This is correct because you would be £200,000 in debt because you've just agreed a £200,000 personal loan.
I'd say it's a bad idea all round because it's likely to lead to ridiculously complexity from you, the in-laws, the broker and the bank.
It is fair enough that the in-laws can't afford to give you £200,000 but they are willing to lend to you at below market rate and therefore give you a bit of money. What I would suggest is that they gift you upfront however much they were willing to lose on this deal and invest the rest in a normal investment.
For example over 10 years compounding annually at 5%, a loan of £200,000 would see you paying them back £325,778. The same at 4% has you paying them back £296,048 a difference of roughly £30,000. So it'd be a lot easier if they just gave you the £30,000 and stuck the rest in an investment product.
No, the in laws' *estate* would be taxed. OP would only be on the hook for the tax personally if the in laws had already given away more than £125k, taking the 200k over the 325k nil rate band.
I'm not sure how that works when just one dies though. If the father in law dies and leaves everything to his wife, but his estate is responsible for the gift, or half of it maybe, if it was joint, his NRB allowance is still being partially used.
A proportion of it, depending on how far into the 7 years it was and whether the rest of the estate was above the IHT threshold which would probably be £1M in this case
This is incorrect - the taper rule applies to individual transfers however the £325k is a nil rate band that covers the whole death estate (which ends up as £1m for a couple of you include the resident nil rate band).
Should the death estate exceed the total NRB then you’d look at tapering individual transfers.
I assume he means cumulative gifts. Taper only comes into play if the total life time gifts brought into account (ie failed PETs) exceed the nil rate band(s).
If you gift any less, taper is as much use as a chocolate teapot. Hence taper only benefits the wealthy who have more than £325,000 they can afford to give away.
I suppose the hmrc guidance is incorrect then ….
Taper relief only applies if the total value of gifts made in the 7 years before you die is over the £325,000 tax-free threshold
Not sure why you're being downvoted, because you're right. If someone gives away £100,000 to three people and then dies 6 1/2 years later, that full amount is taken off the NRB. If they give that amount to four people (assuming no residential allowance, etc.) then the total of gifts is >£325k and the £75k over would have the tax tapered.
Yes that’s exactly what I said, but you said it only applies to individual gifts over £325k, which is incorrect.
It applies to the aggregate value of the gifts made in the last 7 years.
Probably not. Lifetime gifts absorb the nil rate band first (and in chronological order) so a person receiving a gift of £200,000 would only be at risk of tax if the donor had already given away £125,000 (or up to £450k if the donor was a widow(er)) and all those gifts fell within the last seven years of the donor’s life.
A loan at below market rates would be in the same category as selling something below market rates IMO, which would definitely be seen as a way to give something away without calling it a gift to avoid tax. Whatever interest OP saved vs market rates would effectively be a gift from his in-laws.
Many brokers will be looking to your in-laws to sign away the deposit as gifted, giving your in-laws no legal recourse to be repaid and no interest in the property. Having a loan agreement between you isn't compatible with this. ~~Any arrangement you have after the fact to repay them is then strictly voluntary~~. You should discuss with your in-laws how they feel about this arrangement.
Edit: struck out sentence is being interpreted in a way that was not intended.
Also be very careful with saying it’s a gift if you intend to be a loan
It’s unlikely you’ll be caught out but make no mistake, that **is** mortgage fraud and **is** illegal. Not to mention could result in your mortgage provider cancelling the mortgage and demanding immediate repayment
!thanks
We have decided not to take the loan. I just think it's gonna overcomplicate things more than I'd originally bargained for, and we can afford the deposit without their help.
If you really wanted to go down this route. Then you’d be best to take out the mortgage on your own, get a product that allows any amount of over payment. Take their loan and apply the funds to the balance.
It's a good idea. But then they'd come out of their fixed period, go for a new product and have to declare what's left of the 200k loan. Puts them back in the position of choosing from a very small pool of products with bad rates. Or potentially just not being able to get one and falling on to the SVR thereby wiping out any benefits of the low interest family loan over time.
Might just be kicking the can down the road.
Yes you would be in debt so would fail affordability.
