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?

[TentTalk]

I'd do as pp suggested and treat it as though you invested the money in property, which you did. What was the house worth in 2009? What is it worth now and work out £10k as proportion of the original value and then whatever the proportion is now. Depending on where you are 😜 n the country, it could be a lot.

For example (rough figures), our first house was bought for £130k in 2009. £10k is 7.5% that house is now worth £240k, 7.5% of that is £18k. That's a pretty good.

[AutoGroup]

Investing it by loaning it to his mother for at least equal rate to he would have got at the back and effectively secured against property, so low risk seems fine to me. Especially when he did benefit from the bedroom too.

I'd give him a bit more than the interest would have been at the bank.

[Souther]

@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!

You did invest the money into the house.

You need to work the percentage increase in your house due to the renovation.
E.g. house went up by 0.5%

And now what that percentage is of your house.

So if price increased by 0.5%.

You need to give him that percentage .
It's the only fair way

[ShoebillStork]

Home improvements are your decision. He was gifted £10,000!!! This is irrespective of your home improvements. You owe him £10,000 plus interest!

Yes, I know - hence this thread!

[SwimBaby]

16k

[Henio]

I would double it to £20,000

[SMabbutt]

A cording go the calculator on this site swanlowpark.co.uk/savings-calculator if you invested in a cas ISA it would be worth over £16k and if invested in a stocks and shares ISA over £33k. If you want to be really fair you should either aim to give him the higher amount or at least something in the middle as an average of the 2 so £24 - £25,000. Otherwise he is missing out massively on what he could have received if you had done what your fil told you to do with his money. Hope you can get a good remortgage rate.

[HollowTalk]

@VettiyaIruken

Re not knowing what interest rate to put in, why not use the average loan interest rate? About 4.5% according to Google

You realise a loan interest rate is always much higher than a savings interest rate?

[ivgotskelitons]

Someone put a chart on before looks around 17-18k you'd owe him. And to be fair you said "hell no" at someone's post when they said around 20k. But if you owe it due to interest then sorry but it's his at the end of the day..... you can't make up your own interest to keep more for yourself. Isn't on doin that. Should of done what was asked from the get go and saved for your loft so this pickle wouldn't be happening

[Oriunda]

I would err on the generous side when you work out the interest. ‘Low-risk’ doesn’t necessarily mean that you would have stuck the cash in a low-interest rate savings account. You could, for example, have invested the money in the stock market via an ISA. Still low-risk if you had chosen a conservative manager, and of course remember that any gains are tax-free as your son is a minor.

I have been investing in an ISA and also a pension for my son since his birth in 2012. Both are up 50% since inception. Not saying that any ISA would have performed as well (I choose my own stocks and have some market knowledge) but I definitely wouldn’t plump for a mean 2-3% uptick.

Safest way is to, as said above, get property valued and work out uptick since you did the loft, and work out the propertion due to your son.

[ShoebillStork]

@Wrotten

Does your FIL know what you did with the money?

No, he's never asked. He's just expecting a big thank you from his grandson when he gets his grubby hands on the £10k plus interest!

[DrManhattan]

Good Job the housing market didn't crash.
I'd give him 20k and then take it back off him to build a conservatory.

[Sprogonthetyne]

I agree, his money was 'invested' in your house, he unwittingly shared the risk of that so he should get a proportion of the property value increase.

Can you look on right move or similar and see what similar houses without a conversion have sold for. Deduct that from the value of your house and you can work out how much value the conversion added, then work out what % of the conversion he paid for, and give him that % of the increase.

Worked example
If your house is £400k, unconverted house is £350, then the conversion added 50k. If the original work cost £25k then he covered 40% of the bill, so should get £20k (40% of £50k)

[moonbedazzled]

I think it was worth doing just so I got to read your responses today! You've made me laugh so much. You sound like a really fun person and a great mum.

[CandyLeBonBon]

@ShoebillStork

“Financial pickle” downplays it a little, no?

Well, I don't think so ... I've got a small mortgage on a house that's worth quite a bit (thanks in part to my savvy investment in a loft conversion turning my 3 bed house in a desirable area into a 4 bed house). Can easily afford repayments if I release, say, £15k to give DS money from his grandad.

The savvy investment that was funded using your kid's money, yes?

I mean, if you wanted to help your kid on to the property ladder then giving him a genuine return on his 10k investment would be the way to do it. But just giving him a shitty percentage rate on capital that you used to improve a house that he has no ownership of, with no security and 100% risk seems a bit unfair.

But you've clearly decided what you're going to do, so let's hope he doesn't go into investments or property development so he can't work out that you diddled him out of a fair return!

[VettiyaIruken]

So how much have you gained financially from his £10,000 investment? As you put it "thanks in part to my savvy investment in a loft conversion turning my 3 bed house in a desirable area into a 4 bed house"

Except it wasn't your investment.

It was his investment.

So why should he not fully benefit from his investment in the property?

[LobotomisedIceSkatingFan]

I think you could argue that you're the constructive trustee of that money and do indeed need to give him the proportional increase in the value of the home.

[meadowbreeze]

I'm impressed you managed to do a loft conversion for 10k

[Howdidigetsoold]

So you have invested your sons money and it has benefited you but you don’t think you should give your son any of the increase in the value his investment has generated - only the basic interest rate he would have had if you had put it into a savings account?

[bewilderedhedgehog]

@GappyValley

The hand wringing on this thread! An actual allegation of fraud as well
There are some seriously hard of thinking people on here

As others have said, the best he could have had in a passive investment would have been 5% tops
Slightly more under active management but that would have incurred fees

£10k compounded at that rate gives around £15k now, which is an excellent gain for DS doing absolutely nothing while benefiting from a lovely room
Win/win all round

This.

The OP has been very sensible and is now returning the money to him as agreed with her FIL, and just needs to calculate the right amount. I am totally bemused by some of the comments about the OP who seems more astute than some others on this thread...

[ICECream821]

Why is everyone having a massive go at OP? She’s not lost his money - in fact he’s benefited from his money. Arguably property is low risk and that’s what she has done invested it in property! OP I would look at the money the house has made as a result of his 10k investment and reward him accordingly

[DrManhattan]

It wasn't/ isn't the ops money. If it was all so legit why doesn't the GF know about it?

[sweeneytoddsrazor]

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 ...

Do you mean your DS will inherit the house? Not your DP or a split between DS and DSS?

Which means either your current F.I.L has unwittingly funded home improvements that will not benefit his own son and only one grandson, or your ex F.I.L has unwittingly funded your home improvements. This sounds even worse than just using DS money

[Howdidigetsoold]

Reading this thread has made me realise why child stars get divorced from their parents.....

[SciFiScream]

I think you should give home between £15,000 and £20,000.

I also think you should be honest with your son and with your FIL.