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Original poster

Borrowing money from family for property purchase deposit- good or bad idea?!

16 replies

TurquoiseDress · 14/04/2015 12:39

Hi everyone
We're first time buyers trying to see if there's any hope of buying a property in South London.

The amount we can borrow on a mortgage is around 250k- not something to be ashamed of, but is not enough for what we're looking for eg 2 bed maisonette/house.

Our deposit is around 25k...if we can increase it obviously this will open up more properties & mortgages to us.

Question is- should we borrow from family? I know it seems like a no brainier as it'll help things move along more quickly.

However, I'm keen to hear re experiences of borrowing from family- positive or negative?

Mortgage broker says money can be "gifted" by family member but they have to declare as a gift etc

Would be grateful to hear of any experiences! Thank you

OP posts:

Millymollymama · 14/04/2015 13:46

If it is gifted, it does not form part of the person's estate when they die for inheritance tax purposes. If it is a gift, the family member would not expect to get the money back. If the family member(s) will want/need the money back it is a loan. Is this "borrowing" a loan or a gift? If it is a gift, then I do not see why you would not accept as long as your are all agreed on the status of the gift. It may avoid the estate paying inheritance tax, and that may be you if you are inheriting the estate. So you would get the money early! If it is a loan, you will need to agree about repayments, interest to be paid, and whether you can afford to repay, now or in the future. You would be adised to draw up a legal agreement if it is a loan.

We were loaned £2000 (a long time ago) by my parents in law. We handed it back untouched because we felt they would keep worrying about it. They could have given it, but they decided not to. My parents never had a bean, so no gift there! My cousin was loaned money by my grandfather and that did not have a legal agreement and my grandfather lost out quite considerably because, although it was repaid, he received no interest and he really was fairly poor and could not afford to do this. No other grandchild was helped in this way. Fairness needs to be borne in mind too.

grumbleina · 14/04/2015 16:16

Really depends on the family I think. We were given a deposit, but both sets of parents are lovely and didn't then expect to help choose the house, nor has there been any weirdness afterwards. I've heard of people having less pleasant experiences.

It is also worth thinking about what happens with any capital gain, or if your relationship breaks down. Both resolvable issues, but it's good to check that you're all on the same page before going into it.

Millymollymama · 14/04/2015 16:28

Yes, agreed. It is all about a legal agreement if it is a loan.

Fingeronthebutton · 14/04/2015 16:33

From my own experience (as the lender) I would say no. The relationship broke up and I lost £15,000.

youngadult109 · 14/04/2015 16:36

I do think getting a gift from your family is a great idea :) If you do receive a gift from your family, just bear in mind that there'll be more documents to prepare for your solicitor.

We recently receive a gift from my MIL towards the deposit of our first home, and it was quite a bit of hassle as the solicitor requested my MIL (who doesn't live in the UK) to write a gift letter (confirming that it's a gift and that she has no future interest in the home that we are buying), her bank statements etc. And because of this, there's an extra charge towards the solicitor fee.

It's do-able, you just need to be more organised with the documents. All the best!

Spickle · 14/04/2015 20:25

Yes, as youngadult109 says, there are more forms to fill in regarding the gifted deposit. The person giving you the gift will have to provide written evidence that they are gifting you a sum of money, that they will not expect to register a charge against the property now or in the future and that they have no interest in the property and will not be able to make a claim on it in the future. They will also have to provide certified ID (primary and secondary), and they will be subject to a bankruptcy search. Mortgage lender will be consulted. There will be additional solicitor fees for this.

Original poster

TurquoiseDress · 14/04/2015 22:37

Thank you for all your replies.

Our mortgage broker did mention documentation that the person would have to complete if it's a gift.

Also hadn't really thought of the legal side if the money is being loaned to you.

I'm just concerned about there being issues afterwards.
With my parents I know they would be willing to gift/loan us an amount towards our deposit.

However, I don't want them to treat it as their 'investment' and so try to suggest what kind of property, where we should be living (in their opinion).