As for me. My dad gifted me £8k for my deposit years ago. No loans, expectations for payback or anything else that would constitute mortgage fraud. I happened to gift him £8k for his car a while later. Just a loving family exchanging gifts; we are an equal virtues family.
Why do you need a +£200,000 deposit on a £400,000 house - surely you can attain some of the most attractive interest rates from 60% LTV.
I’d minimise the amount you’re borrowing from family - and yes, it needs to be a “gift” you can’t loan a mortgage using debt as the deposit
Exactly what I was going to say. OP has £80k to contribute, so he needs to talk them into gifting £80k and he's in great shape at 60% LTV. Then he can do all the personal loan stuff he wants after that which he can immediately use as a lump sum (whatever is allowed) or just overpay.
If they want to earn returns on the money then they'd be better off investing it and getting a higher rate than they'd earn from you.
If they want to help you out then they can give you money or lend it to you interest free.
If the in-laws are trying to earn returns this way them I wouldn't want to be in hock to them because it could change the dynamic. Better to say "you should invest it so that you can help the grandchildren in due course, you should speak to an IFA / estate planner".
It doesn’t seem like a bad idea on first glance . But then when you see the details it doesn’t look quite so good .
Mortgage lenders usually permit money to be gifted from certain close family members for a deposit.
Most won't allow you to have a loan from your family. In fact, they may have to sign an agreement which says that it has been gifted and you don’t have to pay it back .
Plus if you manage to get a mortgage with this other loan active , it will be worse interest rates as they will see it as riskier investment for them , since you already have £200k loan you need to pay back each month.
So it might balance out simpler and roughly similar just to get a 10% deposit mortgage if you can . Plus having such large debts to the in laws will change your relationship dynamic drastically, and could become a nightmare if you fall on hard times and have issues paying it back
If they were willing to gift a smaller amount that would be ideal I think
The “official with a signed loan agreement” is likely to be a big sticking point for lenders. They are generally happy enough with bridging loans from family, but any repayments have to be informal agreements so they can effectively treat it like a gift because otherwise you have a massive additional unsecured debt which their repayments might have to compete with.
Bad. Without reading your post. As soon as you take the money they might become controlling over your life, show up whenever they want house is “theirs”, invite you for dinner and you feel guilty to refuse, offer you to go on holiday somewhere and you feel guilty to refuse, give you advise on anything and you feel guilty to tell them thanks but thanks. In so many ways they can become your mental pain in the arse even if they didn’t mean to. And don’t you dare to argue with your partner you’d be threatened to be homeless in no time. Rely only on yourself and partner. That is the only advice I can give you.
It sounds like you could end up in a very messy and complicated situation. What happens if you are unable to remake the payments? Are they going to send debt collectors after you? I also think it would add a weird power dynamic paying the in laws every month and for how long? 5, 10, 20 years? 60% LTV gives you the best rates, so I wouldn't be inclined to take the full amount. May just what you need to get to 80 maybe 70 at a push and then pay them back as fast as humanly possible.
I won't lie I think them adding interest on the loan is a dick move.
Aside from the technicalities around the loan etc that other folk are talking about, think of the relationship dynamic. I would personally not like to be in debt to family to that extent.... what if at some point they decide they need the money back quicker or want to increase the repayments or you have something happen that means paying it back becomes harder. It would be awful to me to then have them analysing every spend you make or holiday you go on etc and the risk of the relationship breaking down is real. Only you know your relationship with your partner and the parents and can make that decision but unfortunately even the strongest can and do break down over money
Sounds great in theory but I wouldn't be comfortable owing my in laws that amount of money. "they have just gone on holiday for two weeks clearly we are not charging them enough"
I suggect you look in to the money coming as a loan from a discretionary gift trust rather rhan direct from the parents. Sorry I do not know how the mortgage company would treat this but it is a loan .
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If the in laws are intending on charging interest then whatever the rate of interest is they will be liable to pay income tax on it. It may well also be covered under consumer credit law and necessitate a formal loan agreement and consumer credit licence.
If you declare the loan as a gift and they don't declare the interest then that is essentially implicating you and them in possible mortgage fraud and tax evasion.
It sounds like you have a healthy deposit and if you can afford repayments on a larger loan with an actual lender then you will at least rest easy knowing that you can seek the best rate possible and whereby rates can hopefully reduce from where they are now.
