| Non-motoring > Loans to Family. | Miscellaneous |
| Thread Author: Bromptonaut | Replies: 24 |
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New Wed 26 Jun 19 23:32
Loans to Family. - Bromptonaut
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I'd welcome views/advice on following scenario: My daughter and her husband own their current house near Plymouth subject to mortgage. They settled there because his work as a marine engineer was at Devonport Naval Base. He's now taken a career move to a commercial shipyard on the Mersey. Her job is peripatetic and unaffected. They have about £40k of equity in the house. They wish to buy a place on Deeside close to his current work and have had an offer accepted. They also had a buyer for the Plymouth house and seemed near to exchange and completion in a short chain. About a fortnight ago their buyer withdrew for reasons that look like change of mind. Nothing to do with house itself or survey. As result whole chain is at risk of collapse as daughter's vendor's vendor has lost patience and wants to re-market. If I'd been in daughter's position I'd have kept process on shorter leash; I suspect somebody else accepting lowest bid for conveyancing allowed matters to drift but we are where we are. Together with her husband's parents, who we knew long before our respective kids got involved with each other, we propose to loan them the expected sale price of the Plymouth house so they can break the chain and proceed on the Deeside property. Plymouth place than then be sold later as soon as willing buyer emerges. Apart from risk of default (negligible and addressable by cutting her out of my will!!) and need to keep insurance on empty property are there any risks we should think of? Last edited by: Bromptonaut on Wed 26 Jun 19 at 23:35
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New Thu 27 Jun 19 00:29
Loans to Family. - smokie
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| Maybe not what you're thinking of, but my mate gave/lent his offspring a large lump of their deposit and didn't pay it into their account well in advance, then the deal nearly got scuppered because it came under a money laundering quiz by someone (maybe the bank, can't remember) which took a few days and almost missed the deadlines for completion of exchange or whatever it was. |
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New Thu 27 Jun 19 01:47
Loans to Family. - No FM2R
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Lots. They split up. They get short of money. They fall out. He gets a gambling habit. The other parents fall out with each other etc.etc.etc. I can quite understand you lending them the money but do it properly. Repayment terms, legal interest in both properties, etc. Ot will be better for everybody and avoid any misunderstanding, doubt or falling out. |
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New Thu 27 Jun 19 08:16
Loans to Family. - sooty123
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| How likely is the house to re-sell; was it on the market for long, many viewing, any other offers? |
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New Thu 27 Jun 19 09:26
Loans to Family. - commerdriver
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Would also consider the question of what happens if the property sells at more/less than the cost of the loan, as Mark says, do it properly so everybody knows where they stand. Totally understand the desire to do it |
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New Thu 27 Jun 19 09:43
Loans to Family. - Bromptonaut
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To answer questions so far: There will be a written agreement. It's only intended as short term bridging until the old house is sold. This should happen reasonably quickly, it's in a popular area and is at price point where it attracts the better of first time buyer as well as those looking for a move up the ladder from flats etc. Because of where it is there is also a market for those moving out of forces accom. Securing on new property would potentially be an issue for mortgaging. I think I know my son in law well enough to be as near certain as I can be that risks on separation can be managed and that he won't go off the rails. His parents are in this too. I'm trying to get 'proper' advice but am currently bogged down with solicitors need to go through identity etc. Last engagement was sufficiently long ago that he needs to start at beginning with seeing passports etc. He's in London but fortunately I can drop by with stuff tomorrow. Last edited by: Bromptonaut on Thu 27 Jun 19 at 09:44
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New Thu 27 Jun 19 10:14
Loans to Family. - PeterS
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If I understand correctly, they plan on rolling the equity from the stalled sale into the new house and only having one mortgage (on the new one). So you and the parents in law are effectively lending 100% of the previously agreed sale price for the old house to them? Given the sums involved a charge over the old house would seem sensible. You’ll need to consider a few things though... With two lenders that does throw up the question of who has first charge - there’ll have to a first and second charge I think? Do you want / are you willing to charge interest? What term is the loan, or is it open ended? Is additional life cover needed in case the worst happens, or are you happy the likelihood so low and the risk minimal that it’s not worth the cost? Can they borrow more on the new purchase so you are not lending 100%? Just my thoughts...but, if you have the liquidity, don’t need it for a while, and with current interests rates, it’s worth unblocking the chain I think, not withstanding the old adage of not lending money you can’t afford to lose! |
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New Thu 27 Jun 19 12:22
Loans to Family. - martin aston
