To ask for help with financial pickle

[ShoebillStork]

In 2009 FIL had a win on the Premium Bonds. He gave us £10,000 to invest for DS (at low risk) and the money to be given to DS when he's 18.

I put the money towards a loft conversion. DS is 18 soon and I'm due to remortgage for a better rate. How much do I need to release for him so he gets the £10k plus what it might have gained in interest since 2009.

And should I encourage DS to get a Help to Buy ISA with it?

Ds has had the benefit of his 10k already (cool new room) and 10k+interest cash. He sounds like a winner to me all round!!
The op has hardly gained anything!!

Interest rates on children’s savings can be higher than adult. Looking at NS&I historic rates (so about as close to a no risk investment as you can get), you could have got 2.5% or 2%.

I’d personally look at the inflation-adjusted value, and maybe round to a sensible figure, if the agreement was to invest rather than save.

I would look at average savings rates for past 10 years and apply this as an accumulation APR . No tax would be paid so all the interest should be added .

You need to work out the value of the house before and after the loft conversion, calculate the change in value, work out the proportionate value allocated to the 10k and then add 12 years interest on top

God no, he's not getting that much! The value of the house has sky rocketted! I just need to work out how much it would be worth if I'd bunged it in a Junior ISA or something lame!

Financial pickle

@ShoebillStork

Thanks for link Candy but I don't know what interest rate to put in.

And can you lot stop trying to make out I've nicked DS's money. He got a cool bedroom (his words), will get £10k plus interest and will inherit the lot when I croak. Which will be very soon if FIL finds out ...

You've got to make sure you give him a percentage of the uplift in property value as well as the interest on the original capital over 12 years. Eg if your house was worth £300k before the loft conversion, which cost £30k (10k or 30% of which was Ds's 'investment') and your house is now worth £375k, then you owe him 30% of the increase in value (£75k) plus 12 years' interest in the original £10k at say 2.5% per annum.

I think?? I'm sure cleverer posters than me might know better but that's the starting point I think. Not just the interest on the £10k itself.

So DS got a new room and 10k cash + interest. It’s win win.

If you’re in the SE investing that 10k in property would yield far more than sitting in an ISA over that period.

The people telling you you did a bad thing are twits.

See web page RL 360

If you put an average of 4% it’s about £ 14850

Pmsl - base rate has been historically low for years - while property has increased in value so people saying you’ve done the wrong thing obviously have no idea how money works.

Forget what he’s “owed”. What would you feel comfortable in adding? Also 18 is very young to come into this type of money - can you maybe take it out and out it into an actual Isa or similar?

Well, interest rates have been very low since 2009 so realistically 1% is probably more than he would have gained in a big standard savings account.

If I were you I’d call your bank and ask about savings bonds. Find out the rate they’re advertising and use an online calculator to work out how much interest he would have got over 12 years.

You spent his money without his or his grandfather's permission to enable your lifestyle with a new man

What new man?

You can’t get help to buy isa’s anymore, the scheme stopped at the end of last year, you can only keep saving in one you already had before that time

@ShoebillStork

You need to work out the value of the house before and after the loft conversion, calculate the change in value, work out the proportionate value allocated to the 10k and then add 12 years interest on top

God no, he's not getting that much! The value of the house has sky rocketted! I just need to work out how much it would be worth if I'd bunged it in a Junior ISA or something lame!

Your FIL gave it to you to invest. A loft conversion is an investment in your house and has increased its value. The property has increased in value as a result of ds's 'contribution' thanks to your FIL, and that is what the repayment should reflect.

To do otherwise is completely unacceptable and effectively misleading both your FIL snd your son.

I'm quite shocked you think that's ok.

Unless DS has also been contributing to the mortgage I don’t think he should get a % of the property purchase increase.

@ShoebillStork

Thanks for link Candy but I don't know what interest rate to put in.

And can you lot stop trying to make out I've nicked DS's money. He got a cool bedroom (his words), will get £10k plus interest and will inherit the lot when I croak. Which will be very soon if FIL finds out ...

Your son was gifted money from grandpa. You've spent it and he'll inherit when you pop your clogs. You've used your son's money on YOUR home improvements. Where is his £10,000? Home improvements are your decision. He was gifted £10,000!!! This is irrespective of your home improvements. You owe him £10,000 plus interest!

Why should he not get the benefit of the increase in house value that his money provided?

You invested his money in property. Who should get the benefit of that investment? Morally you should work out how much value his loft conversion has added to the house and give him that.

Otherwise you've used his £10,000 for 12 years to give yourself a house worth how much more than it would otherwise have been?

Does your FIL know what you did with the money?

@MissConductUS

Arguably, putting it into the house is investing it though, and as the house will have gained value that will give a higher return, surely?

It is hardly the low-risk investment OP's FIL intended. There are periods when residential real estate loses value, which may preclue a cash out refinancing.

the housing market sometimes falls in value, however a house with an additional room from a decent quality loft extension is always going to be worth more than a similar house next door in comparable condition with no extension.

Interest rates have been pretty low since the 2008 crash - and the Bank of England base rate has been remarkably stable.
If commercial bank loan rates aren't googlable, I imagine that NS&I rates are www.nsandi.com/

Failing that, Bank of England base rate history will be - compare current long term investments to that - so if they are 2% higher, use BOE rate plus 2%
You have to scroll down a bit, but list of historic BOE rates on this site www.bankrate.com/uk/mortgages/bank-of-england-base-rate/

He made an investment in the house so he should be rewarded for that

What Op have done if the 10k was put directly into an Isa or savings account? Would the house have appreciated as much as it has with the extra investment?

I meant "aren't googlable, over the last ten years"

It’s not the increase in value per se, it’s the difference in value now between OP’s house and the ones without loft conversions (ie extra bedroom). That gives the current value of the loft work.

Say OP’s is 100k more and DS’s 10k was 20% of the budget. Then his portion would be worth 20k.

@JackieTheFart

Unless DS has also been contributing to the mortgage I don’t think he should get a % of the property purchase increase.

If a property developer invested £10k to do up a house, they would quite rightly expect a proportion of the increased resale value. That's why property development is seen as a good investment opportunity. No one invests capital into property development, which will increase the value of the property, to recoup capital plus interest. That's madness and not how it works.

You use someone else's money to do up your house and increase its value, then the investor gets a proportion of the increase as well.

People on these threads are crazy. Your son would've never been able to invest £10k in a property at the age of 6. You not only facilitated a sound investment but also gave him a lovely bedroom which I'm sure you could've used for yourself if you were the asshole some of these posters are making you out to be.

Anyway, in terms of % I would look up historical rates and use that. I invested quite a bit in my DDs government trust fund back in 2008 and it's grown very little, so I don't think his growth will be that much.

Comou d interest is the investment x (interest rate to the power of the number of years)

So maybe 5% interest?

10000 x (1.05 ^ 12)

£17958

compound**