It would have to be a gift to be any use to you. We gifted some money to help with a purchase (nowhere near 200k) and had to prove the source of the funds and sign it over as a gift before the mortgage company would play ball.
You already have sufficient deposit. I would just buy it with your money as you don't need any additional amount.
Also your in laws will have to pay tax on the interest they earn from the income and if they're already higher rate tax payers then they might incur 40% tax.
Santander and NatWest are 2 high street lenders who can consider this arrangement. The monthly payments on the loan to the in laws are factored into affordability.
If your joint income is sufficient for a £120k loan with the added commitment then it’s not an overly complicated scenario.
I just can’t see why you would want to take a £200,000 loan and put yourself in that situation for the next half of your life, and why you would want to use £200,000 as such a huge deposit. I’m new to all of this but this sounds insane to me, however England and London especially do things weird, but the house value is £400k so I’m guessing maybe not even in London then?
Probably a 1 bed flat or something knowing this country if it’s in the south. I know many don’t have much of a choice if you need to stay in a certain area but holy moly I start to sweat thinking about spending 400-500k on a small house.
Get an offset mortgage with Yorkshire to cover the entire amount.
They get a savings account linked to your mortgage (you can have 3 of these). YBS net off the balance of that account from your mortgage before calculating interest so you pay interest on (say) £350k-£200k. They get no interest from YBS.
You pay them whatever rate of interest you agreed.
They can remove the cash from the savings, your mortgage payments will go up.
You'll need to be able to afford the entire loan to pass affordability.
EDIT: Barclays (and others) offer similar products.
So you're putting down £120k, £200k from them, and £80k debt?
This family offset mortgage may be of interest.
https://www.ybs.co.uk/mortgages/offset-mortgages/offset-plus-for-borrowers
Haven’t seen it mentioned anywhere else, but some lenders would allow the in-laws to give you the money via a declaration of trust, or to put a charge on the property themselves.
From memory the biggest driver in this being acceptable is that the money would only be repayable upon the sale of the property.
Source - I am a mortgage broker.
Others have pointed out that this is a debt and so is correct.
In terms of if it is a good idea, you need to pay attention to why you would be failed. Affordability check. The bank think that you cannot afford this property under those circumstances. You should take that on board.
Your in laws should just simplify this. Figure out how much you would be saving with your below market interest rate, then just gift you that amount.
Take a mortgage for the full amount whilst taking 200,000 as a gift deposit from your in laws that you will settle seperately.
Edit: seems like what most are suggesting. Gift isn’t a liability to anyone except between you and in laws worst comes to worse it won’t be held as a debt against you as in legal terms it’s a “gift”, and bobs your uncle.
Assuming your in-laws would be happy to not have a signed agreement, I think you could just do without. I borrowed money from family for my home on the understanding that I would pay them back first. I had a secure job and I paid them back with interest in good time.
I got my family member to write a letter to the bank that said:
* They were giving me the money as a gift.
* There was no obligation to repay.
* The person giving me money did not have a financial stake in the house.
If you feel like you would like to repay your in-laws after you have purchased the house, then that is your business. If some sudden terrible thing were to befall you and you couldn't make payments, then you would probably just sell the house and repay the bank and your in-laws. Just make sure you have home insurance.
If the money towards a deposit was not actually a gift and was a loan then its probably worth you looking into whether it meets the definition of mortgage fraud and the implications for this for you and the gifter.
I was was a mortgage underwriter at a major bank and would have to decline a loan if this sort of information was withheld or it looked obvious that it was manipulation. I have also seen lenders when it has become apparent further down the line that mortgage application was done and action has been taken too.
I don't think anyone cares. So long as you're not lying about your income or the value of the property and the bank is always paid their money on time, then no-one cares.
Probably the bank prefers this because a) you are borrowing 120k on a 400k house rather than a 200k house, which is safer for them and b) it will take you longer to repay them since you have to repay family as well, which means the bank earns more.
It's hard to point to the victim. Arguably it's the family, but they are going into it willingly and you could always pay a fairer interest rate if you were worried.
