Family Loan

[WhenWillISleepThroughTheNight]

I think I just need some perspective here!

We live in a small flat and need to move now that we have children. My parents suggested a town nearer them would mean easier visiting and child care, however we couldn't really afford that town.

So, if I can take you back a decade, I was living in a shared house in a place with a scary walk home. Worried about me, they encouraged me to buy my own flat but I couldn't afford to do so.
They suggested that they - who had just finished paying off their mortgage - remortgage their home and lend me the difference. I would have to make the full payments on that loan and my own.

(I'm not sure if, when the media refers to the bank of mum and dad, they mean a loan or a gift, but this was a loan)

It was just about affordable and to this day I have never missed a payment, even when I changed careers and my wages dropped for a while.

Back to now and that loan is almost paid off. We now need to move to a larger property and cannot afford one in their town. So, they've suggested doing the same thing again.

We've all gone through the application processes and suddenly they are saying they need me to borrow a bit more, to be able to put a year's worth of repayments in their account for security- I.e. if our jobs fail (we are self employed) or if one or both of us die.

This has stumped me. This extra money will make it cost us quite a bit more overall. I have this excellent record of payments and now it feels like something has changed.

They are concerned that they would lose their home if I died or didn't pay for some other reason but I have pointed out that my house would be sold to cover all our debt in that case. They countered that that would take a while and they couldn't afford the repayments in the meantime (they could, from savings). I pointed out that if they die during the loan, their bank will call the loan in and we will have to sell OUR house.

I should point out that my parents are good, loving, otherwise reasonable people and are generous in every way they can be. So this feels out of the ordinary.

We were hoping to move in a couple of months - our mortgage is approved.

In the kindest way, as I do have pnd and I love my parents dearly, what is your perspective?

I should mention that I will be out all day tomorrow and won't be able to check my phone but I'm lying here now unable to sleep.

You cannot afford that house without your parents, you need to pull out.

Yes, that's what we are considering doing. It was just that we have come quite a long way down the purchasing road!

I'm no expert but I guess you could look at getting life insurance, critical illness cover, that kind of thing? Could that be a cheaper way of covering off a lot of the risks? You might only need to pay it for a few years until they have received enough repayments to have more of a buffer?

Surely if they die during the loan period, their house would be sold and the mortgage company would be paid off

I think it’s very risky for all concerned to be honest. Have you considered other towns that are still closer but more affordable? I certainly wouldn’t be taking on any additional borrowing if it meant struggling through each month. It would be wise to reconsider your options. Hope it all works out for you.

Brit, yes it would. But if we die the same would be true.

Thanks Nin x

I agree life insurance could be a good comprise. Given your parents are having to remortgage to provide the money I don’t think it is unreasonable of them to ask for more security- however I do think they should have made it clear before you started the buying process. In your position I’d be concerned about what would happen if your circumstances changed and you were unable to pay and for that reason would reconsider buying the house. Could you consider somewhere cheaper or shared ownership as an alternative?

Yes we could consider somewhere where we live now. They would be disappointed though! As would we.

I agree it's the timing that is frustrating.

I think the whole thing is madness to be honest. On all parties

I'm not sure why they're now so convinced I might die before them... spooky!

If your parents aren't comfortable with the loan I'd not take it and move to a smaller town tbh.

In the nicest possible way yabu.

You were fortunate to have assistance with your flat.

Whilst it is stressful that your parents have changed the terms of their current proposal, they're not obliged to give you any assistance at all.

Your post doesn't mention whether the further loan would appear as a charge or whether they would gave some sort of legal interest which would protect them in the event something were to happen eg you lose your job or relationship with husband breaks down. Your parents are being sensible and looking at the bigger picture.

Thanks both!

