Equity in a house - Best way to formalise it?
Discussion
Evening all.
Eldery mother is buying a house, but needs a few extra quid to fund the deposit. I have offered about 8% of the asking price, the rest of the deposit she has as savings and is getting a 10 year mortgage on 75% of the house value. The last bit may not really be that relevant, but it may..in the future.
Now, I could leave it at that, if I was an only child. (She is divorced.) So, she dies probably in the next 10 years, as executor I flog the house, pay off any outstanding debts & mortgage, and bank the rest. thanks mom!
However, there are 3 other siblings who might just "forget" about the 8% I put into the house some 10 years earlier. What's the best way to get this agreement formalised?
"When she sells or dies, I get first dibs on my 8% of the future selling price (or my original investment if it's gone down in value). Then the remainder of the house value is divided by 4 between me and my 3 siblings (assuming she's moved onto another world, not simply moving to another part of this world.)"
1. Joint house ownership. (too complex?)
2. Codicil in the will
3. Other notorised agreement.
Any thoughts please.
Thanks.
Eldery mother is buying a house, but needs a few extra quid to fund the deposit. I have offered about 8% of the asking price, the rest of the deposit she has as savings and is getting a 10 year mortgage on 75% of the house value. The last bit may not really be that relevant, but it may..in the future.
Now, I could leave it at that, if I was an only child. (She is divorced.) So, she dies probably in the next 10 years, as executor I flog the house, pay off any outstanding debts & mortgage, and bank the rest. thanks mom!
However, there are 3 other siblings who might just "forget" about the 8% I put into the house some 10 years earlier. What's the best way to get this agreement formalised?
"When she sells or dies, I get first dibs on my 8% of the future selling price (or my original investment if it's gone down in value). Then the remainder of the house value is divided by 4 between me and my 3 siblings (assuming she's moved onto another world, not simply moving to another part of this world.)"
1. Joint house ownership. (too complex?)
2. Codicil in the will
3. Other notorised agreement.
Any thoughts please.
Thanks.
Jasandjules said:
When you are lending her 8%, put it as a formal loan agreement. Then it will form part of the estate.
Now you might think I'm doing this through entirely altruistic reasons, i am not, it's not a loan, it's an investment.However, how do I go about putting it as a formal loan agreement?
Cheers.
elanfan said:
How is your elderly mum able to get a mortgage?
She's been able to find two that will give her a 10 year mortgage for 75% value of the house, but they don't come with preferential rates!just for general info she is around 75 years old, lost 75% of the value of her house in the US house crash 5 years or so ago, and moved back here just with a chunk of small change left. Been paying £1000-£1250 a month in rent for a poxy flat in Kent!
I think the OP may be looking for 8% of the value of the house when it becomes part of the estate rather than the £ value of his 'investment' today, is that right?
Just re read, thats exactly what he's looking for. Difficult to formally get that in without informing the mortgage company that you potentially have an interest in the house
Just re read, thats exactly what he's looking for. Difficult to formally get that in without informing the mortgage company that you potentially have an interest in the house
Both,
Indeed I don't want to formalise an "interest" in the house, it would be too complicated and as per my OP may jepardise her whole loan agreement.
The mortgage company don't need to know anything other than she can pay the 75% value of the house as a mortgage loan. Which she can.
However, it is a blurred line. What happens in 3 years and the market has skyrocketed, or I'm skint and want some money?
I guess I could word the agreement to follow terms that can only get my cash value from the property on death only.
Or..should I gift her the money and ask her to write up a codicil to "gift" it back?
Indeed I don't want to formalise an "interest" in the house, it would be too complicated and as per my OP may jepardise her whole loan agreement.
The mortgage company don't need to know anything other than she can pay the 75% value of the house as a mortgage loan. Which she can.
However, it is a blurred line. What happens in 3 years and the market has skyrocketed, or I'm skint and want some money?
I guess I could word the agreement to follow terms that can only get my cash value from the property on death only.
Or..should I gift her the money and ask her to write up a codicil to "gift" it back?
SidJames said:
"When she sells or dies, I get first dibs on my 8% of the future selling price (or my original investment if it's gone down in value).
It's a bit much to have it both ways. You either get your original investment back, plus an agreed rate of interest compounded, or you treat the 8% as an investment, and you get 8% of the selling price, regardless of whether it's gone up or down.SidJames said:
"When she sells or dies, I get first dibs on my 8% of the future selling price (or my original investment if it's gone down in value).