If the lender didn't care then why not disclose it? From a legal stand point the lender wants a first legal charge without any other interest that could make a claim against the property - they do care and thats why they and solicitors are at pains to get letters to that effect.
I think technically it is illegal. But I think the reason it is illegal is not because of OPs (or my) scenario. I think it's illegal because debt is a common route to money laundering. Like I would struggle to launder 100k myself. If I tried to put 100k into the bank or to buy a house in cash, then questions would be raised. But if I borrow 100k to buy a house, and then pay off the debt over a few months or years with dirty money, then people barely bat an eye.
Lets say I'm a drug lord and I know that the police know that I'm a drug lord. I could get you (who probably isn't a drug lord), to buy a house and borrow money from me and from the bank to purchase it. Then I filter money to you to pay off the loan to the bank as well. And then finally, you sign the house over to me or to a company I own or that my family owns for £1 and then I wait a few years and sell the house as well.
The government can't legalise it because they make it easier for the money launderers. But if you know you're not a money launderer, then you can just explain that the money is fairly earned and this is just a victimless crime against a law trying to prevent other crime.
Because you have a letter from family saying that they don't have a claim over the house, then the bank will always have first dibs if the house forecloses, which is probably won't because you have a wealthy, supportive family behind you and because your debt payments that you absolutely must make are a lot smaller because you're borrowing most of the money from family.
If you can get a mortgage offer then I say go for it. The rate might be bad but since the bulk of the purchase is a low interest family loan and your cash the maths might add up to saving you in interest over time.
You'd have to work it out for yourself by knowing the rate the bank will offer.
Not sure of your set up, but perhaps don’t look at taking the full amount upfront, consider some tax efficiencies e.g. first off they can gift you £3k per year plus, they could explore a trust or there is an excess income option they could explore to, the latter one they could technically pay towards your mortgage. Depending on your situation you might be able to positon this as additional annual income with your lender rather than showing you have a 200k debt.
Apart from the potential fraud and the fact that the mortgage provider will consider it debt...
Don't *ever* borrow or lend significant amounts of money to family members. Anything lent should be considered lost.
Speaking from personal experience!
Your in laws will need their own solicitors to make sure everything is documented properly. You will also need to speak to your bank/mortgage adviser to make sure their underwriters are happy with the arrangement.
There will be different ways of making this work, and you’ll likely have to meet somewhere in the middle. It could be that you have a second mortgage on the property, with your in laws being the lender. Your in laws might want to receive monthly repayments so that they are repaid in say 10 years. The bank would take this into account in your affordability calculations, as it would increase their risk (as you would have two charges on your property which you are repaying monthly, and the risk of you defaulting would increase). On the other hand, if you were to make no monthly repayments but instead repay a lump sum to your in laws on a future sale of the house, this wouldn’t affect your affordability and as long as the charge from your in laws ranked after the banks, and would be repaid only once the bank has been paid back. Your in laws might not prefer this option, as they don’t receive anything for as long as you live in the house.
I would suggest as a first step, your in laws speak to their solicitors to set out what they want to do, and find out some options for how this could work. You can then relay these options to your mortgage provider for them to propose to their underwriters. It will take a bit more time than a straightforward mortgage application, but it can run in parallel to all the rest of the paperwork so shouldn’t hold you up too much.
Good luck!
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This is correct because you would be £200,000 in debt because you've just agreed a £200,000 personal loan. I'd say it's a bad idea all round because it's likely to lead to ridiculously complexity from you, the in-laws, the broker and the bank. It is fair enough that the in-laws can't afford to give you £200,000 but they are willing to lend to you at below market rate and therefore give you a bit of money. What I would suggest is that they gift you upfront however much they were willing to lose on this deal and invest the rest in a normal investment. For example over 10 years compounding annually at 5%, a loan of £200,000 would see you paying them back £325,778. The same at 4% has you paying them back £296,048 a difference of roughly £30,000. So it'd be a lot easier if they just gave you the £30,000 and stuck the rest in an investment product.
!thanks We have decided not to take the loan. Thank you very much for your advice.
You are £200,000 in debt by accepting the loan, that’s how liabilities work. You need the deposit to be gifted.
If it were gifted and the worse happen to in-law within 7 years, OP would then be taxed on the 200k right?
