Advice On What To Do ("bank Loan Of Mum And Dad")

[Bear Necessities]

OK, So I've been on here a long time, I'm not just some new account popping up to say "haha we've got some money, where shall we buy, houses are great, you can't lose, renting is dead money" and all that crap.

I'm genuinely asking for advice on what people would do in our situation:

We live in Cheshire - Three bed 1930s bog standard semi around here and near enough to walk to the school(s) is about £200-£250K.
But I work from home, so ideally would want four bed, or I could build an office in the garden if it was a decent sized garden.
Happily married with one kid at school and another on the way

125K in the savings account

My parents have just cashed in their money from a nice bit of the Midlands and have moved nearby.
They have enough cash sloshing around that they have offered to loan us an additional £100K (not give us, loan us)
So we would have £200K to spend on a house (as I'd want to keep a £25K buffer in the bank, in case I don't get any work or one of us gets sick, or whatever)

The main thing is they have offered to give us this loan interest free - on the condition that we pay it back within a decent timescale (at say a rate of £600 a month)

My initial reaction was "no, way I don't want to borrow that money from you" (although this was when I thought there would be interest to pay on it)
Then I was worrying that if housing ever does fall as we all want it to, then I'm paying back money that I need not have borrowed in the first place, just as if it were a regular mortgage,
for the sake of not holding my nerve for another 6 months.

This then changed to "probably be better to be keeping this £7K a year in the family and pay it to my parents than just to a landlady"

My current thinking is to keep an eye out for potentially interesting houses, perhaps ones that need a lot of TLC and then wait for a few months during and after the election to see if there is any sign of impending collapse - putting embarrassingly low offers on things that we like. (I'm also up for putting in some work to do a place up, I'm good with my hands and my freelance job means I could take some time out to do so)

I guess I'm greedily (?) thinking "should we pile in with this borrowed money in 2015 and get a decent sized three bed, or keep waiting (the interest from our savings acocunts pay about half our rent each month) as we have done for years and years in the hope that we end up getting "more house" for the money." eventually sometime in the future

Also, is borrowing from family (my family that I get on with very well) a good idea, or does it always lead to problems? Does anyone have experience of this?
Being self employed means my chances of a regular mortgage are in effect zero, so if we ever want a house then I guess it's this or nothing.

Any thoughts?

(I had originally assumed that everyone on here would be "are you ******ing mad?, don't buy a house now, for the love of christ!" or "hold out for another year and things will be better value" but I'm wondering if most people in this situation would actually be more inclined to say "hell, you don't get an offer of 100K every day, take it you fool!")

Thanks for reading my rambling.

Edited May 1, 2015 by Bear Necessities

[Frugal Git]

Are you comfortable with the idea of 'losing' this very real sum of money if there is the correction you and the rest of us hope for in a market where the prices are heavily manipulated by all manner of factors which you're well aware of?

If so, go for it. If not, don't.

[Bear Necessities]

I'm not *comfortable* with it.
But then I'm not comfortable with the fact that we've paid out about £50K in rent in the time we've been waiting for the (possibly mythical) crash
although most of that time we weren't in a position to buy anyway, and I appreciate that houses aren't free to run even if you own one (and boilers explode and a roof can leak and all the rest of it).

My gut reaction when my dad suggested it was indeed "I don't want you to lose that kind of money"
and then thinking about it realising that I'd be paying it back regardless, so it would be "I don't want ME to lose that kind of money either!"

I'd be looking for a place that we would stay in for 15 years plus (and paid off in 12), so I guess a correction would be annoying but I don't measure my happiness and success based on what my house is worth, so from that point of view I'd cope ok - I'm not purchasing a house for it to accumulate wealth, just somewhere to live were we can have a pet, paint the walls, redo the garden, build a pizza oven etc without the landlady telling us we can't.

I'd much rather hang on a bit and be vindicated.
Or would I hang on and end up bitter because the crash was never allowed to happen?

The thing that I think actually would drive me mad if prices collapsed or declined just after we buy would be knowing that I was one of the last "bears to turn".
But that says more about my own mental state than it does about what is the best thing to do in our situation.

(also factor in my mum sending me rightmove adverts every day with "suitable" houses (usually unsuitable and always too expensive houses obviously!)

[Venger]

Do whatever you want, but if you're committed to paying your parents back, get paperwork done up. Know of a guy who had his parents lend him big.. first the home, then to help them get into the standard BTL investment for forever HPI... and he then suddenly dies. Wifey soon after remarries and doesn't recognise the informal loans from the parents. Cuts off all contact with them. It's the real world, not a victim fest.

