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BOMAD advice

Covering Market, Trends, and Practical (but see LEMON-AID for Building & DIY)
orraloon
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BOMAD advice

#278821

Postby orraloon » January 20th, 2020, 8:08 pm

Right place for this ? Or not.

Been trawling t'internet with little success, which is surprising given the extent of parental support in the property market in dUK.

Looking for advice / pointers in the right direction. Child #1 is in a broken relationship. I'm looking at the option of assisting said child in buying out partner's share of the equity so that child can continue to live in their current home while taking time to consider next steps. There is another element of current mortgage delta, 'affordability' vs costs of renting; child can support mortgage payments on own. Total is doable for me, with a bit of capital release from things various.

Question is how to formalise this investment? This is not a gift, child understands that a 20% equity share equivalent needs to be put on a legal footing, as who knows what the future holds.

Is it just get hold of a property solicitor and pass on some dosh? Or is there an available guide on how best to formalise? E.g. should I go land registry entry or not?

Any advice welcomed.

Loup321
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Re: BOMAD advice

#278894

Postby Loup321 » January 21st, 2020, 9:38 am

A few things to get you started.

If you would own 20% of the property, then you would be tenants in common (not joint tenants where each of you owns all of the property). Your 20% would pass according to your will, and child's 80% would pass according to their will. I have never owned property in this way, but feel that perhaps there should be an agreement whereby if one of you wants to sell the other gets first refusal to buy them out. I would think that if you wanted to sell your 20% on the open market, you wouldn't get 20% of the price of the property, but that's just something to bear in mind for down the line.

I think that most mortgage companies require the people on the mortgage to be the same as those on the title to the property. I don't know how this works with tenants in common - perhaps others can advise. I feel it should be that you own your 20% outright with no need of a mortgage and child owns their 80% with a mortgage, where the lender could only reposess the 80% share, but I don't think the mortgage lenders think that way, and would want to be able to repossess the whole lot - selling 80% of a property on the open market would get a lot less than 80% of the property's value.

Regarding affordability, just because child can meet all the outgoings they currently have, that doesn't make the repayments affordable in the eyes of the lender. I have friends who would love to buy, because the mortgage payments are lower than the rent they are currently (comfortably) paying, but the repayments aren't deemed affordable by the lender. The bigger lenders will be more likely to sit in the "Computer says No" mindset, but you might get somewhere with a smaller lender. I don't know if they're still stress testing mortgage payments, to see if you can afford them if rates go up. This issue with meeting affordability criteria has locked a number of people on lenders' standard variable rates because they "can't afford" the cheaper rates, and has locked couples into owning property together long after a relationship has broken down.

Personally, I would start with the mortgage lender, and check the affordability does work out. Also check out whether you need to be on the mortgage (your income would count towards the affordability, so that could help, but age might count against the two of you if you would hit whatever age the lenders feel is "old" during the term). Also try and make sure they understand that you would be tenants in common. Then if your child can get a mortage offer, get a solicitor involved to deal with it. I wouldn't trust a mortgage lender's free conveyancing team to deal with something that's not 100% routine.

I hope that helps to get you started. Others will probably be along to explain some points in more detail.

NeckPain
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Re: BOMAD advice

#278942

Postby NeckPain » January 21st, 2020, 12:51 pm

You refer to Child#1, which implies you have other children. May I respectfully suggest you let other children know what's going on? If unaware of the facts (that you are buying equity in the property) there may be a feeling that you are giving money to Child#1 and where's their share? Another reason to make it all legal. In my opinion BOMAD needs to be scrupulously fair as it can lead to resentment and bad feeling if not.

Have no advice on how to actually do it but a property solicitor will know.

orraloon
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Re: BOMAD advice

#278950

Postby orraloon » January 21st, 2020, 1:13 pm

Thanks both. Just been having a chat with an estate agent whose opinion was also consult a property solicitor, get it done properly.

Urbandreamer
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Re: BOMAD advice

#278951

Postby Urbandreamer » January 21st, 2020, 1:15 pm

Last Wednesday R4's MoneyBox did a feature about young people buying houses who couldn't or didn't want to rely on BOMAD.

I would recomend listening to it, because much of the advice would be equaly applicable to the situation that you describe.

For example it was mentioned that mortgages ARE available where all parties are not on the ownership documents. They are not common and you would need to consult a mortgage broker, but they do exist.

Issues of "Buy outs" where the original joint owners need to split were also mentioned.

Another idea mentioned was "Shared ownership". Basicly a financial institution owning part of the equity and rent being paid upon that part.

https://www.bbc.co.uk/programmes/m000d85q

orraloon
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Re: BOMAD advice

#279490

Postby orraloon » January 23rd, 2020, 5:49 pm

Short update. Yes, it's complicated. Talked with a property solicitor who flagged various issues, inc possible SDLT hits on both buyout funds and equity transfer, potentially at higher rate. Sheesh. All I want to do is help minimise the stress factors. Child #1 is taking the recommended first step and meeting with current mortgage provider to get their take on what's possible and we take it from there.

rthak
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Re: BOMAD advice

#282310

Postby rthak » February 4th, 2020, 11:22 pm

you could just loan the money to your child. The loan agreement could stipulate that he/she needs to pay you 20% of the profit achieved on the property in a disposal scenario.

That loan could be secured against the property behind the bank (as a second charge).

Yes it’s not as strong as actually owing being on the title to the property but may be a far simpler and cheaper solution.


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