I'm Considering Asking Parents To Mortgage Their House To Help Me Buy

[tonytramcar]

You say that if you were unable to pay the mortgage you would sell your house to repay your parents.

What if you were unable to sell it - would your parents then be happy to move in with you? Would you be happy to have them? Would your wife be happy to have them ?

[Timak]

Indeed, the only point of doing this is if you can get a much better rate through your parents remortgaging than if you got your own mortgage. I don't think that would be the case.

Here's another idea along the same lines. My folks are nearing retirement and are heavily in cash at the moment. They are earning less than 2% on it. They have enough cash to buy a house. I was thinking that if I wanted to buy a house, it would make sense that they bought it for me and I paid them back over their retirement with a reasonable interest rate - something much better than the 2% they get on their money now. That way, all the money stays in the family and the banks get nothin. The risks are that I loose my job, or I fall out with my folks, or my brothers object, or that my parents become deceased early and I get slapped with inheritance tax on 'my' house. I wonder if it's possible and tax efficient to draw up a 'mortgage' agreement between family members?

We are discussing the same thing with my parents at the moment.

We want to build an extension, they are moaning about getting 2% at best on their savings, if I borrow money from a bank it will be at around 6% for a 5 year repayment loan.

If I pay them the midway point between the savings rate and the borrowing rate with an agreed bank then we are both better off and the banking system is worse off.

Win - win

[Bloo Loo]

Some years ago a friend of mine was renting a flat and wanted fast broadband. To get it she had to enter into a 12 month contract. During the 12 months she had to move, and found another flat in the same city, all well and good except the same broadband service wasn't available there. She explained this to the supplier who said, to all intents and purposes, tough. She was annoyed and stopped paying them once she moved, as she felt she was paying for nothing. The supplier set debt collectors on her.

Also, I have known people who have had part of their deposit retained by landlords, in one case for putting up a new curtain rail when the existing one broke (they bought the curtain rail and hooks themselves and left them in the flat for the next tenant to use, but they'd had to drill new holes), and in another because there was mould on a bedroom wall.

yeah yeah yeah, the niavity of some posters is shocking....its a rufty tufty world and everyone else wants you to pay when they should.

deposits are covered by the guarantee schemes AND the small claims court, Ive known landlords keep all the deposit because of rubbish in the drive the dustmen left. let these guys walk on you and you are your own worst enemy.

All ISPs will deal with you if you talk nicely, and if they have no service in your new area ( mine was Virgin) I just told them I wanted the service and please provide....they collected their gear and that was that.

As for the OP moaning about an opinion...well...maybe they sholdnt have asked for one.

[Bloo Loo]

We are discussing the same thing with my parents at the moment.

We want to build an extension, they are moaning about getting 2% at best on their savings, if I borrow money from a bank it will be at around 6% for a 5 year repayment loan.

If I pay them the midway point between the savings rate and the borrowing rate with an agreed bank then we are both better off and the banking system is worse off.

Win - win

fancy charging your kids interest..disgusting.

[Bloo Loo]

Bloo - can you point me in the direction of a specific piece about not making good... I am in the same situation, and would really benefit from knowing this sort of thing!

Thanks,

NT

well, first of all, if youve nailed stuff to your wall and it was specifically allowed with the landlords consent, then make sure you have that consent.

If you damage a wall you need to repair it.

a nail withdrawn will require some filler.

If youve been a prat and pulled half the plaster down then you'll need to repair it.

theres nothing hard about this....matching paint.....nuts...they cant demand the impossible.

[arby1]

I'm not sure they were asking for an opinion...more a sure fire tax avoidance scheme.

To be honest, someone has to pay some tax and if they don't, I would have to pay even more.

So ahhhm ooot.

i'm sure that not it's for the first time, but you're totally wrong. Where did i mention tax avoidance? I asked for tax implications. ie, to fully assess the option I would need to know what all the costs would be. and that includes tax.

[anti-shopping unit]

1) Surely no IHT implications unless the estate of parents + the amount they gave you, at their death was greater than £325000?

