UK Mortgage question...
January 18, 2017 1:17 PM Subscribe
I'm trying to figure out in my head how best to go about obtaining a mortgage in the UK whilst also satisfying certain criteria. I'm not sure if Metafilter is the place for this. Sorry if not!
- My uncle has offered to invest in the property to help my wife and I buy a house in an area we wouldn't otherwise be able to afford a mortgage in*.
- My uncle doesn't want to be repaid. However:
- Me and my siblings are my uncle's only surviving family. When he passes we will inherit his estate and it will be split between us equally.
- The investment in our house should form part of the estate.
- We expect the house we are trying to buy to increase in value. We all want my siblings to benefit from the investment our uncle is offering to make in my house (they already own houses, I'm the only one left renting).
"Co-ownership" is not an option as it will increase the stamp duty by about double, and will bring my uncle's finances under scrutiny which we do not want the hassle of.
- Apparently the bank providing the mortgage will not allow any loans. An injection of cash from a third party is apparently permissible but it must not incur interest, NOT be repayable on demand and my uncle must NOT hold any interest in the property. Which I think means that rules out a percentage of our house being part of his estate.
My head is spinning a bit. Any ideas on how to make this work for all parties? I understand a "declaration of interest" legal document can be drawn up after a mortgage has been arranged, but given the bank's criteria, is this even legal? I guess we could sign over part of our house (a percentage?) after the purchase is made and not tell the bank? It may not even be any of their business.
- We would very much like a cash injection to help us buy a house.
- The bank want the cash to be a gift with no strings attached.
- We (the family) realistically want there to be strings attached to what is in reality a very long term investment for me AND MY SIBLINGS.
* We currently rent in this same area and work here, too. So it's not for reasons of snobbery or whatever that we want to buy here - to move would mean new schools, buying a car to commute to work etc etc etc.
- My uncle has offered to invest in the property to help my wife and I buy a house in an area we wouldn't otherwise be able to afford a mortgage in*.
- My uncle doesn't want to be repaid. However:
- Me and my siblings are my uncle's only surviving family. When he passes we will inherit his estate and it will be split between us equally.
- The investment in our house should form part of the estate.
- We expect the house we are trying to buy to increase in value. We all want my siblings to benefit from the investment our uncle is offering to make in my house (they already own houses, I'm the only one left renting).
"Co-ownership" is not an option as it will increase the stamp duty by about double, and will bring my uncle's finances under scrutiny which we do not want the hassle of.
- Apparently the bank providing the mortgage will not allow any loans. An injection of cash from a third party is apparently permissible but it must not incur interest, NOT be repayable on demand and my uncle must NOT hold any interest in the property. Which I think means that rules out a percentage of our house being part of his estate.
My head is spinning a bit. Any ideas on how to make this work for all parties? I understand a "declaration of interest" legal document can be drawn up after a mortgage has been arranged, but given the bank's criteria, is this even legal? I guess we could sign over part of our house (a percentage?) after the purchase is made and not tell the bank? It may not even be any of their business.
- We would very much like a cash injection to help us buy a house.
- The bank want the cash to be a gift with no strings attached.
- We (the family) realistically want there to be strings attached to what is in reality a very long term investment for me AND MY SIBLINGS.
* We currently rent in this same area and work here, too. So it's not for reasons of snobbery or whatever that we want to buy here - to move would mean new schools, buying a car to commute to work etc etc etc.
IAAUKL. IANYL. TINLA.
The bank is absolutely right that this has to be a gift. This is so the bank has a first charge over the property, without any competing claim from a third party.
You need a Deed of Trust drawn up by a solicitor which explains that the gift from the uncle represents X% of the equity in the property, and that that percentage of the equity is held in trust for you and your siblings. The solicitor will be able to put in legally-binding language the circumstances in which the trust comes to an end and the siblings have to be paid - either by a sale of the property (voluntary or on repossession by the bank, God forbid), your death, or by you borrowing more to pay them off at some point in the future.
This is a legal minefield so you need a very experienced trusts/property/conveyancing solicitor - not a 'conveyancing factory' type of solicitors' firm that you only deal with remotely. Find someone in your area through The Law Society's website, an established local firm, probably not a one-man firm (trust me on this). Expect to pay at least £1,000 for setting this up. But it will be money well spent if it prevents legal problems further down the line.
You might also have to pay a bit extra for the bank's solicitors to approve the arrangement.
posted by essexjan at 1:28 PM on January 18, 2017 [3 favorites]
The bank is absolutely right that this has to be a gift. This is so the bank has a first charge over the property, without any competing claim from a third party.