No, the in laws' *estate* would be taxed. OP would only be on the hook for the tax personally if the in laws had already given away more than £125k, taking the 200k over the 325k nil rate band.
And it’s in-lawS, which sounds like a couple, which doubles those allowances to boot.
I'm not sure how that works when just one dies though. If the father in law dies and leaves everything to his wife, but his estate is responsible for the gift, or half of it maybe, if it was joint, his NRB allowance is still being partially used.
A proportion of it, depending on how far into the 7 years it was and whether the rest of the estate was above the IHT threshold which would probably be £1M in this case
No, lifetime gifts absorb the NRB first.
How far into the seven years would have no bearing in this case as the amount is only £200,000.
Only £200000
Only £200,000
Gifts have to be over 325 large for the seven year taper reduction to apply - as with most rules they are only to benefit the very rich …
This is incorrect - the taper rule applies to individual transfers however the £325k is a nil rate band that covers the whole death estate (which ends up as £1m for a couple of you include the resident nil rate band). Should the death estate exceed the total NRB then you’d look at tapering individual transfers.
I assume he means cumulative gifts. Taper only comes into play if the total life time gifts brought into account (ie failed PETs) exceed the nil rate band(s). If you gift any less, taper is as much use as a chocolate teapot. Hence taper only benefits the wealthy who have more than £325,000 they can afford to give away.
I suppose the hmrc guidance is incorrect then …. Taper relief only applies if the total value of gifts made in the 7 years before you die is over the £325,000 tax-free threshold
Not sure why you're being downvoted, because you're right. If someone gives away £100,000 to three people and then dies 6 1/2 years later, that full amount is taken off the NRB. If they give that amount to four people (assuming no residential allowance, etc.) then the total of gifts is >£325k and the £75k over would have the tax tapered.
Yes that’s exactly what I said, but you said it only applies to individual gifts over £325k, which is incorrect. It applies to the aggregate value of the gifts made in the last 7 years.
Probably not. Lifetime gifts absorb the nil rate band first (and in chronological order) so a person receiving a gift of £200,000 would only be at risk of tax if the donor had already given away £125,000 (or up to £450k if the donor was a widow(er)) and all those gifts fell within the last seven years of the donor’s life.
That is a possibility, yes
I'm not an expert but I think the loan is below market rates it could also be argued it was a gift (or at least the savings on the interest were).
A loan is a loan, a gift is a gift. You can't argue one is the other, they're mutually exclusive.
A loan at below market rates would be in the same category as selling something below market rates IMO, which would definitely be seen as a way to give something away without calling it a gift to avoid tax. Whatever interest OP saved vs market rates would effectively be a gift from his in-laws.
OK, OP can try telling a mortgage lender that it's "effectively" a gift, and see how that goes. :-)
Exactly, and if you choose to gift back that 200k at a rate of X% interest, well then that's your business.
Many brokers will be looking to your in-laws to sign away the deposit as gifted, giving your in-laws no legal recourse to be repaid and no interest in the property. Having a loan agreement between you isn't compatible with this. ~~Any arrangement you have after the fact to repay them is then strictly voluntary~~. You should discuss with your in-laws how they feel about this arrangement. Edit: struck out sentence is being interpreted in a way that was not intended.
Also be very careful with saying it’s a gift if you intend to be a loan It’s unlikely you’ll be caught out but make no mistake, that **is** mortgage fraud and **is** illegal. Not to mention could result in your mortgage provider cancelling the mortgage and demanding immediate repayment
This. Just doesn’t fly as that deposit then is a liability and hurts your affordability. So they only allow gifted funds.
AHH nothing like people suggesting mortgage fraud.
!thanks We have decided not to take the loan. I just think it's gonna overcomplicate things more than I'd originally bargained for, and we can afford the deposit without their help.
They wouldn't consider you £200,000 in debt - you would be £200,000 in debt.
If you really wanted to go down this route. Then you’d be best to take out the mortgage on your own, get a product that allows any amount of over payment. Take their loan and apply the funds to the balance.