2) Surely if he loses his job the tax payer will simply pay his mortgage like they are doing for so many others?

3) Parents like to help their kids.

At then end of the day this is what we as a society have brought upon us.

No FTBs can afford houses without their parents help.

His parents have benefited from huge HPI over the last decade. And it makes sense for them to prop up house prices to make sure they lock in the gains.

So looks like a win win to me.

[Neil B]

Wow you must really hate your parents...

[Bloo Loo]

1) Surely no IHT implications unless the estate of parents + the amount they gave you, at their death was greater than £325000?

2) Surely if he loses his job the tax payer will simply pay his mortgage like they are doing for so many others?

3) Parents like to help their kids.

At then end of the day this is what we as a society have brought upon us.

No FTBs can afford houses without their parents help.

His parents have benefited from huge HPI over the last decade. And it makes sense for them to prop up house prices to make sure they lock in the gains.

So looks like a win win to me.

point 2...its NOT his mortgage.

[Greg Bowman]

We are discussing the same thing with my parents at the moment.

We want to build an extension, they are moaning about getting 2% at best on their savings, if I borrow money from a bank it will be at around 6% for a 5 year repayment loan.

If I pay them the midway point between the savings rate and the borrowing rate with an agreed bank then we are both better off and the banking system is worse off.

Win - win

Agree. I run a business with brother and we have always operated like this, of course rules are rules you always owe the debt and within reason it can be called in at any time. I have brought cars using this way of operating and he helped out with the kids school fees, I helped him with his extension. We agree a rate, monthly payments and go from there.

IMHO Many people who dislike this way of operating don't trust themselves or their relatives which is another issue.

Edited April 8, 2010 by Greg Bowman

[righttoleech]

Maybe a touch of jealousy but many on this site seem keen to flout their priviliged positions........high savings rates, secure jobs.....but it is never enough. Advice sought on how to make more on the back of someone else's risk. Why not go the whole hog and start a BTL portfolio?

[DabHand]

Assuming your parents can get a mortgage themselves (its not yours, it will be them getting it) based on what income. This may fall at the first hurdle (age and insufficient regular income).

Lets assume everything is peachy and you get your house 100% mort free whilst your parents get a 35% LTV charge against the house. You then lose your job or have a change in circumstances that mean you cant pay your parents the repayments.

Thy dont have the cash to hand (or they wouldnt have had to remortgage right?) so you have to sell your house. Only its gone down in value, which unless you entirely eat the loss out of your own original deposit contribution will mean your parents will have to sell their house (which has also gone down in value). They now get to live in a house not suited to their retired boomer status, maybe even in your front room and will hate you for the rest of their existences leaving everything to your sister who will spend it on makeup, shoes and fancy holidays where she runs off with a waiter and his oversized pepper grinder.

Is that what you want, cos that's what will happen..

[arby1]

Maybe a touch of jealousy but many on this site seem keen to flout their priviliged positions........high savings rates, secure jobs.....but it is never enough. Advice sought on how to make more on the back of someone else's risk. Why not go the whole hog and start a BTL portfolio?

funny, i thought most people on this site agreed that it was time FTB's like myself had a sensible attitude to debt and could manage to save their own deposit. All of which i've done. The problem is, those qualities of prudence also mean that I'm the sort of person who will try to minimise my outgoings if possible, providing it isn't to the detriment of others. Am i also flouting my 'privileged position' as you say? If by that you mean that my wife and I both work while saving frantically while living in a tiny 1-bed flat as we know that in order to have kids someday we'll have to pay an extortionate amount just to get a 2-bed terrace, then yes, we're very privileged. The difference is, instead of simply moaning about it, we've done something. It's been a tough few years financially, constantly holding back on expenditure, but as a result, yes, we are in a lucky position.

[DabHand]

If you REALLY believed in the HPC you could hang on a bit longer. If you knew for certain that prices would be half in 5 years, you'd happily wait and buy outright. The fact you don't want to means you don't really think it will happen. Unbeliever! I now get to point at you and emit a high pitched screech 'a la' bodysnatchers.