[Frugal Git]

I should really address your point about anyone taking an offer for 100k if its given to them.

In some ways i see your point - the money is going to your family rather then a landlord, or in interest payments to a bank. This is no bad thing, and you may end up getting it all again later anyway Through inheritance.

But that money *does* end up in the hands of the previous owner too. So you are bailing that person out Of their high house price.

And at the end of the day, this is further support to the opinion that prices are set by how much can be borrowed, not fundamentals.

My parents could afford to give me that sort of extra money. Not loan - give. I haven't taken it because I think the money would be lost, and is better served elsewhere. But whatever you decide, good luck.

Edited May 1, 2015 by Frugal Git

[Exiled Canadian]

Who knows what will happen...there should be a crash, but who knows.

We bought in 2008 - following a nightmare 18 months in rented. The decision was driven by the desire for stability and we were prepared to "lose" money.

We decided to buy a "home" - ie. a house that we expected to live in for at least the next 10 years and that suited us in terms of both location and accommodation. Also we made sure that there was a lot of "slack" in our finances, so that our family finances would work on just 1 income.

We have probably lost £25k on the house (we don't really bother with worrying about the current value), but if we want a bigger house (which we may in the next couple of years as our daughter grows up) we will save an equivalent amount. I think the key thing is to avoid risking negative equity - but it sounds like you will able to do that.

I'm convinced we made the right decision, even though we "might" have saved £50k if we'd timed our purchase perfectly that's only something one knows with hindsight. We're very happy in our house and no longer have to deal with landlords who decide to evict us so that they can move a friend in. It's nice to be able to focus on other things......

[Frugal Git]

Ok, so if your mum is pressuring you to buy as you see it, say this.

'If I take the loan I'll pay it back diligently, but if prices drop would it be ok if the loan drops proportionately, given you're so keen on me to buy?'

[Bear Necessities]

@Venger - yes, that is a good point - we are definitely planning to get everything drawn up properly so there is no confusion about what is due and when,
and no room for us to make excuses about not paying or delaying payment, or them to want it paid back faster or whatever.

I'm actually worried that borrowing that sort of money could do to the family dynamic though -
will all my purchasing/holiday/DIY decisions be questioned at every turn because some of it is "their money"
or as long as we are paying back the money will everything go on as normal - I just don't know.
I feel that lending/borrowing money can be a potentially horrible thing.

@Frugal Git - that is a very good point you are making about bailing out the person of their high house price, I'd not considered that viewpoint before and it is food for thought.
The issue is further clouded by the fact that my parents only have this sort of money lying around (and a similar amount for my sister) purely as a result of some "greater fool" bailing them out of their own high house price further South.
Does that make things better or worse? I guess for our family it is a case of "well this is unearned money from a house sale, so if the house goes down then it's unearned money going back to where it came from"
which sounds like a blasé attitude, but there it is - I'm under no delusions about how very fortunate we are to be in the position to borrow the money, but I still don't know if we should.

[Guest_northshore_*]

I'm not *comfortable* with it...

My gut reaction when my dad suggested it was indeed "I don't want you to lose that kind of money"

and then thinking about it realising that I'd be paying it back regardless, so it would be "I don't want ME to lose that kind of money either!"...

I think you need to separate the 2 issues. Reads like the risk and discomfort about prices would be a constant however you bought. If you can rationalise that as a long-term choice then parent's loan probably comes down to how well you and family get on with your folks. Like what if stuff happens and you can't repay for a while - would all parties be able to sit round a table and discuss it without immediate financial distress and animosity.

[Fully Detached]

I'm actually worried that borrowing that sort of money could do to the family dynamic though -

will all my purchasing/holiday/DIY decisions be questioned at every turn because some of it is "their money"

or as long as we are paying back the money will everything go on as normal - I just don't know.

Obviously none of us know your parents, but it can be very surprising how people's perceptions differ, especially when there is a large amount of money involved. Problem is, it's likely that you won't be able to foresee it until it happens.

[Bear Necessities]

@Exiled Canadian - thanks for that, really interesting post. Will think about that too.

@Frugal Git - As far as saying "would you reduce the loan proportionally if house prices went don, I had initially thought I'd be paying about 3% interest on it, so the fact that it is a potentially interest free mortgage with no arrangement fee means I already feel like I'd be getting a pretty good deal as it is, certainly saving a good amount when compared to a "real" mortgage. I think I've now persuaded my mum to ease off on the houses a bit, by saying I'd like to wait for a few months after the election to see what happens, and promising to look out for things myself. - I did go off on a HPC style rant about houses being ridiculous and not wanting to lose all that money, so I think I have a bit of breathing/thinking room right now!

