to ask a MORTGAGE question (re loaned deposit!)

[stressedout1994]

Hi all,

I'm about to start a training contract and should qualify on c.£70k in November 2026. I have about £27k in savings. DP is also on a grad scheme at the moment (earning less than me) and should finish it in the next couple of years.

To cut a long story short, my Dad and his wife are looking to sell their home (they have two between them, both with a mortgage) and they have said they would be willing to give me an interest-free loan of £175k (from the equity in house 1) so that DP and I could buy a flat where we live in London. This would be with a view to us paying down c.£800 to them each month (in addition to the mortgage, which would be relatively low), and then remortgaging in three years time when I qualify as a solicitor. They definitely need the money back in three years as that is when my dad plans to retire and I think that money will represent the bulk of his pension.

This has come about because my Dad was saying that he intends to use the equity from house 1 (the £175k) to buy a flat in cash and rent it out in a cheaper area, but I suggested that he consider getting a BTL mortgage and renting it to DP and me, and we would then buy it from him when I qualify. However he doesn't think this is feasible as his age means he can only take out an 8 year mortgage term (I have looked into it and think that actually the age limits are different for BTLs, but I don't want to push the issue...)

WWYD if you were me? I am really grateful that he wants to help, but feel sceptical that a mortgage lender would lend to DP and I when we're both on fixed term contracts, and the deposit would essentially be on trust from my dad i.e. he would have a stake in the property. Do you know anyone who has done something like this?

Practically speaking I know I should just sit tight and wait to buy when I qualify - but I am nearly 30 and renting in London is so expensive and feels quite precarious. I also don't want to put pressure / stress on my Dad as he works too hard and I really think he should retire soon. I'm quite a neurotic person and anticipate that I would just be worried that the house would devalue / get destroyed in an earthquake and then I've nuked all of my dad's pension in this convoluted scheme because I couldn't wait two and a bit years.

What would you do if you were me? Please don't call me a desk job wanker with no clue about the real world etc. Thank you !

Many lenders won't accept it. Your dad will have a stake in the property and so if you failed to repay the mortgage, the bank would have a much harder time repossessing it, basically.

An earthquake would be fine actually because you'll have insurance. House prices and/or mortgage rates are the risk...

I have no idea, sorry. So I would speak to a mortgage adviser or a broker. Good luck in whatever you choose to do.

Will it be a documented loan from your Dad or is it just an understanding between you that you would pay it back? As far as your mortgage provider is concerned it could be a gift for the deposit, which might simplify things and if you know you can pay him and the mortgage it's no one's business.

We had a loan from my PILs towards our first house, it was never documented as such and we paid them back a few years later (there was never any question that we wouldn't). We couldn't have got a mortgage without their help with the deposit.

We did this for our son and the mortgage provider required that we sign a declaration that the deposit was a gift and we had no interest in the property. As far as I know this is usual practice.

Thank you for all your responses so far ladies! @Bumblebeeinatree my dad is very adamant (reasonably) that it be a documented loan, so as @LordEmsworth says he would essentially have an interest in the property (and it would have to be registered as a charge against the property, making it harder to repossess in the instance of default etc etc...) I think I am just going to have to save up over the next two or so years and try and buy then.

Most lenders get very twitchy about loaned deposits and it’s more standard that they ask if it’s a gift and for that to be written into the contracts.

I wouldn’t take out a mortgage on the basis of remortgaging and releasing equity either, we bought 6 years ago with that in mind and with the increase in interest rates we’re now paying more monthly even though we’ve paid 6 years worth of payments, no chance whatsoever that we could afford yo remortgage and take some equity.

I think the only way your dad could help you would be to buy a property outright he then rents to you, but I doubt you’ll get anything for his budget in London sadly.

I think this idea has bad news all over it. If he's depending on that money to retire comfortably, then he should invest it elsewhere. He actually can't afford to loan it, not really. So don't take it.

As PP have said a loan from parents isn’t much help - it needs to be a gift to be used as a deposit. I would finish your training contracts and get a permanent qualified role first. At your future salaries you’re likely to have over £100k household income which will put you in a good position to buy, even in London. At that point maybe your dad can give you £10k or so which would be a big help.

This is fraught with potential problems for both you and your dad.

If he is relying on that money for retirement I don't think he should lend it to you.