[arby1]

If you REALLY believed in the HPC you could hang on a bit longer. If you knew for certain that prices would be half in 5 years, you'd happily wait and buy outright. The fact you don't want to means you don't really think it will happen. Unbeliever! I now get to point at you and emit a high pitched screech 'a la' bodysnatchers.

like in my first post where i talk about waiting a few years before proceeding?

the reason I'm thinking of this now is that it takes so long to save the required amounts that I know i need a plan now. It can obviously be revised later down the line, but if i don't have a plan, then it's not likely to happen that i wake up one morning and magically see that my life is just how i wanted it to be.

Edited April 8, 2010 by arby1

[DabHand]

like in my first post where i talk about waiting a few years before proceeding?

the reason I'm thinking of this now is that it takes so long to save the required amounts that I know i need a plan now. It can obviously be revised later down the line, but if i don't have a plan, then it's not likely to happen that i wake up one morning and magically see that my life is just how i wanted it to be.

God lols at your plans. But seriously good luck and all that. Just be aware that money and relatives have a habit of not mixing too well.

[Phil S]

Are you serious? How do you prove it - you have to get bank statements going back years and years showing money leaving your current account for various savings accounts? What happens if the solicitor decides you have not "proved your case"? Do they report you and the government steals your money?

Yes I am serious. It nearly got to the point of the transaction collapsing, all because I had forgotten to print off a statement from one of my BBBS accounts before I closed it.

In the end I provided evidence of my income (P60's) for the last 3-4 years which proved I had the means to save that sum of money. The conveyancing solicitor was clearly embarrassed at having to do the governments dirty work for them but said he could receive a custodial sentance if he didn't do the correct checks and it was discovered at a later date that the money had been laundered ! I was astonished at how many hoops we had to jump through to buy and sell - ID checks at both the estate agent and solicitors for example. And don't get me going about those effing HIP'S & EPC's!!! :angry: :angry:

[Bloo Loo]

Agree. I run a business with brother and we have always operated like this, of course rules are rules you always owe the debt and within reason it can be called in at any time. I have brought cars using this way of operating and he helped out with the kids school fees, I helped him with his extension. We agree a rate, monthly payments and go from there.

IMHO Many people who dislike this way of operating don't trust themselves or their relatives which is another issue.

this is a bit different..the rents dont have the cash...he wants them to MEW their home. to save what? 1%?

[Saver]

Yes I am serious. It nearly got to the point of the transaction collapsing, all because I had forgotten to print off a statement from one of my BBBS accounts before I closed it.

Oh great - I have no statements at all for some savings accounts I have had, since they were online ones. Never occurred to me I would be expected to prove what is mine is mine! Surely the onus should be for them to prove it is not mine?! Not some assumption it is ill gotten gains!

I guess statements from my current account showing money leaving every month to various savings bank accounts will have to do when I finally buy a house (though at least I know from now on to keep a paper trail of all future movements of cash).

[TylerDurden]

Why is it selfish? If the absolute worst happened then I could easily sell my place and pay off their mortgage. The size of my deposit when I buy would be >35% so I should be able to cover any reduction in value of the house from any accelerating crash. Anyway, I stated (repeatedly) that I already know the argument that you're putting forward.

Short sighted view i'm afraid.

lets say in 6 years time you have a family and maybe one day a drunk driver ploughs into your family car at 50 mph crippling you and killing your wife. Maybe putting your child in a wheelchair also.

By this time your parents are drawing their pensions and trying to have a quiet life.

You cant work as your a cripple looking after your crippled child and your wifes dead. Benefits pay just enough to get the care you need to clean yourself and your parents are paying out all their spare cash on extra support for you and your child.

Its a horrendous thought, But lets look at that again with the added fact that you put your parents house up for grabs and now can not pay the mortgage. You've just ruined there entire lives and everything they ever worked for.