I think they were in a better position then but (while trying their best and wanting to do it), they're panicking now as you not being able to fully come through would leave them more stranded then it would have when they were younger. Add in the fact that people's finances generally go south when having children (either childcare or a parent cutting their hours in work when children are young) and I can see their point. Sorry I've no advice and best of luck

@WhenWillISleepThroughTheNight

I'm not sure why they're now so convinced I might die before them... spooky!

It can happen though so they are right to be wary. They are probably considering their old age too. You'll just have to stick with what you can afford by yourselves. They've given you a good start.

So is this all being done properly. Do the mortgage company know your parents are paying for some of the house....because there are impacts on you being loaned money to purchase a property. Be cautious if you haven't disclosed it already because you could lose the mortgage over it.

I can understand them being cautious. But they probably shouldn't have offered this if they can't really afford it. (To be honest I can't really see that you can afford it...surely the mortgage company have offered you an amount that already include eye watering payments if you are taking the maximum available).

What your parents are suggesting is that they borrow money at ridiculous interest to then sit in their savings account....is there a way they can use this money to pay the difference between what you want to borrow and the repayments and what they want to borrow and the repayments - so their pot will slowly diminish....

It sounds like it is a risk too far for them at this poin in time. They are uncomfortable. It is unaffordable. And maybe you need to move locally and in a way you can afford. Then maybe they sell up and move to you.

Can you really not borrow more from the bank? When we were in a similar position it didn't work out much more expensive to take on a larger mortgage rather than repay parents and it was a lot less stress than getting family involved. If you can afford the repayments borrow from the bank.

I have this excellent record of payments and now it feels like something has changed

If course things have changed!

• You're no longer young, free, only yourself to care for so able to limit costs/earn more more easily. You have a partner, presumably rely on two incomes. You have dc, childcare. If you, your oh or one of the dc had a grave illness and you had to stop work, they're fucked...and the odds are increased as now there's more of you.
• You're self employed which can be much more risky than PAYE.
• THEY are older and naturally more cautious.
• Jobs, the economy, costs for everything - extremely volatile at the moment. Who the hell knows if you'll still be able to make your SE jobs work this time next year or if we'll all be paying £3.5k a year for our gas and electric?

In addition to this, their position is much more risky. If your parents get taken out by a bus then the mortgage company sell the house and get their money back from the sale - and your unsecured (undocumented?) family loan obligations just die with them.

If however YOU die - you stop paying. They're mortgage company still want their money back from your parents and equity from the sale of your house wouldn't go to them.

Yabu.

@WhenWillISleepThroughTheNight

I'm not sure why they're now so convinced I might die before them... spooky!

its probably because now we have covid to live with, and its focused their minds a little more, plus they have aged and thinking of what hppens if one of them dies and the other needs paid for care, as you wouldnt be able to provide care due to working to pay for the loan you have took out.

to be honest i would be saying thanks for the offer, but no thanks and find somewhere suitable but cheaper even if that meant a bit of travelling between you all, as said above this is a minefield and needs to be arranged with all the legl assistance you can get to cover al eventualities

I agree with the post above. Things have changed OP. I'd look for another way. Good luck. x

Do the mortgage company know that you will be paying back a loan to your parents in order to have enough money to obtain this mortgage?

I totally understand where they're coming from. They probably have worked out a budget that is comfortable for them and without stress. They don't want to risk finding themselves worrying about their finances, which after a certain age is especially important.

You dying is the most extreme and unlikely scenario. What would be more probable is one of businesses drying out or folding, you separating and not able to move anywhere else but no able to cover the loan.

They are helping you. They don't have to. They are asking for some security. It's either a deal that benefits you or not. It's not for you to judge if they are being fair.

Just to add that however much I love my kids and want the best for them, I would be we remortgage my house so they could have a bigger nicer home,so your parents are already more generous than me!

If you die now, the house would normally go to your partner depending how you own it, and it would take legal methods if you only owned 50% (tenants in common) and left that share to your parents, to get him out and liquidate that share.

Was much simpler when it was just your house.