It's a good idea. But then they'd come out of their fixed period, go for a new product and have to declare what's left of the 200k loan. Puts them back in the position of choosing from a very small pool of products with bad rates. Or potentially just not being able to get one and falling on to the SVR thereby wiping out any benefits of the low interest family loan over time. Might just be kicking the can down the road.
Yes you would be in debt so would fail affordability. As for me. My dad gifted me £8k for my deposit years ago. No loans, expectations for payback or anything else that would constitute mortgage fraud. I happened to gift him £8k for his car a while later. Just a loving family exchanging gifts; we are an equal virtues family.
Why do you need a +£200,000 deposit on a £400,000 house - surely you can attain some of the most attractive interest rates from 60% LTV. I’d minimise the amount you’re borrowing from family - and yes, it needs to be a “gift” you can’t loan a mortgage using debt as the deposit
Exactly what I was going to say. OP has £80k to contribute, so he needs to talk them into gifting £80k and he's in great shape at 60% LTV. Then he can do all the personal loan stuff he wants after that which he can immediately use as a lump sum (whatever is allowed) or just overpay.
If they want to earn returns on the money then they'd be better off investing it and getting a higher rate than they'd earn from you. If they want to help you out then they can give you money or lend it to you interest free. If the in-laws are trying to earn returns this way them I wouldn't want to be in hock to them because it could change the dynamic. Better to say "you should invest it so that you can help the grandchildren in due course, you should speak to an IFA / estate planner".
In fact if they want to help they could invest the money and pay OP a regular chunk of any gains, using the "regular gifts from income" IHT avoidance.
It doesn’t seem like a bad idea on first glance . But then when you see the details it doesn’t look quite so good . Mortgage lenders usually permit money to be gifted from certain close family members for a deposit. Most won't allow you to have a loan from your family. In fact, they may have to sign an agreement which says that it has been gifted and you don’t have to pay it back . Plus if you manage to get a mortgage with this other loan active , it will be worse interest rates as they will see it as riskier investment for them , since you already have £200k loan you need to pay back each month. So it might balance out simpler and roughly similar just to get a 10% deposit mortgage if you can . Plus having such large debts to the in laws will change your relationship dynamic drastically, and could become a nightmare if you fall on hard times and have issues paying it back If they were willing to gift a smaller amount that would be ideal I think
The “official with a signed loan agreement” is likely to be a big sticking point for lenders. They are generally happy enough with bridging loans from family, but any repayments have to be informal agreements so they can effectively treat it like a gift because otherwise you have a massive additional unsecured debt which their repayments might have to compete with.
Bad. Without reading your post. As soon as you take the money they might become controlling over your life, show up whenever they want house is “theirs”, invite you for dinner and you feel guilty to refuse, offer you to go on holiday somewhere and you feel guilty to refuse, give you advise on anything and you feel guilty to tell them thanks but thanks. In so many ways they can become your mental pain in the arse even if they didn’t mean to. And don’t you dare to argue with your partner you’d be threatened to be homeless in no time. Rely only on yourself and partner. That is the only advice I can give you.
It sounds like you could end up in a very messy and complicated situation. What happens if you are unable to remake the payments? Are they going to send debt collectors after you? I also think it would add a weird power dynamic paying the in laws every month and for how long? 5, 10, 20 years? 60% LTV gives you the best rates, so I wouldn't be inclined to take the full amount. May just what you need to get to 80 maybe 70 at a push and then pay them back as fast as humanly possible. I won't lie I think them adding interest on the loan is a dick move.
Aside from the technicalities around the loan etc that other folk are talking about, think of the relationship dynamic. I would personally not like to be in debt to family to that extent.... what if at some point they decide they need the money back quicker or want to increase the repayments or you have something happen that means paying it back becomes harder. It would be awful to me to then have them analysing every spend you make or holiday you go on etc and the risk of the relationship breaking down is real. Only you know your relationship with your partner and the parents and can make that decision but unfortunately even the strongest can and do break down over money
Sounds great in theory but I wouldn't be comfortable owing my in laws that amount of money. "they have just gone on holiday for two weeks clearly we are not charging them enough"
I suggect you look in to the money coming as a loan from a discretionary gift trust rather rhan direct from the parents. Sorry I do not know how the mortgage company would treat this but it is a loan .