Were I a sibling, I would be happy to sign up to an agreement to protect your interest, but not as above - you should get 8% of the sale price back regardless of future house value, and if the market nosedives by 50%, then you'll get half your 8% back too, just as you'll get twice your input if the house goes up. Investments may go up as well as down! And since you've stated that this is for you rather than altruistic, that seems only fair & reasonable?I know someone who, about 10 years ago, got Housing Assoc assistance to buy their own property and the rules were simply and exactly that - the HA stumped up 25%, and wanted 25% back at sale - regardless of sale price, provided that price was agreed by a qualified surveyor.
Just do a formal loan agreement with the interest linked to the increase (or decrease) in the house value or an interest rate or both.
Personally I have done something similar but put a minimum annual interest rate in the agreement - I don't like investments that can lose money! Also then put a formal charge on the property in case the local authority want to sell it in due course. All straightforward to do and all agreements/forms available online. If you only want the loan back on death or sale of the house then again put a clause in the loan agreement to that effect.
Ensure siblings know about the arrangement to avoid any disagreement.
Unusual to get a mortgage as a pensioner but assume pension more than covers mortgage repayments. Worth looking at borrowing against pension assets instead?
Personally I have done something similar but put a minimum annual interest rate in the agreement - I don't like investments that can lose money! Also then put a formal charge on the property in case the local authority want to sell it in due course. All straightforward to do and all agreements/forms available online. If you only want the loan back on death or sale of the house then again put a clause in the loan agreement to that effect.
Ensure siblings know about the arrangement to avoid any disagreement.
Unusual to get a mortgage as a pensioner but assume pension more than covers mortgage repayments. Worth looking at borrowing against pension assets instead?
Edited by CarbonV12V on Sunday 10th May 12:01
SidJames said:
So, she dies probably in the next 10 years, as executor I flog the house, pay off any outstanding debts & mortgage, and bank the rest. thanks mom!
2 minutes googling finds an international reference to a 75 year old woman having a life expectancy of 13 years, UK probably higher? So a better basis for your plans is "probably won't die in the next 10 years".Look for the story of Jeanne Calment, at 70 she agreed to sell her house (to a lawyer I think) on condition that she lived in it rent free for the rest of her life. She lived to 122.
Then add in "What if she remarries"
Andy
CarbonV12V said:
....Also then put a formal charge on the property in case the local authority want to sell it in due course. All straightforward to do and all agreements/forms available online....
Unusual to get a mortgage as a pensioner but assume pension more than covers mortgage repayments. Worth looking at borrowing against pension assets instead?
Interesting point on the local authority.Unusual to get a mortgage as a pensioner but assume pension more than covers mortgage repayments. Worth looking at borrowing against pension assets instead?
She has a decent pension from her years in the NHS.
The mortgage company will want to know the source of her deposit, if she says it's all her own money then as I understand it, you wouldn't be able to formally take ownership of a share of the house (otherwise they are lending her more than 75% of the value of the part of the house that she will own).
Speak to a proper financial advisor, you need to be really careful how you do it.
Also, as has been pointed out, if you don't have a formal ownership of part of the house, or have some sort of formal loan agreement in place, then if she has to go into care you can probably watch the house be sold and put towards care fees...
Speak to a proper financial advisor, you need to be really careful how you do it.
Also, as has been pointed out, if you don't have a formal ownership of part of the house, or have some sort of formal loan agreement in place, then if she has to go into care you can probably watch the house be sold and put towards care fees...
Busa mav said:
Go to the solicitors and have them prepare a deed of trust, this can then also be identified in her will
This.I've just bought a house with my other half (unmarried) - used the equity from her house, and my salary for the mortgage uplift. I have another house on a BtL mortgage.
In order to protect the equity from her house, we have a deed of trust that ringfences that equity, and in the event of a separation, we split the profit after the mortgage is cleared and her share is taken out
TwigtheWonderkid said:
SidJames said:
"When she sells or dies, I get first dibs on my 8% of the future selling price (or my original investment if it's gone down in value).
It's a bit much to have it both ways. You either get your original investment back, plus an agreed rate of interest compounded, or you treat the 8% as an investment, and you get 8% of the selling price, regardless of whether it's gone up or down.Seems unfair for it to be an investment if the price goes up, or a loan if the price comes down!
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