Bridging Loan. A solution or adding to my problems?
Discussion
This is my first time in this corner of PH, my asbestos underpants are firmly on, but before you lot get too giddy, please bare in mind that I’m asking questions about a subject I know little about.
My Father passed away in April 2022. After much legal wrangling, my 11yr old daughter is now the sole beneficiary of my late-Fathers Estate, (estimated value around £250k). The Will states that any inheritance my daughter receives is to be placed in trust until she is 25.
The bulk of these assets, including immovable, are located in Spain.
We are renters and our Landlord is wanting to put the house we rent on the market asap in order to invest in a new business. We’d like to buy the house off of him, which we estimate is worth about £300-£325k.
The problems are as follows:
We’ve spent £20’000+ on legal fees and other costs associated with my Fathers Estate over the past 14 months, meaning we have very little savings left.
We’d like to buy the house we currently live in off of the Landlord, using our daughters inheritance as a sizeable deposit, (with a legally binding agreement drawn up that she immediately owns a percentage of the property equal to the deposit her inheritance allowed her to place), with a mortgage covering the rest.
As I understand matters, a UK based lender wouldn’t accept the property in Spain as security, (even short-term), as they’d have no jurisdiction over a property overseas?
Another possibility would be to secure a Bridging Loan on the property in Spain, to then use as a deposit to purchase the property we rent in the UK, but I’ve no idea how they work, what the charges are like, or if it’s even legal to go down this route?
I’m all ears for any advice or guidance, even if it’s just to tell me that I’m an idiot
I have spoken to one mortgage advisor who stated that it didn’t matter what size deposit we were placing, how much my Wife & I earned now, or what our disposable income was each month. All that mattered was how much I was earning two years ago, (which was during the height of lockdown no:1 when my income was almost £0 pcm). Surely this can’t be correct, although she’s adamant that it is?
And to further complicate matters, both my Wife & I are self employed.
Thanks in advance fellas
My Father passed away in April 2022. After much legal wrangling, my 11yr old daughter is now the sole beneficiary of my late-Fathers Estate, (estimated value around £250k). The Will states that any inheritance my daughter receives is to be placed in trust until she is 25.
The bulk of these assets, including immovable, are located in Spain.
We are renters and our Landlord is wanting to put the house we rent on the market asap in order to invest in a new business. We’d like to buy the house off of him, which we estimate is worth about £300-£325k.
The problems are as follows:
We’ve spent £20’000+ on legal fees and other costs associated with my Fathers Estate over the past 14 months, meaning we have very little savings left.
We’d like to buy the house we currently live in off of the Landlord, using our daughters inheritance as a sizeable deposit, (with a legally binding agreement drawn up that she immediately owns a percentage of the property equal to the deposit her inheritance allowed her to place), with a mortgage covering the rest.
As I understand matters, a UK based lender wouldn’t accept the property in Spain as security, (even short-term), as they’d have no jurisdiction over a property overseas?
Another possibility would be to secure a Bridging Loan on the property in Spain, to then use as a deposit to purchase the property we rent in the UK, but I’ve no idea how they work, what the charges are like, or if it’s even legal to go down this route?
I’m all ears for any advice or guidance, even if it’s just to tell me that I’m an idiot
I have spoken to one mortgage advisor who stated that it didn’t matter what size deposit we were placing, how much my Wife & I earned now, or what our disposable income was each month. All that mattered was how much I was earning two years ago, (which was during the height of lockdown no:1 when my income was almost £0 pcm). Surely this can’t be correct, although she’s adamant that it is?
And to further complicate matters, both my Wife & I are self employed.
Thanks in advance fellas
Someone on here might be able to help but your circumstances are well outside of any norm.
My advice would be that involving the inheritance in your house purchase would add more legal fees and time.
If your landlord is impatient you would be best focusing on getting a conventional mortgage. That being said if neither you or your wife have appropriate records of earnings for a few years back it will be a struggle. I had to jump through all kinds of hoops applying for a 40% house value mortgage with 5+ Years solid company accounts. That was at a time the banks were giving away money too.
My advice would be that involving the inheritance in your house purchase would add more legal fees and time.