Most lenders won’t allow it, no. My parents lent us some money but had to sign various forms to say it was a gift. We are actually paying them it back, but legally it was a gift

I wouldn't do this.
Anything could happen in the next few years that could prevent you paying it back and then he wouldn't be able to retire

Very difficult situation, we lent our son the money to bridge when he wanted to buy a house but his flat sale fell through. We were advised by the solicitor to word it as a "voluntarily repayable gift" as a loan would - as previously said - affect the mortgage offer. All well until he lost his job and was refused universal credit as they felt that when he returned the "voluntarily repayable gift" he had intentionally deprived himself of the money so wasn't eligible for UC. Luckily he managed to find a new job but it was very stressful!

This is really tricky.
What if one of your parents, or both die. Or need to go into a home.
Do you have siblings?
Things could get very complicated.and it could mean you losing your home.

With a documented loan it is highly unlikely you will get a mortgage. Your £70k salary isn't until you qualify so I am assuming your TC one is on around £40k or less so how would you pay a mortgage , £800 per month loan plus all other outgoings.

I would wait until you qualify and are kept on after your TC before committing to a mortgage.

Wouldn't personally. Lovely generous idea of your Dads, but could very easily go wrong.

What if he needs the money sooner for some change in circumstance? What if you can't sell the flat or re-mortgage it when the time is up? What if you don't complete your training? What if you fall pregnant? What if what if what if...

And this assumes the mortgage company are OK with it in the first place - many won't unless he signs to say its a gift.

The best laid plans and all that - I would politely decline.

We lent one of our DC some money for a house purchase . It was a much smaller amount so would not have had a significant impact if it had not been repaid. We , like other posters , had to sign to say it was a gift not a loan and that we had no stake in the property. The money was repaid and subsequently my DC and their spouse divorced . If the divorce had happened before the repayment I suspect we would have never had half of the money returned to us . I would like very carefully amount taking such a substantial amount as circumstances can change without warning .

• I would think very carefully

No, sorry, if it was me there are way too many risks here. What if you can’t get £175k out at the end of the 3 years. I’m not sure how that would work but that is just so much money. Anything could happen with your training contract between now and then, including it ending unexpectedly and you being unemployed. Or what if you split up. Or have a baby. Or your husband can’t get a job. (Can you see I’m a worrier!!) There are also the costs of buying the property to be considered too. I assume your dad might be worrying during the time the money is lent about how he’ll get the money back which isn’t nice for him when he’s entering retirement. If I were you I would try to live frugally and save every penny in the next 3 years to get together your deposit. Could you even do a houseshare etc to drastically increase savings or move out of London for a bit and travel in when needed (wfh permitting etc) (I assume the £800 a month you’re paying him is to cover the rental income he would lose if he bought in cash / interest in a savings account)

Haha I pretty much just said the same thing!

Realistically I think the risk is too high for your dad as he's depending on the loan being repaid, and lenders don't like a loaned deposit.

You will have good salaries in a few years so I'd just save and wait until then. We were 33/34 when we bought our first property in London and that's pretty average. DH and I always rented in houseshares rather than renting our own flat which meant we had a decent deposit for London when we did buy.

It's not crazy. A family member has done it. Lots of legal wrangling beforehand to protect everyone and sort out future issues like dying early etc. best thing that's happened for them though.

Thank you all - this is all really helpful. I was definitely leaning towards politely declining, and now I'm confident that that's what I'll do. I agree that there are just too many risks, and I would hate to put a strain on my relationship with my dad or jeopardise his retirement. Also I am a massive worrier, and constantly be thinking, 'what if....!'

I gifted my DD my part of a inherited house, she got a mortgage to buy out the other beneficiary. My DD had to take out an extra insurance to cover the LA/SC claiming an interest in the house, should I need care. I'm in good health and was 55. I never wanted paying back. The mortgage company wouldn't count my gift as the deposit, but that was covered anyway, in shared equity. It was quite complex. We went through a mortgage advisor/broker. I'd wait.

Yeah it's a bad idea and unlikely to satisfy a mortgage lender. Your best bet would be your dad giving you a much smaller gifted deposit to go alongside your savings, then buy the cheapest but best property you can, then upgrade when you've more money.

I think you are right to pass on this, as others have said there could be a lot of complications. Have both lent DC money for deposit but declared it as a gift (it was repaid) and genuinely gifted a deposit. From your father’s point of view my advice would be never to lend what you can’t afford to lose. He can’t afford to lose this and if something went wrong with your plans it would be seriously awkward.