixie5740
    • By Pixie5740 10th Aug 18, 7:41 AM
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    Pixie5740
    I don't see why. They do not own the property, they have a loan. And if the loan is eventually nullified via an inheritance the loan is being written off rather than repaid so there's no capital gain.
    Originally posted by AnotherJoe
    The OP hasn't said anything about eventually writing the loan off, just that they don't need the money for the foreseeable future.

    Whilst what you propose would mean that the OP is not a legal owner I think they would still be a beneficial owner, which is what SDLT and CGT are based on, because the OP would have an equitable interest in the property. I'm not a lawyer though.
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