Its unlikely to happen, But these things do happen. And theres absolutely no reason it shouldnt happen to you.

Buckle up.

[Bruce Banner]

I'm always happy to lend my kids money to buy cars and stuff.

The rules are always the same, no interest, they treat it like any other loan and set up a monthly standing order.

Thankfully, they wouldn't dream of asking for money for something as daft as a deposit on a house in a falling market and if they did the answer would be no.

[jakeshaw]

Your Proposition:

Parents secure new debt on existing home at 35% LTV. This money is used in combination with your 25% deposit to buy your home.

The Solution:

Parents secure new debt on existing home at 35%+ LTV. This money is used to purchase a house in their name, which you will rent from them. You can gift £6,000 to both your mother and father each from your saved deposit to assist in "their" house purchase.

This property is secured in trust to you from the outset in the event of their death(s). No inheritance tax would be payable in this instance.

Adv

-You can't be accused of "using" your parents, as they hold both the loan and the asset!

-The proceeds of the rent, although taxable present certain tax deductabilities that your parents can take advantage of

-No inheritance tax would be payable

-If you experienced financial difficulty and you were unable to service your rent => They were unable to service the mortgage => The house could be sold to remove any obligations with minimum hassle/disruption.

Disadv

-You'd need to trust your parents, but judging from your post I assume you do!

[arby1]

Short sighted view i'm afraid.

lets say in 6 years time you have a family and maybe one day a drunk driver ploughs into your family car at 50 mph crippling you and killing your wife. Maybe putting your child in a wheelchair also.

By this time your parents are drawing their pensions and trying to have a quiet life.

You cant work as your a cripple looking after your crippled child and your wifes dead. Benefits pay just enough to get the care you need to clean yourself and your parents are paying out all their spare cash on extra support for you and your child.

Its a horrendous thought, But lets look at that again with the added fact that you put your parents house up for grabs and now can not pay the mortgage. You've just ruined there entire lives and everything they ever worked for.

Its unlikely to happen, But these things do happen. And theres absolutely no reason it shouldnt happen to you.

Buckle up.

thanks for the cheery thought!

that one's easy though- if anything like that ever happened to someone in my family i'd happily sell everything i had to help them. I know my parents would do the same for me. So in this case the name on the mortgage would be irrelevant. This is just what family does for each other (in my opinion). I've done it before and i'd do it again.

[arby1]

Your Proposition:

Parents secure new debt on existing home at 35% LTV. This money is used in combination with your 25% deposit to buy your home.

The Solution:

Parents secure new debt on existing home at 35%+ LTV. This money is used to purchase a house in their name, which you will rent from them. You can gift £6,000 to both your mother and father each from your saved deposit to assist in "their" house purchase.

This property is secured in trust to you from the outset in the event of their death(s). No inheritance tax would be payable in this instance.

Adv

-You can't be accused of "using" your parents, as they hold both the loan and the asset!

-The proceeds of the rent, although taxable present certain tax deductabilities that your parents can take advantage of

-No inheritance tax would be payable

-If you experienced financial difficulty and you were unable to service your rent => They were unable to service the mortgage => The house could be sold to remove any obligations with minimum hassle/disruption.

Disadv

-You'd need to trust your parents, but judging from your post I assume you do!

thank you for the constructive alteration of the proposal. Yes, I trust them. Money, while important, never comes close to what really matters in life. That is how I was brought up and I hope to pass that down to my kids in the future.

[jakeshaw]

thank you for the constructive alteration of the proposal. Yes, I trust them. Money, while important, never comes close to what really matters in life. That is how I was brought up and I hope to pass that down to my kids in the future.

Good for you, it's nice to know some people can still trust each other!

It's also worth pointing out.. whatever option you decide on:

You can gift upto £3000 to both your father and mother each tax year (£6,000 first year as you can use last years allowance). This is completely tax free.

Thus if paying their mortgage or the "rent", tax implications will only apply to those amounts over £6k

Hope this helps