Lending son large sum for deposit

A question about : Lending son large sum for deposit

Hi, everyone

Hopefully I've come to the right place; apologies if not.

I've agreed to lend my son Ј10K for a deposit on a house. He doesn't have a specific house picked out as yet; no problem with that. Being the generous Mum that I am, there's a Bank of Mum low interest rate and repayment term: Ј50 per month.

We've agreed to get a solicitor to draw up an agreement for the both of us including outcomes such as:

- if he dies
- if I die
- if he gets repossessed
- if he decides to sell up

I feel like I'm missing other potential outcomes. Can anyone add any on or add in advice?

Thanx in advance :-)

Best answers:

• Any thoughts or provision for someone moving in with him? Not sure it makes any difference but it's the only thing that sprung to mind; you seem to have it covered.
  We have borrowed large sums of money before to help buy houses (first one and last one) with no problems; I think it's nice that you are helping out.
• Be careful - don't some mortgage providers frown on a loan as a deposit even if it is from Bank of Parent?
  HBS x
• They don't frown upon it, but since this is being given as a loan it will go against him for affordability, just like any normal loan.
  If it was a gift you would have sign a document to say its a gift and do not expect it back.
• Don't forget you should declare any interest you receive on your tax return and pay tax on it.
  You also both need wills to deal with the death of either of you. For your legal agreement to be worthwhile it will have to be secured on his property as a second charge and most lenders won't like that.
  Given that it will take him 16 years to repay it at that rate with a zero interest rate why not simply give him the money ? Less hassle and easier for him to get a mortgage.
• It would make life simpler all round if you made it a gift rather than a loan.
• I would also consider gifting this money, especially if it is money he is likely to inherit in the long term. If your estate is likely to be liable for inheritance tax then gifting somes like this to your children will reduce that tax burden down the road.
  If you have not gifted this or last year then Ј6000 of this can be IHT exempt, and the remainder becomes exempt provided you survive 7 years. As we are so close to the new financial year you can actually make another Ј3000 exempt by splitting the gift either side of the 5th April.
• If he is single & marries the property will become community property so a clause stating that any split or future sale due to divorce ensures you get back what is still owed to you before they do a split of profits.
• Thanks to everyone for all of your replies. Plenty of food for thought.
• I'm in a similar situation to you, not quite.
  My son and his girlfriend have been saving for a house. They've done really well and a lovely house has come up but they need some help with the deposit. They don't need as much as your son though. Houses are very reasonably priced where we are.
  We had always intended to help them but didn't tell them to what extent so that they wouldn't just sit back and rely on us. So as they have been so good, when we told them how much we were giving them, and their savings mean they can now furnish their house too.
  They have their mortgage through the Halifax and my husband is going on Saturday morning to sign a declaration that our contribution to their deposit is a gift. Not so sure it would have been OK if it were a loan.
  I understand other people's concerns re your contribution to your child being diluted if they have a partner and they split up. There's not much you can do though really is there? My son's girlfriend's family aren't in a position to help them so I'm just glad we are.
  It does help if you really like the partner though. Am not sure we would have been as generous if we didn't
• Like others, I don't think mortgage lenders would allow a loan as a deposit and many would insist on you writing a letter stating that the money was a gift and you had no interest in getting it back.
• Lenders like the applicant to have some skin in the game and so query where the deposit has come from. Loans, and sometimes even parental gifts, can be frowned upon as it doesnt evidence that the applicant has managed to budget/ live within their means and save up a deposit. There can be ways around it like being party to the mortgage or via one of the specialist parental contribution mortgages but the rates may not be as favourable.
  Whilst it may not be worth it for the sums involved you may consider life insurance on him for the monies owed as you have an insurable interest in him and his death
  As others have said, it could just be a straight gift to avoid IHT but then you may have other kids who'd want the same.
• We've lent a family member money. He took out a life insurance policy for the same amount naming us as beneficiaries if he died. (Should bump him off actually, as I don't think the insurance goes down even though he's been paying off the loan!)
• Buying first homes by our four children spanned 15 years (DD 1990, No 3 son 2005). All in all, we "gifted" them something in the range of Ј50,000 - and we put provision in our wills that should these amounts not have been repaid during the lifetime of either of us, that their respective inheritances would be less the original amount "gifted". I use the term "gifted" advisedly as they all wanted to repay the sums when they were able - possibly as we grew older.
  This was suggested by my employer - a solicitor who specialised in wills and probate. I'm happy with the situation - we helped them all onto the property ladder, and each and everyone of them is happy with the situation and knows the score.
• Getting your son to sign a loan agreement
  What will you do if he falls behind on payments, send the bailiffs round???
  If i had kids, which i don't and hopefully never will, i'd want to see that they had some sort of common sense with money and made sure that they saved money out of their wages before i'd consider helping them.
• haha, how is it that the best parents are always those without any children!!!