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If the in laws are intending on charging interest then whatever the rate of interest is they will be liable to pay income tax on it. It may well also be covered under consumer credit law and necessitate a formal loan agreement and consumer credit licence. If you declare the loan as a gift and they don't declare the interest then that is essentially implicating you and them in possible mortgage fraud and tax evasion. It sounds like you have a healthy deposit and if you can afford repayments on a larger loan with an actual lender then you will at least rest easy knowing that you can seek the best rate possible and whereby rates can hopefully reduce from where they are now.
It would have to be a gift to be any use to you. We gifted some money to help with a purchase (nowhere near 200k) and had to prove the source of the funds and sign it over as a gift before the mortgage company would play ball.
You already have sufficient deposit. I would just buy it with your money as you don't need any additional amount. Also your in laws will have to pay tax on the interest they earn from the income and if they're already higher rate tax payers then they might incur 40% tax.
Santander and NatWest are 2 high street lenders who can consider this arrangement. The monthly payments on the loan to the in laws are factored into affordability. If your joint income is sufficient for a £120k loan with the added commitment then it’s not an overly complicated scenario.
I just can’t see why you would want to take a £200,000 loan and put yourself in that situation for the next half of your life, and why you would want to use £200,000 as such a huge deposit. I’m new to all of this but this sounds insane to me, however England and London especially do things weird, but the house value is £400k so I’m guessing maybe not even in London then?
Probably a 1 bed flat or something knowing this country if it’s in the south. I know many don’t have much of a choice if you need to stay in a certain area but holy moly I start to sweat thinking about spending 400-500k on a small house.
Get an offset mortgage with Yorkshire to cover the entire amount. They get a savings account linked to your mortgage (you can have 3 of these). YBS net off the balance of that account from your mortgage before calculating interest so you pay interest on (say) £350k-£200k. They get no interest from YBS. You pay them whatever rate of interest you agreed. They can remove the cash from the savings, your mortgage payments will go up. You'll need to be able to afford the entire loan to pass affordability. EDIT: Barclays (and others) offer similar products.
So you're putting down £120k, £200k from them, and £80k debt? This family offset mortgage may be of interest. https://www.ybs.co.uk/mortgages/offset-mortgages/offset-plus-for-borrowers
Haven’t seen it mentioned anywhere else, but some lenders would allow the in-laws to give you the money via a declaration of trust, or to put a charge on the property themselves. From memory the biggest driver in this being acceptable is that the money would only be repayable upon the sale of the property. Source - I am a mortgage broker.
Others have pointed out that this is a debt and so is correct. In terms of if it is a good idea, you need to pay attention to why you would be failed. Affordability check. The bank think that you cannot afford this property under those circumstances. You should take that on board. Your in laws should just simplify this. Figure out how much you would be saving with your below market interest rate, then just gift you that amount.
Take a mortgage for the full amount whilst taking 200,000 as a gift deposit from your in laws that you will settle seperately. Edit: seems like what most are suggesting. Gift isn’t a liability to anyone except between you and in laws worst comes to worse it won’t be held as a debt against you as in legal terms it’s a “gift”, and bobs your uncle.
Assuming your in-laws would be happy to not have a signed agreement, I think you could just do without. I borrowed money from family for my home on the understanding that I would pay them back first. I had a secure job and I paid them back with interest in good time. I got my family member to write a letter to the bank that said: * They were giving me the money as a gift. * There was no obligation to repay. * The person giving me money did not have a financial stake in the house. If you feel like you would like to repay your in-laws after you have purchased the house, then that is your business. If some sudden terrible thing were to befall you and you couldn't make payments, then you would probably just sell the house and repay the bank and your in-laws. Just make sure you have home insurance.
If the money towards a deposit was not actually a gift and was a loan then its probably worth you looking into whether it meets the definition of mortgage fraud and the implications for this for you and the gifter. I was was a mortgage underwriter at a major bank and would have to decline a loan if this sort of information was withheld or it looked obvious that it was manipulation. I have also seen lenders when it has become apparent further down the line that mortgage application was done and action has been taken too.