[mmt]

@Venger - yes, that is a good point - we are definitely planning to get everything drawn up properly so there is no confusion about what is due and when,

and no room for us to make excuses about not paying or delaying payment, or them to want it paid back faster or whatever.

I'm actually worried that borrowing that sort of money could do to the family dynamic though -

will all my purchasing/holiday/DIY decisions be questioned at every turn because some of it is "their money"

or as long as we are paying back the money will everything go on as normal - I just don't know.

I feel that lending/borrowing money can be a potentially horrible thing.

@Frugal Git - that is a very good point you are making about bailing out the person of their high house price, I'd not considered that viewpoint before and it is food for thought.

The issue is further clouded by the fact that my parents only have this sort of money lying around (and a similar amount for my sister) purely as a result of some "greater fool" bailing them out of their own high house price further South.

Does that make things better or worse? I guess for our family it is a case of "well this is unearned money from a house sale, so if the house goes down then it's unearned money going back to where it came from"

which sounds like a blasé attitude, but there it is - I'm under no delusions about how very fortunate we are to be in the position to borrow the money, but I still don't know if we should.

Could you offer them an equity stake?

[Bear Necessities]

@northshore - good points. I think we have the sort of family that would be fine with that and there would be no chance of immediate financial distress.
but then @Fully Attached makes a very good point with "you won't be able to foresee it until it happens."

[Frugal Git]

Actually your statement about where these funds came from - i.e. from house price inflation is a reason why I think your situation is a bit different to my one.

My parents money didn't come from that, but from a very frugal lifestyle. So i would feel a big sense of responsibility against taking it from them and losing it.

They also agree with me about prices being insane, so are happy with the moral stance.

However if my sibling did decide to buy i would be encouraging my parents to give them as much as possible (once they had made a decision on where to buy with out the knowledge of the gift to come) simply to make their lives easier and not be tied to a big mortgage. So things are always more complicated for everyone.

In your case, it's rather different. I would definitely say to your parents that if they are keen for you to buy, they should take some of the risk too.

[Venger]

The issue is further clouded by the fact that my parents only have this sort of money lying around (and a similar amount for my sister) purely as a result of some "greater fool" bailing them out of their own high house price further South.

Does that make things better or worse? I guess for our family it is a case of "well this is unearned money from a house sale, so if the house goes down then it's unearned money going back to where it came from"

which sounds like a blasé attitude, but there it is - I'm under no delusions about how very fortunate we are to be in the position to borrow the money, but I still don't know if we should.

Fortunate would be if they gifted you the money..sharing out that super bubble HPI windfall with loved ones - and if they have healthy finances (good pensions etc) - perhaps they should be doing just that for you and your sister. So you can keep renting, or choose to buy.

Ok married couple there's double-relief (I hate idea of £1m threshold but doubt it will ever come in - it's been frozen for some years, and it would not surprise me at all, if a future Gov is forced to lower the IHT threshold).

If they are rolling in cash they should look to gift you and your sister the money. Some people can't let go of very very healthy financial positions.

[Bear Necessities]

@crashtimus prime - I think that offering an equity stake, although potentially helping us to share the "burden" of falling prices, wouldn't really work here - I think that would give them the idea that they could be disapproving of things we decided to do to/with the house (which is something I already worry about with the loan). On balance I think I'd rather shoulder all of the risk of prices and feel that it was "100% our house".

I guess finding a "do-er-up-er" in need of modernisation is the best bet. (They do come up occasionally, but nothing really decent this year so far)
That way, even if prices fall I can convince myself that at least the one we do up is as we want it to be, and probably still cheaper than one that has already been modernised.

Seems like it's mainly a case of whether or not I can rationalise any decision to myself, even if in hindsight it turns out to be the wrong one!

[Frugal Git]

And by that, i dont mean that their risk is covered purely by 'gift' of an interest free loan. To me, I see that as equivalent to buying under something like 'help to buy'.

You can fix for 10 years at 3%, so your parents loan is saving you around circa 18k over the life an equivalent short mortgage. which sounds great, but if you think theres a greater than average chance of gaining more than 18k off the current house price in the medium term, then all you can do is make a choice and stick to it, and find peace with whatver happens.

[Noallegiance]

As me and the missus are finding out right now, sometimes decisions in life crop up where it really is the case of picking the lesser of the evils.

We all love easy choices. Cake or death? Eeeeeeerrrrrr death..........NO NO CAKE, I said cake!

