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.

How much is it they’re actually wanting? I only ask because is there a way a compromise could be reached and you put 3-6 months worth in their account. Then maybe cut back on all essentials for the next 6-9 months so you can make larger loan repayments before reverting to the agreed amount.

Realistically your parents can't really afford to help you if they're that worried that they could lose their house. You need to find another way to move.

I think this is a very risky thing to do OP and I wouldn't do it as a parent or a child.

When the time is right I fully intend to downsize to release equity to allow me to help DC to buy a house, my house is too big for me on my own, but I wouldn't re-mortgage to help them. Not if I couldn't afford the repayments comfortably on my pension anyway.

The fact that they have got to re-mortgage to help you buy is the issue here.

I think they are being unreasonable, all these scenarios are extremely unlikely and it sounds like your quality of life will be higher in the new place. If it affordable then I would go for it, unless your self employed careers are precarious

The property will probably go up in value

You can get insurance to cover off some of the risk gap

If it all goes wrong you can sell and move soenwhere cheaper and you'll have lost the stamp duty - could be a viable trade off

sounds like the big difference is the initial loan and flat was just a loan to you - the new loan/house is "we" - parther, children, so a lot more variables - and if you do die before them, far less of a given that the house would be sold to repay the loan.
Stay where you are, or purchase within your means.

Is your original mortgage in your name only and are you now remortgaging with a husband/partner or is it a joint mortgage?

I did something similar to you when buying my first flat. It was in my name only and I bought a house with my DH 5 years later.

Due to various reasons it actually worked out cheaper to remortgage my flat (still in my name only) and rent it out and use some of the equity as a deposit on a house jointly owned with my husband. It meant that I didn't end up borrowing more from my parents, could increase my monthly payments to them, and when the flat sold 2 years later I was able to pay them back the remainder in full.

I also had life insurance and my will was such that the flat was left 50/50 to my parents and DH in the event of my death. This also meant if anything happened to me, they had no financial interest in my family home and would actually see a bigger return on their original investment.

This may not be relevant for you as your personal circumstances are different but could potentially be something to look into?

I think they are being unreasonable, all these scenarios are extremely unlikely
Really? That OP and her OH separate? Well I believe now almost 50% of marriages end up in divorce, so not so unlikely.

And Covid has shown how easy a business can collapse in a few weeks, so again, not so unlikely either!

I wouldn't even consider this tbh. If you can't afford to move to that town (which was their idea anyway, not yours) then you do like everybody else and find something you can afford. I would also by wary of their reasons here - they say it would make things easier for childcare but realistically are they securing their own help now for old age?

This would be a very emphatic ‘no’ from me.

If you borrow money from the bank to move, there are NO emotional ties

If you borrow from your parents, there are emotional ties

What happens, if you want to move a third, fourth, fifth time to somewhere else or abroad

I would investigate getting your own loan or mortgage, which doesn't involve your parents

Have you saved up any money for the move, for the solicitor fees etc?

I'd strongly recommend thanking them for their generosity, but you've decided to stay put for 2 years and save bloody hard before re-attempting to move. Not that your ungrateful, but you want to simplify matters and not have an added financial worry each month.

The original mortgage was in joint names - I've been with DH for 18 years.
Yes everything was their idea, for which I have always been very grateful.

In terms of the business, yes of course any business could go under. But during the course of the previous loan, I suffered three redundancies and DH was still a student for a good chunk of it. I also became a student during the time to change careers. Yet I have always paid.

The reason our borrowing power is low ATM is because we are self employed and received self employment seiss grants. They reduce your borrowing power by a fair bit. So our own mortgage on the proposed property would be 36%. Parents contribution loan would represent a further 27% of the value. The rest is our deposit.

You both need to go and get proper legal advice

I think they are being prudent.

If they were lending you capital / their savings, and their mortgage was paid off it would be different. But the fact that they have re-mortgaged their own home to free up money for yours puts them at risk.

And they are older now, closer to retirement and less able to withstand financial shock or an extended mortgage period or whatever, should something go wrong.

It is fatuous, tbh, to say that if you or your DH died before the loan was paid your house would be sold. And house their grandchild how?

It sounds as if they have wanted to be kind, generous and helpful, but that they, and you, rushed into this without asking all the difficult questions first.

No one wants to put family at risk, or live with worry, stress or resentment.

Try not to hold it against them, and I hope you find a happy way forward.

I agree about the grandchild but for the life of the loan, they will be minors so could not stay there alone anyway.

Yes I think it needs a rethink!

I think you need to wait till you get on your feet again after covid and have your business running profitably before you try to buy somewhere else. At that point you can make the most of the inevitable rise in the amount of equity you must have in your current home and move up the ladder just like anyone else.

It’s that first rung of the ladder which parents often hoist their offspring on to, due to the need for a big deposit which is hard to save while renting. After that, you should rightly be on your own feet and progress as much as your own means allow. Property values have risen so much that, under normal circumstances, you must be sitting on (in) a sizeable deposit, so that is what you use to get your next place.

Don’t put your parents in this position. If you can’t afford to maintain the repayments, then you are jeopardising the roof over their heads, at a time of their lives where their options for increasing their income will be reducing.

Time to do your own adulting, OP.

Re you dying, was the original loan pre COVID? I imagine everyone now knows people who have died, including otherwise healthy adults, whereas they didn’t really before? So they just might be seeing things in a different light this time around.

Thank you. It has been entirely their idea.

We need to move quickly because we will soon be a family of five in a two bed. That's why we don't want to wait too much longer.

I think we need to pick a different house/location.