You need a Deed of Trust drawn up by a solicitor which explains that the gift from the uncle represents X% of the equity in the property, and that that percentage of the equity is held in trust for you and your siblings. The solicitor will be able to put in legally-binding language the circumstances in which the trust comes to an end and the siblings have to be paid - either by a sale of the property (voluntary or on repossession by the bank, God forbid), your death, or by you borrowing more to pay them off at some point in the future.
This is a legal minefield so you need a very experienced trusts/property/conveyancing solicitor - not a 'conveyancing factory' type of solicitors' firm that you only deal with remotely. Find someone in your area through The Law Society's website, an established local firm, probably not a one-man firm (trust me on this). Expect to pay at least £1,000 for setting this up. But it will be money well spent if it prevents legal problems further down the line.
You might also have to pay a bit extra for the bank's solicitors to approve the arrangement.
posted by essexjan at 1:28 PM on January 18, 2017 [3 favorites]
If the bank holds your mortgage, then it is totally their business who else has a claim to the property. Once you pay it off, it is no longer their business.
Uncle gives you X amount no strings attached and then when his estate is being settled, each sibling gets X amount except you. Then the rest is divided evenly. If inflation has made a significant difference in X, the amount they all get before the division can be adjusted to account for that. Are you planning to estimate the appreciation at the time of his death somehow? If so, you could just give your siblings all their cut out of your inheritance at that time. On the other hand, if I were a sibling, I would not expect to partake in your appreciation since I would also not expect to owe you if the house value went down. You will have lived in, maintained and paid insurance on this house. The appreciation is yours.
posted by soelo at 1:29 PM on January 18, 2017 [2 favorites]
Uncle gives you X amount no strings attached and then when his estate is being settled, each sibling gets X amount except you. Then the rest is divided evenly. If inflation has made a significant difference in X, the amount they all get before the division can be adjusted to account for that. Are you planning to estimate the appreciation at the time of his death somehow? If so, you could just give your siblings all their cut out of your inheritance at that time. On the other hand, if I were a sibling, I would not expect to partake in your appreciation since I would also not expect to owe you if the house value went down. You will have lived in, maintained and paid insurance on this house. The appreciation is yours.
posted by soelo at 1:29 PM on January 18, 2017 [2 favorites]
What soelo proposes is known as a 'hotch-pot' arrangement in English law where someone gets what is in effect an advance on their inheritance. Also discuss this with your solicitor.
I meant to mention too that there might be tax implications for you/your uncle in relation to capital gains or inheritance tax, particularly if he dies within seven years of the gift. Again, the solicitor will be able to advise you about this.
posted by essexjan at 1:36 PM on January 18, 2017
I meant to mention too that there might be tax implications for you/your uncle in relation to capital gains or inheritance tax, particularly if he dies within seven years of the gift. Again, the solicitor will be able to advise you about this.
posted by essexjan at 1:36 PM on January 18, 2017
Response by poster: essexjan et al, thank you SO much. I now feel I have a much better grasp on the issues at hand and how best perhaps to tackle them.
It sounds like the "advance on inheritance" is the way forward, I just need to work out if legally that approach can be combined with making sure my siblings also benefit.
I guess I can approach a solicitor about this.
THANK YOU - THANK YOU!!
posted by dance at 1:55 PM on January 18, 2017
It sounds like the "advance on inheritance" is the way forward, I just need to work out if legally that approach can be combined with making sure my siblings also benefit.
I guess I can approach a solicitor about this.
THANK YOU - THANK YOU!!
posted by dance at 1:55 PM on January 18, 2017
Some mortgage lenders will agree to a second charge on the mortgage. Talk to a broker.
Your uncle's finances may well come under scrutiny anyway as your solicitor will want to make sure no one is falling foul of money laundering laws and this apparently means they need to know where the money has been for the last three months. So if your uncle doesn't want to have to disclose any financial info, you'll need to get him to give you the cash and sit on it for three months before you apply for the mortgage.
posted by corvine at 3:46 PM on January 18, 2017
Your uncle's finances may well come under scrutiny anyway as your solicitor will want to make sure no one is falling foul of money laundering laws and this apparently means they need to know where the money has been for the last three months. So if your uncle doesn't want to have to disclose any financial info, you'll need to get him to give you the cash and sit on it for three months before you apply for the mortgage.
posted by corvine at 3:46 PM on January 18, 2017
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posted by praemunire at 1:21 PM on January 18, 2017 [3 favorites]