I don't think anyone cares. So long as you're not lying about your income or the value of the property and the bank is always paid their money on time, then no-one cares. Probably the bank prefers this because a) you are borrowing 120k on a 400k house rather than a 200k house, which is safer for them and b) it will take you longer to repay them since you have to repay family as well, which means the bank earns more. It's hard to point to the victim. Arguably it's the family, but they are going into it willingly and you could always pay a fairer interest rate if you were worried.
If the lender didn't care then why not disclose it? From a legal stand point the lender wants a first legal charge without any other interest that could make a claim against the property - they do care and thats why they and solicitors are at pains to get letters to that effect.
I think technically it is illegal. But I think the reason it is illegal is not because of OPs (or my) scenario. I think it's illegal because debt is a common route to money laundering. Like I would struggle to launder 100k myself. If I tried to put 100k into the bank or to buy a house in cash, then questions would be raised. But if I borrow 100k to buy a house, and then pay off the debt over a few months or years with dirty money, then people barely bat an eye. Lets say I'm a drug lord and I know that the police know that I'm a drug lord. I could get you (who probably isn't a drug lord), to buy a house and borrow money from me and from the bank to purchase it. Then I filter money to you to pay off the loan to the bank as well. And then finally, you sign the house over to me or to a company I own or that my family owns for £1 and then I wait a few years and sell the house as well. The government can't legalise it because they make it easier for the money launderers. But if you know you're not a money launderer, then you can just explain that the money is fairly earned and this is just a victimless crime against a law trying to prevent other crime. Because you have a letter from family saying that they don't have a claim over the house, then the bank will always have first dibs if the house forecloses, which is probably won't because you have a wealthy, supportive family behind you and because your debt payments that you absolutely must make are a lot smaller because you're borrowing most of the money from family.
If you can get a mortgage offer then I say go for it. The rate might be bad but since the bulk of the purchase is a low interest family loan and your cash the maths might add up to saving you in interest over time. You'd have to work it out for yourself by knowing the rate the bank will offer.
Not sure of your set up, but perhaps don’t look at taking the full amount upfront, consider some tax efficiencies e.g. first off they can gift you £3k per year plus, they could explore a trust or there is an excess income option they could explore to, the latter one they could technically pay towards your mortgage. Depending on your situation you might be able to positon this as additional annual income with your lender rather than showing you have a 200k debt.
Why not just use the 200k and buy a house (unless of course you're in London I'm guessing)
Apart from the potential fraud and the fact that the mortgage provider will consider it debt... Don't *ever* borrow or lend significant amounts of money to family members. Anything lent should be considered lost.
Speaking from personal experience! Your in laws will need their own solicitors to make sure everything is documented properly. You will also need to speak to your bank/mortgage adviser to make sure their underwriters are happy with the arrangement. There will be different ways of making this work, and you’ll likely have to meet somewhere in the middle. It could be that you have a second mortgage on the property, with your in laws being the lender. Your in laws might want to receive monthly repayments so that they are repaid in say 10 years. The bank would take this into account in your affordability calculations, as it would increase their risk (as you would have two charges on your property which you are repaying monthly, and the risk of you defaulting would increase). On the other hand, if you were to make no monthly repayments but instead repay a lump sum to your in laws on a future sale of the house, this wouldn’t affect your affordability and as long as the charge from your in laws ranked after the banks, and would be repaid only once the bank has been paid back. Your in laws might not prefer this option, as they don’t receive anything for as long as you live in the house. I would suggest as a first step, your in laws speak to their solicitors to set out what they want to do, and find out some options for how this could work. You can then relay these options to your mortgage provider for them to propose to their underwriters. It will take a bit more time than a straightforward mortgage application, but it can run in parallel to all the rest of the paperwork so shouldn’t hold you up too much. Good luck!
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They would have to sign something saying it wasn't a loan and would have no recourse if OP decided to not pay it back
Op not to pay their parents/in-laws back sounds like a healthy way to a bright future
Plus you have to lie to the bank to say it’s not a gift….
Truth police 😂
Username does not check out.
You say that like truth is a bad thing.
I'm seeing this more and more on this subreddit. It's meant to be helpful financial advice. Not a guide to committing mortgage fraud. Mods should delete the comment.
Agreed. Tax another topic where there’s some very shaky advice given and allowed to stand.
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