If your landlord is impatient you would be best focusing on getting a conventional mortgage. That being said if neither you or your wife have appropriate records of earnings for a few years back it will be a struggle. I had to jump through all kinds of hoops applying for a 40% house value mortgage with 5+ Years solid company accounts. That was at a time the banks were giving away money too.
I deal with bridging loans in a business my wife and I own.
You MUST have a clear entry and exit strategy, I.e. how will you repay the bridge?
Sell the property in Spain? When? How? Price?
As above they get expensive, fast.
I wouldn’t entertain it until you’ve got a buyer lined up for the Spanish property. I would also take the absolute minimum bridge loan required then over pay the mortgage and at renewal clear a lump sum, no point paying 1% of £220k p/m if you only need £40k.
You’d also have to pay rent to the trust I assume.
You MUST have a clear entry and exit strategy, I.e. how will you repay the bridge?
Sell the property in Spain? When? How? Price?
As above they get expensive, fast.
I wouldn’t entertain it until you’ve got a buyer lined up for the Spanish property. I would also take the absolute minimum bridge loan required then over pay the mortgage and at renewal clear a lump sum, no point paying 1% of £220k p/m if you only need £40k.
You’d also have to pay rent to the trust I assume.
Han Solo said:
I deal with bridging loans in a business my wife and I own.
You MUST have a clear entry and exit strategy, I.e. how will you repay the bridge?
Sell the property in Spain? When? How? Price?
As above they get expensive, fast.
I wouldn’t entertain it until you’ve got a buyer lined up for the Spanish property. I would also take the absolute minimum bridge loan required then over pay the mortgage and at renewal clear a lump sum, no point paying 1% of £220k p/m if you only need £40k.
You’d also have to pay rent to the trust I assume.
Many thanks Hans Solo.You MUST have a clear entry and exit strategy, I.e. how will you repay the bridge?
Sell the property in Spain? When? How? Price?
As above they get expensive, fast.
I wouldn’t entertain it until you’ve got a buyer lined up for the Spanish property. I would also take the absolute minimum bridge loan required then over pay the mortgage and at renewal clear a lump sum, no point paying 1% of £220k p/m if you only need £40k.
You’d also have to pay rent to the trust I assume.
I’ll reply in greater detail this evening when I get back home from work.
The 1st thing is the £20k you've spent is due back to you, if it has been spent dealing with the estate. With regards to the rest of it, whoever is the Trustee will probably have the final say on this matter, apologies if I mis read and you are in fact the Trustee. The big issue for me is the potential cost of this to set up and administer particularly if it does involve a formal ongoing process. Just be careful of this hidden costs.
DaveA8 said:
The 1st thing is the £20k you've spent is due back to you, if it has been spent dealing with the estate. With regards to the rest of it, whoever is the Trustee will probably have the final say on this matter, apologies if I mis read and you are in fact the Trustee. The big issue for me is the potential cost of this to set up and administer particularly if it does involve a formal ongoing process. Just be careful of this hidden costs.
That first sentence is a rather bold claim. It may be due back from the estate or it may not. We have no idea why the £20k cost was incurred. If it was legitimate testamentary expenses then one would have thought the OP would have been advised as such by the lawyers. If the OP is a trustee then he should tread carefully as he isn't the beneficiary.105.4 said:
I have spoken to one mortgage advisor who stated that it didn’t matter what size deposit we were placing, how much my Wife & I earned now, or what our disposable income was each month. All that mattered was how much I was earning two years ago, (which was during the height of lockdown no:1 when my income was almost £0 pcm). Surely this can’t be correct, although she’s adamant that it is?
And to further complicate matters, both my Wife & I are self employed.
I suppose that might be a misunderstanding somewhere? When I went for an HSBC mortgage they required 2 years-worth of accounts; in the end I went with the Halifax who (at the time) only needed the details of my current contract. That's ignoring the 'are you actually self-employed?' question.And to further complicate matters, both my Wife & I are self employed.
Roman Rhodes said:
DaveA8 said:
The 1st thing is the £20k you've spent is due back to you, if it has been spent dealing with the estate. With regards to the rest of it, whoever is the Trustee will probably have the final say on this matter, apologies if I mis read and you are in fact the Trustee. The big issue for me is the potential cost of this to set up and administer particularly if it does involve a formal ongoing process. Just be careful of this hidden costs.