I think a lot of what your decision should be based upon is related to stuff you couldn't possibly get across in a forum to people who don't intricately know your life dynamic and the hundreds of permutations (despite your best efforts at putting it all across here). My wife is struggling with a job decision at the moment and all the pros and cons of child care, parent care, money, job satisfaction, leaving current job when she's worked there (and hates it) precisely to be in the position she's now in for flexibility only to want to leave etc.

The cycle of conversation goes round and round because just when you may be picking a direction there's always a "yeah but" bit at the end and round you go again. Tears, frustration and sadness are magnified purely because of the limbo feeling that everybody hates. The power to remove that limbo rests solely in picking a door. Nowhere else.

Even with the detail you've given, we all have an etremely limited point of view of your situation. So all I would say is to spend time with your partner working out what potential damage your family unit is prepared to accept, be unified and then make the appropriate decision and hold on together. There is no path without risk in lifes biggest decisions. There are too many uncontrollable variables that you can see, and many others you cannot possibly predict. But there's just as much chance as everything being sunshine and rainbows.

Of course, you can always console yourselves with the fact that you don't live in Nepal. That kind of perspective helps me when the going gets tough.

Good luck.

[Bear Necessities]

@ Frugal Git - yes, my parents have also lived a frugal lifestyle and passed that on to my and my sister, which is probably why I fret about borrowing money and making the right decision
(you should see how long it takes me to make even the simplest of purchases, fretting over whether I've got the best deal!)
But yes, this money is a totally separate pot of case, and I think we all, as a family, see it that way. They were very fortunate in when they bought and where they bought - but they don't attribute that to any great genius on their part, just being in the right place at the right time.

They also agree with me that prices are insane, but they don't share my belief that prices will go down - I think this is the only major difference we have in our outlook - on everything else in life we are pretty much in agreement.

@Vegner - they don't have very good pensions and also although they now own a house outright, my dad often worries about ill health - there have been recent strokes and cancer diagnosis in his very close family and so I think the reason for lending the money rather than giving it, is not so much a case of not wanting to give up a very healthy financial position, and more a case of being (not unduly perhaps) paranoid about future medical needs and unforeseen circumstances (guess I've inherited his worry and anxiety about things already!)

It might be that when we discuss with a financial adviser about the loan, that they actually recommend it being gifted or whatever they think is the best method, I don't know because none of us have ever been in this sort of position before.

[Wurzel Of Highbridge]

Could you do a shared ownership with your parents and pay them rent on their half?

[Bear Necessities]

@Frugal Git "and find peace with whatever happens" - haha, that's the bit I have problems with - I'm a tortured soul! #firstworldproblems

[Bear Necessities]

@Wurzel - I'm not really interested in the idea of the house making money (I'd be annoyed if it lost money, but only because we'd feel we could have gotten a better one!) and my parents aren't in it for that reason either. So I don't think paying rent to them and sharing the possible rewards or losses would be of interest to either of us really - and I'm sure a tax advisor would suggest against it - with a loan then at least we'd own the house outright if something were to happen to them (or one of us). Also I think they would probably feel that the interest free loan was enough of a "kindness" to us without shouldering the risk too. But thanks for the post, it might be that I point out that as one of the alternative options when I'm trying to get across the risks involved, to try and explain why I'm so conflicted about buying

@Noallegiance - thanks for that post, it provided a very helpful way to look at things. Plus it's always good to hear an Eddie Izzard quote. And yes, I do thank the history of human migration and the positioning of the UK far away from the edges of a tectonic plate for the fact that I don't live in Nepal. I realise that this dilemma is as much of a middle class first world problem as which type of hummous to spread on my ciabatta!

I hope you and your wife solve the work dilemma and the decision proves to be a really good one. Thanks.
(is it too late for me to choose cake btw?)

Edited May 1, 2015 by Bear Necessities

[Noallegiance]

Ha! We sound very similar, you and I.

I can tell you from experience that throwing yourself into a perceived abyss of the unknown is not so frightening once you're in there.

[LiveinHope]

Q1. If you were given you £100k in real notes, would you spend it on a house right now ?

Q2. Would you give someone £100k in real notes to spend upon a house right now ?

It depends upon the direction you think house prices are heading.

That is my hard headed answer that doesn't take any account of other practicalities

Right now, I have no money in property and I feel much more comfortable having money which can i) buy stuff even if that is rent, and ii) may hold it's value with respect to house prices, and so I wouldn't convert money into a house at the moment.

I have been offered help by parents and I have turned it down on every occasion. Not least because my parents may need the money themselves for care fees one day etc

Edited May 1, 2015 by LiveinHope

[SarahBell]

Can they afford to lose the money? If not then don't borrow it.

What would they do if you couldn't pay them back? Could you live with the consequences?