First call on property - how to do this?

[funduffer]

I am about to lend my son some money to purchase his house when his mortgage is due for renewal later this year.

He and his wife are happy with the arrangement, but I am insisting on having first call on their property. This is so they cannot take out a further mortgage on the property, without refunding the loan, and also covers the case were they to sell the house.

I am also changing my will, so that any outstanding loan on my death is counted as part of my son's legacy (to be fair to my daughter).

I am about to engage a solicitor to help me organise this with the Land Registry. Is it a conveyancing solicitor I need for this, or can the solicitor dealing with my will cover the Land Registry change?

Anything else I need to watch out for?

FD

[AF62]

Anything else I need to watch out for?

That if you have a 'charge' on the property with the land registry, that your son and his wife will likely have fun and games finding a mortgage company willing to lend them money when they re-mortgage (and the existing company may not exactly be keen).

[Dod101]

Setting aside AF's points, surely your solicitor for the conveyance advice will be able to pass you on to the appropriate person in the practice if he feels he cannot do so. These things are always more complicated than they first appear but keep an open mind and take it step by step. I have been through much the same situation although many years ago and I was under Scots Law.

Dod

[DrFfybes]

Simply speaking - ask the solicitors. They will (or should) have the right person to do it.

It sounds as if you do not trust your son to squander the money you lend him and remortgage anyway? - is this the case?

If you do trust him/them, then a simpler idea would be to simply gift it to him and either make a similar gift to your daughter, or change the will to reflect the gift. OK, so he will have longer benefit from the money than his sister, but you could make gifts to her as and when finances permit?

Paul

[funduffer]

Anything else I need to watch out for?

That if you have a 'charge' on the property with the land registry, that your son and his wife will likely have fun and games finding a mortgage company willing to lend them money when they re-mortgage (and the existing company may not exactly be keen).

The whole idea is for my son and his wife to borrow money from us rather than have a mortgage (Bank of Mum and Dad!). We will be loaning an amount to buy the house outright.

They would have an issue if they tried to raise another mortgage on the property, as the loan would have to be refunded first....but they shouldn't need to.

In terms of trust, I do trust my son, but his wife has a poor attitude to money, is hopeless at saving and I could see her trying to raise money against the house over and above what is needed to purchase it to spend on goodness knows what!

Also, my other issue is if they split up / divorced. If the house was sold in these circumstances, then the outstanding loan would be paid back first. I a not saying their marriage is in trouble, but my DIL is volatile and somewhat controlling, so who knows?

FD

[mutantpoodle]

I (we) did this 30 years ago while waiting sale of my london flat......(definitely should not have not sold!!)

dad lent the money to buy house..he took a 'charge' on the property and no sale was possible without his charge being repaid or agreement obtained.

of course solicitors drew up the papers...and charged for such...as they did later when charge was withdrawn upon repymant

no problem at all

[DrFfybes]

In terms of trust, I do trust my son, but his wife has a poor attitude to money, is hopeless at saving and I could see her trying to raise money against the house over and above what is needed to purchase it to spend on goodness knows what!

Also, my other issue is if they split up / divorced. If the house was sold in these circumstances, then the outstanding loan would be paid back first. I a not saying their marriage is in trouble, but my DIL is volatile and somewhat controlling, so who knows?

FD

A wise approach to a potentially difficult situation. I can see your concern, we are giving money to family members in JISAs and some are saving it, some will put it towards a house or uni fees, and I know some will spend it on clothes/guitars/computers as soon as they are able. Oh, and one bought cows with hers, but she is at Agricultural College and lives on a farm.

Is there anything in place for a gradual repayment of the loan? I ask as from what you say the DiL will want the 'savings' on their mortgage payments to go on enhancing their lifestyle, and in 15 years they'll still owe the original amount, not have saved, and could end up in a worse position than if you hadn't helped.

Presumably the offer is to reduce/maintain their outgoings as their mortgage payments are about to rise significantly?
May I make an alternative suggestion? - work out what sized remortgage they can take to keep the repayments similar to currently, or at least at a more affordable level, and then gift them the amount needed to bring the loan down to that size. Make sure the term is the same, or shorter (!).

This leaves them lifestyle cash neutral, and you could also make a similar gift to your daughter so no need to change the Will. It also avoids the potential resentment of "he had the money 20 years ago when it was worth three times what it is now" etc

Paul

[didds]

Following on from Paul's post above, also _maybe_ a consideration is that if there is no ongoing repayment plan, but a lump sum in X years time, the amount repaid then will because of inflation be hugely reduced in terms of its effective buying power for you. This of course may not concern you and its not a legal consideration

didds

[Lootman]

May I make an alternative suggestion? - work out what sized remortgage they can take to keep the repayments similar to currently, or at least at a more affordable level, and then gift them the amount needed to bring the loan down to that size. Make sure the term is the same, or shorter (!).

This leaves them lifestyle cash neutral, and you could also make a similar gift to your daughter so no need to change the Will. It also avoids the potential resentment of "he had the money 20 years ago when it was worth three times what it is now" etc

Your idea does leave them "lifestyle cash neutral" But their net worth has increased by the amount of your gift. And should they divorce then she will probably get half of the value of your gift, effectively.

Not that you can ultimately micro-manage what happens. I was thinking of personally remortgaging my son's mortgage last year when it was up for renewal and the rate increased. But I did not like his partner and that put me off. So he got a normal remortgage. Now she is no longer on the scene so I would consider it again. But then who knows what the next girlfriend will be like?

[funduffer]

Following on from Paul's post above, also _maybe_ a consideration is that if there is no ongoing repayment plan, but a lump sum in X years time, the amount repaid then will because of inflation be hugely reduced in terms of its effective buying power for you. This of course may not concern you and its not a legal consideration

didds

There will be a repayment plan. They will repay at a fixed level for 5 years after which it will be reviewed. The total term would be 20 years, and I may not be around then, hence the change to the will.

I am not charging interest initially, but the loan agreement allows for this to be reviewed every 5 years.

FD