That first sentence is a rather bold claim. It may be due back from the estate or it may not. We have no idea why the £20k cost was incurred. If it was legitimate testamentary expenses then one would have thought the OP would have been advised as such by the lawyers. If the OP is a trustee then he should tread carefully as he isn't the beneficiary.If you quote a sentence, quote a whole sentence.
Of course the OP could decide not to recover legitimate costs but reading it doesn't seem like 20K is loose change for him.
As regards the Trustee point, it is a matter of law that if the Dad is a Trustee, he has a duty to the beneficiary, but my interpretation was that he was not since he showed a limited knowledge of the trust structure.
Roman Rhodes said:
If the trust (which will have your daughter as the beneficiary) owns the house and you plan to live there then you’ll have to pay the trust rent at the market rate won’t you? Is that what you intend?
By rights the daughter should be getting rent and capital gains for the next 14 years. Not sure how the trustees would respond to that. And what if the daughter wants the capital or the property back in 20 years when you are closing in on retirement? That sounds messy.
There may also be tax issues.
Sounds like an ethical, legal and tax nightmare using the child’s inheritance to buy yourself a house. Not sure I’d go there personally, or I would look for a much cleaner and more transparent model such as borrowing £Xk at a commercial interest rate from the trust.
I suspect much if not all of the £20k may not be paable by the estate https://www.pistonheads.com/gassing/topic.asp?h=0&...
OP I would suggest taking initial legal advice but I imagine the bridging loan would be adding to your problems even if the spanish property was in your own name let alone this.
Following the initial legal advice it may well be the best option is to rent / buy yourself without any leverage, reliance or hope upon foreign assets your minor daughter is entitled to.
It may seem like a solution but I suspect it will complicate your life 100 fold.
Best of luck.
OP I would suggest taking initial legal advice but I imagine the bridging loan would be adding to your problems even if the spanish property was in your own name let alone this.
Following the initial legal advice it may well be the best option is to rent / buy yourself without any leverage, reliance or hope upon foreign assets your minor daughter is entitled to.
It may seem like a solution but I suspect it will complicate your life 100 fold.
Best of luck.
dmahon said:
Sounds like an ethical, legal and tax nightmare using the child’s inheritance to buy yourself a house. Not sure I’d go there personally, or I would look for a much cleaner and more transparent model such as borrowing £Xk at a commercial interest rate from the trust.
I would very much agree with this.Trustees have a legal duty to operate the trust in the best interests of the beneficiary. If the OP is a trustee, then buying a house for him to live in has huge conflict of interest issues. If he isn't a trustee, then I'd suggest it would be an uphill struggle to get them to agree. Now it's possible that there are other circumstances that mean that getting his daughter to buy a house for them to live in is, fact, the best use of her money. But it's very far from clear and, to be brutally frank, on the information given this doesn't pass the sniff test.
I think the OP needs to fully understand that the money is his daughter's, and not his to spend on her behalf.
dmahon said:
By rights the daughter should be getting rent and capital gains for the next 14 years. Not sure how the trustees would respond to that.
And what if the daughter wants the capital or the property back in 20 years when you are closing in on retirement? That sounds messy.
There may also be tax issues.
Sounds like an ethical, legal and tax nightmare using the child’s inheritance to buy yourself a house. Not sure I’d go there personally, or I would look for a much cleaner and more transparent model such as borrowing £Xk at a commercial interest rate from the trust.
Some very good points there, some of which I hadn’t even considered, (rent for example).And what if the daughter wants the capital or the property back in 20 years when you are closing in on retirement? That sounds messy.
There may also be tax issues.
Sounds like an ethical, legal and tax nightmare using the child’s inheritance to buy yourself a house. Not sure I’d go there personally, or I would look for a much cleaner and more transparent model such as borrowing £Xk at a commercial interest rate from the trust.
Clearly this needs to be looked into with a lot more detail.
105.4 said:
My Father passed away in April 2022. After much legal wrangling, my 11yr old daughter is now the sole beneficiary of my late-Fathers Estate, (estimated value around £250k). The Will states that any inheritance my daughter receives is to be placed in trust until she is 25.