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| I would hope I could do the same as you in the same circumstances. I would check however that the solicitor can advise on the tax implications (if any) of the final arrangements for all the parties. |
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New Thu 27 Jun 19 12:24
Loans to Family. - RichardW
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| Presumably their issue is that they can't get 2 mortgages at once (or not at reasonable rates anyway)? If you can afford to have the money tied up, then you could consider just being the mortgage lender on the new property, you can temporarily advance the equity from the old house to cover the shortfall. You can then take the charge over the new house, there's no worry about problems with re-mortgaging. It should be easy to agree the interest rate - just base it on best commercially available mortgage, with review after set period. |
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New Thu 27 Jun 19 12:55
Loans to Family. - commerdriver
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>> It should be easy to agree the interest rate - just base it on best commercially available >> mortgage, with review after set period. >> ] Or even, since I guess you don't want to make a profit out of your kids on the deal, either interest free or, if they insist, at whatever rate you would have had on the money while they were using it. |
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New Thu 27 Jun 19 17:15
Loans to Family. - Zero
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>> Presumably their issue is that they can't get 2 mortgages at once (or not at >> reasonable rates anyway)? If you can afford to have the money tied up, then you >> could consider just being the mortgage lender on the new property, you can temporarily advance >> the equity from the old house to cover the shortfall. You can then take the >> charge over the new house, there's no worry about problems with re-mortgaging. It should be >> easy to agree the interest rate - just base it on best commercially available mortgage, >> with review after set period. Are there any potential tax issues to the "lender" doing this ? I suspect so |
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New Thu 27 Jun 19 13:10
Loans to Family. - Manatee
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The trouble with giving advice is that we will all err on the side of caution. My daughter and son-in-law moved last year and asked if I should they not be able to achieve contemporaneous transactions, could lend them a good chunk - probably about a third of the expected sale proceeds of their house in Cambridge. I would have had a written loan agreement (possibly essential if, heaven forfend, anybody were to die during the loan period) but I did not feel the need to consider security. In the end it wasn't necessary to make the loan. It's entirely possible that I might ask them for a loan should we end up moving house following our fire! |
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New Thu 27 Jun 19 13:35
Loans to Family. - Zero
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we have all been there, I doubt anyone here has not had a chain collapse, nearly collapse or cause stress. I doubt any one here who had that happen had parents with sufficient capital to act as a buffer. And I bet all of us had to cope in some way or other. What happened to bridging loans? As pointed out a shed load could happen to any of the parties that puts your money at risk. The threat to put back on the market is just that, a threat. Unless a cash buyer zips up, your party of interest is still in pole position to complete a chain fastest even with a new buyer. |
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New Thu 27 Jun 19 13:55
Loans to Family. - Manatee
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>> we have all been there, I doubt anyone here has not had a chain collapse, >> nearly collapse or cause stress. I doubt any one here who had that happen had >> parents with sufficient capital to act as a buffer. And I bet all of us >> had to cope in some way or other. Quite right. I had two houses for 6 months. Fortunately we were mortgage-free on the one we were selling so I took a bigger mortgage on the purchase. The usual problem with bridging loans is that banks don't want to do open-ended ones at any reasonable cost - at least that was the case when I wanted one. It was cheaper to take the big mortgage and then pay it down with the eventual sale proceeds. |
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New Thu 27 Jun 19 17:09
Loans to Family. - sooty123
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>> we have all been there, I doubt anyone here has not had a chain collapse, nearly collapse or cause stress. I can honestly say it's not happened to me before. |
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New Thu 27 Jun 19 13:45
Loans to Family. - Netsur
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Just remember that if they own two properties, the SDLT to pay on the second one is surcharged by 3% points and can only be recovered from HMRC within three years of payment. I am trying to think of the best way to deal with this, but I can only think of transferring the existing house to one spouse and the other spouse buying the new one. Your lawyer (if he a good property lawyer) will be able to advise the best way. Last edited by: Netsur on Thu 27 Jun 19 at 13:46
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New Thu 27 Jun 19 18:02
Loans to Family. - R.P.
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Oddly I was riding through Deeside earlier following a visit to the Airbus factory. Depending on exactly where they are it's not a bad place to live at all. CGT on the Plymouth property maybe an issue. They need proper advice from a tax adviser and solicitor. Last edited by: R.P. on Thu 27 Jun 19 at 18:07
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New Thu 27 Jun 19 18:06
Loans to Family. - R.P.
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| Looking back at my own experiences over the last ten years, where options were open to own two properties - I deduced that the risks were too heavy for me, especially I had particular difficulties with HMRC and wanted to keep below their radar ! |
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New Fri 28 Jun 19 09:52
Loans to Family. - Runfer D'Hills
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A short term bridging loan can't be all that expensive right now with current interest rates is it? Worst case scenario, if the Plymouth house won't sell, they could rent it out to cover the bridging loan ( maybe even more ) Bridging is more or less standard and normal on Scottish house transactions, no one thinks of it as particularly difficult there. |
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New Fri 28 Jun 19 10:18
Loans to Family. - Bromptonaut
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>> A short term bridging loan can't be all that expensive right now with current interest >> rates is it? That's exactly what's being provided. By happenstance of winding up my Mother's estate and husbands father's retirement parents have cash free and are willing to lend. A few months later and we'd both probably have spent a proportion and invested the rest. Even at current rates 'open' bridging on a commercial basis is pretty costly. |
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New Fri 28 Jun 19 13:31
Loans to Family. - Fullchat
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Isn't this all going to get messy with mortgages?? They own house A which presumably has a mortgage. They are buying house B which would normally require a bigger mortgage. But they only need a smaller mortgage because someone is lending them a proportion of it. But they already have a mortgage on house A. Will a lender provide a 2nd mortgage? House A sells. They now need to rearrange the mortgage on house B for a the full mortgage to pay back the loan. Parents buy house A for cash then re sell allowing them to be free of house A to buy house B. Surely there are Solicitors, Estate Agent fees, Mortgage arrangement fees and other miscellaneous costs involved which might not make a bridging loan so costly. Just my thoughts but finance issues play with my head :S |
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New Fri 28 Jun 19 14:03
Loans to Family. - Lemma
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I have followed this with interest as I am contemplating another property purchase, having been in and out of property over the years, In addition I should point out to the family home. I am currently looking at a property costing 300K. To preserve liquidity and avoid transaction costs in realising investments a loan of 400k, to cover renovation and others costs, would cost 0.5% a month, around 2k per month in finance costs. Stamp duty alone would be in the order of 14k, and then there are all the other frictional costs involved. Looking at the finances and the project overall I am getting to the view that everybody would make a sensible return except me. The project overall would net me about 3%, which as a return on the work, investment and risk is unrealistic. With regard to the dilemma that the OP discusses, bridging loans would be in the order of 0.5% per month as I have found through a good broker. The other concern I would have is that in a volatile political situation house prices could ease down leaving a gap between loan and realisable value. I personally lost 20k a few years on a property deal, teaching me to be a clever clogs thinking I was on a winner. Friends of my parents were desperate to buy the ouch of their dreams and bought without selling, and then couldn't sell for several years eating a huge hole in their retirement funds. Finally it would add significantly to the cost for the parents to buy and then sell. We have lent money in similar circumstances but it has always been with a clear, written agreement signed by all parties so that if things go wrong there is no ambiguity as to what was agreed and where responsibilities lie. Also her in mind that loans are not taxable whilst gifts can be, another reason for a written agreement. |
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New Fri 28 Jun 19 16:39
Loans to Family. - Dulwich Estate II
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"I'd welcome views/advice. . ." My advice - don't. |
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New Fri 28 Jun 19 18:15
Loans to Family. - Manatee
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>> Isn't this all going to get messy with mortgages?? I think it's simpler than that. They probably can't take the new mortgage out until the old one is paid off. Therefore the parents need to lend them the expected sale proceeds of the old house, or something close to that. When the house sells, the children pay the parents their money back. The parents don't need to buy any houses. Last edited by: VxFan on Fri 28 Jun 19 at 18:33
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New Sat 6 Jul 19 13:00
Loans to Family. - Bromptonaut
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>> I think it's simpler than that. They probably can't take the new mortgage out until >> the old one is paid off. Therefore the parents need to lend them the expected >> sale proceeds of the old house, or something close to that. When the house sells, >> the children pay the parents their money back. The parents don't need to buy any >> houses. That's exactly the scenario. I've had advice from my own solicitor. Saw him in person last Friday and subsequently been e-mailed. Main suggestion understandably comes down to possibility placing a restriction on the Torpoint property so that it cannot be sold without reference to the lending parents. Otherwise it's about tweaks to the letters between us and husband's parents and Jess and Jonathan on terms. Nothing major. We have though had a huge bundle of paperwork concerning the mortgage on the new property including a 'letter of consent and postponement. Cutting through the legal verbiage we are asked to acknowledge we understand that any interest we might claim in the place is postponed to the lenders right as mortgagee. The PITA bit is that either I sign a letter saying that, contrary to their strong recommendation, I have not taken legal advice OR I have to acknowledge I've instructed a solicitor to act on my behalf in the transaction and Mrs B and I need to sign the papers in his presence with him acknowledging he's advised. That means a trip to London and £100 + VAT in fees. And that's without possibility he may cavil over what he's asked to confirm. Will go for first I think. Given the equity in the Torpoint property I cannot see why I'd tangle with a mortgagee over the second. |
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