We’d like to buy the house we currently live in off of the Landlord, using our daughters inheritance as a sizeable deposit, (with a legally binding agreement drawn up that she immediately owns a percentage of the property equal to the deposit her inheritance allowed her to place), with a mortgage covering the rest.
Maybe I've missed something in this but key questions are:We’d like to buy the house we currently live in off of the Landlord, using our daughters inheritance as a sizeable deposit, (with a legally binding agreement drawn up that she immediately owns a percentage of the property equal to the deposit her inheritance allowed her to place), with a mortgage covering the rest.
1. Has your daughter agreed to this?
2. What if the house you buy is worth less in 14 years time than it is now? (unlikely as that may seem)
3. Your daughter's investment needs to grow. This means you either need to pay rent or also allow a ROI into your calculations.
4. How does your daughter get her money out when she's 25? Are you going to re-mortgage?
Who is administering your daughter's trust? If it's you, that is a conflict of interest surely?
If I were an independent administrator of said trust, if I agreed to your investment plan, the first thing I would do is ensure that your daughter's return is a minimum of the amount she invested, regardless of the house value. I would then want interest on top of that investment?
dmahon said:
£250k compounded at 5% growth for 15 years is £519k.
At 10% it’s over £1 million.
She could have a figure between those numbers and be setup for life if investing purely in her interest.
A few BTLs or a BTL and some stocks and jobs a goodun.
Quite. At 10% it’s over £1 million.
She could have a figure between those numbers and be setup for life if investing purely in her interest.
A few BTLs or a BTL and some stocks and jobs a goodun.
Whilst 10% is perhaps ambitious, 5% in long term investment really isn't.
OP, I'm trying really hard to give you the benefit of the doubt, but I can't help but think you're viewing this inheritance as a vehicle to buy a house, rather than it being your daughter's money to be best invested for her benefit.
Now, I also get that you are her parents, she is a child and you put the roof over her head. But should her future be potentially compromised so you own your own home.....?
Tough one.
DaveA8 said:
Roman Rhodes said:
DaveA8 said:
The 1st thing is the £20k you've spent is due back to you, if it has been spent dealing with the estate. With regards to the rest of it, whoever is the Trustee will probably have the final say on this matter, apologies if I mis read and you are in fact the Trustee. The big issue for me is the potential cost of this to set up and administer particularly if it does involve a formal ongoing process. Just be careful of this hidden costs.
That first sentence is a rather bold claim. It may be due back from the estate or it may not. We have no idea why the £20k cost was incurred. If it was legitimate testamentary expenses then one would have thought the OP would have been advised as such by the lawyers. If the OP is a trustee then he should tread carefully as he isn't the beneficiary.If you quote a sentence, quote a whole sentence.
Of course the OP could decide not to recover legitimate costs but reading it doesn't seem like 20K is loose change for him.
As regards the Trustee point, it is a matter of law that if the Dad is a Trustee, he has a duty to the beneficiary, but my interpretation was that he was not since he showed a limited knowledge of the trust structure.
No, I wouldn't say the other obvious testamentary expenses are "bold". I still maintain that your original claim is though.
Regarding the trust, whether the OP is a trustee or not it seems clear that the beneficiary of the trust is his daughter. Any and all trustees have a duty to the beneficiary. If the OP ends up living in a property jointly owned with the trust he should be paying the trust the market rate to live in the proportion he doesn't own. The trust will pay tax on the income in the normal way.
For the OP to cofirm but some background in his previous thread:-
https://www.pistonheads.com/gassing/topic.asp?h=0&...
https://www.pistonheads.com/gassing/topic.asp?h=0&...
Muzzer79 said:
Quite.
Whilst 10% is perhaps ambitious, 5% in long term investment really isn't.
OP, I'm trying really hard to give you the benefit of the doubt, but I can't help but think you're viewing this inheritance as a vehicle to buy a house, rather than it being your daughter's money to be best invested for her benefit.
Now, I also get that you are her parents, she is a child and you put the roof over her head. But should her future be potentially compromised so you own your own home.....?
Tough one !
Whilst 10% is perhaps ambitious, 5% in long term investment really isn't.
OP, I'm trying really hard to give you the benefit of the doubt, but I can't help but think you're viewing this inheritance as a vehicle to buy a house, rather than it being your daughter's money to be best invested for her benefit.
Now, I also get that you are her parents, she is a child and you put the roof over her head. But should her future be potentially compromised so you own your own home.....?
Tough one !
Roman Rhodes said:
That's a bit of a scratchy reply! I'm quite aware the OP said "dealing with the estate". On its own that is rather vague. He might have been challenging the will in his own right. Unusual for someone to put their life savings into sorting out the estate of a deceased person wouldn't you say?
No, I wouldn't say the other obvious testamentary expenses are "bold". I still maintain that your original claim is though.
Regarding the trust, whether the OP is a trustee or not it seems clear that the beneficiary of the trust is his daughter. Any and all trustees have a duty to the beneficiary. If the OP ends up living in a property jointly owned with the trust he should be paying the trust the market rate to live in the proportion he doesn't own. The trust will pay tax on the income in the normal way.
Some very good points made and some very good questions asked.No, I wouldn't say the other obvious testamentary expenses are "bold". I still maintain that your original claim is though.
Regarding the trust, whether the OP is a trustee or not it seems clear that the beneficiary of the trust is his daughter. Any and all trustees have a duty to the beneficiary. If the OP ends up living in a property jointly owned with the trust he should be paying the trust the market rate to live in the proportion he doesn't own. The trust will pay tax on the income in the normal way.
I’ve quoted the two above as I feel they are the most pertinent.
Out of the £20k+ spent so far, around £13k of that has been spent purely on matters relating directly to finalising my late-Fathers affairs. The other £7k (ish) has been spent on legal costs not directly associated with finalising my Fathers affairs, but linked to removing a co-Executor who refused to act and refused to resign, and other beneficiaries who refused to act, (under Spanish Law beneficiaries are required to state if they wish to accept their inheritance. What are in essence late-action fees are imposed if they do not do so within a timely manner, and one Executor couldn’t act independently of the other).
There has never been any intention to reclaim so much as a penny of this money spent from our daughters inheritance. IMO, she shouldn’t have to pay. My Dad left this money to her, not to be swallowed up in various legal and realtor fees.
My Wife, (my Fathers daughter-in-law), is now sole Executor and sole Trustee. I am neither as my Father considered me to be a confounded moron, to which I would concede that he was almost certainly correct.
The terms of the Will state that it is up to the Trustee to invest any inheritance as she deems correct. The Landlord WIlL sell asap. In fact there was a viewing (the first one), this morning.
What little property is available in the area that is equivalent to where we are now is double the rent we’re paying. Once this house is sold, unless we hit the jackpot again, (like we did with this house), then we’ll be moving out of the area by a considerable distance, our daughter will then have to change schools, (she’s already 11.5 miles away from the school she attends). The rental market has exploded around here over the last couple of years, leaving us the choice of either a bedsit, (literally), for a family of four, (including my elderly Mother), or moving about 30-40 miles away, which would then mean my Wife and I having to find different employment.
We’re never going to be in a position to buy. The prices rise considerably faster than we can save a deposit.
Our way of thinking, including our daughter, (and feel free to be critical), was that when we shuffle off this mortal coil, it’ll all be hers anyway. I haven’t even begun to seek legal or financial advice on considering the purchase of the house we live in now.
The point made by Muzzer is a fair one. So yes, that is what we are trying to achieve, (kind of…..). Although please note my desire to have a legal agreement in place that our daughter would immediately own a percentage of the home equal to the deposit that she had placed, (60-70% I’d estimate).
I know I’ll get flamed for it, but I’d never even thought about paying our daughter rent of the 30-40% of the property we didn’t own. Not by malicious intent though, I can assure you.
It’s looking like this is all a non-starter, legally and morally. That’s not going to be good news for any of us, and our daughter will be devastated about having to move schools in September. As for work, (I’m a subby, my Wife a seamstress with a good local reputation and clientele list), I’ve no idea what we’re going to do.
As for our daughters inheritance, it’ll just end up sitting in a bank for the next 14 years. There’s no way on Earth I’d trust that sort of money with a Financial Advisor to ‘invest’. Within six months, no matter how “safe” we’d be “promised” the investments were, it would have all just magically disappeared, (into his bank account no doubt).
Thanks for your forthright advice fellas, even if it wasn’t what I wanted to hear.
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