Also, if we then go on holiday or whatever, I don't want them to comment about us spending ££ when we should be saving.

I don't know, maybe I'm looking too much at the potential negatives.

Maybe the answer is simply more overtime shifts for me and OH!

OP posts:

mandy214 · 14/04/2015 22:54

I think that you need to agree at the outset that it is a loan - not an investment etc. You need to agree how much you are borrowing, for how long and the interest. You then work out your monthly repayments and provided you maintain those your parents should not really be commenting on how you spend any other money you have available.

One thing just to be clear on after your last post. Are you married? You need to be absolutely clear whether it is a joint loan to both of you and how it would be repaid if you split up. Don't want to be unduly negative but you need to cover all eventualities.

SprungHasSpring · 15/04/2015 07:56

Depends on your relationship with your family.

My SIL and BIL both borrowed money from MIL for house deposits and it has meant that they feel obligated to her. They can't say no when she wants to come and stay for weekends (which is now most weekends) or invites herself along on their holidays.

mandy214 · 15/04/2015 09:27

I should have added that my parents have loaned us money - actually 2 or 3 times. For my mum, she actually gets a better return on lending to us (say 3 or 4%) than she would if she had the money sitting in the bank. So I don't really see it as a handout, it suits both of us. She lent us the deposit for the house (which was £6k at the time), then has subsequently lent us 2 lots of about £3k when we've put down as deposits on cars.

I don't feel beholden to her at all, in fact its never usually mentioned after the loan is made - we simply set the groundrules at the outset, set out exactly what we're paying, set up a direct debit to her account and it is fine. But I agree that it comes down to your relationship. My parents are quite financially savvy, can separate the business side of a loan from any kind of emotional involvement, and similarly we always treated it as a non-negotiable that the payments would be made on time (i.e. we were never late with a payment, or skipped one, or used the fact that it was a loan from my parents - everyone treated it as a proper loan).

BiddyPop · 15/04/2015 10:18

We did when we were starting out. At the time, we needed to borrow some on a VERY temporary basis to get the deposit (we had some locked away but houses were selling FAST). So a DAunt and DUncle loaned us 7k towards the deposit - partly they were trying to help us go from a 2 bed tiny thing to the 3 bed semi-d's in the development (we could afford the overall mortgage needed but didn't have enough of a deposit saved for those). And DPIL loaned us another few grand to get us started as well.

We paid back DAunt and DUncle within 10 weeks, before we even got the keys to the house. And we paid back PIL another 7 months later after mortgage drawdown and wedding was over. Neither looked for it that fast but that was what we wanted to do rather than have it hanging over us.

Also, we never had paperwork (15 years ago) for the family money, and there was no interest involved, but we did give a nice gift to them all as a thanks instead.

BiddyPop · 15/04/2015 10:19

Oh, and all loans given to us were from money each party had in savings, none took out bank loans to cover it.

senua · 15/04/2015 10:24

The mortgage company might worry about their repayments. If they discover that the contribution from relatives is an interest-bearing loan then they may start to get twitchy about affordability.

Original poster

TurquoiseDress · 15/04/2015 23:26

Thank you for all your replies, interesting to hear how everyone did it.

Yes I am married...although I know that guarantees nothing.

Lots to think about!

OP posts:

BackforGood · 15/04/2015 23:36

As a general rule, it's not a good idea to mix family/friends and business.
However, as some many others have said, it all depends on the family.

As a parent, my thinking is that, when I leave this earth, I want my worldly goods to be divided evenly between my dc, so, if I had enough money to be able to gift a few thousand to help my dc starting out on the home ownership route, without it affecting my standard of living, then I would - but I'd give it to them. As you've pondered, I wouldn't want them to be having to decide they couldn't go on holiday or replace a car, because they were paying me back.
That said, I wouldn't want to give to one what I couldn't afford to give to younger siblings following behind, so that's another consideration.
Generally though, if family members are relying on your loan repayments, then it's probably not a good idea to get into a commercial relationship with them to begin with.

AuditAngel · 15/04/2015 23:42

DH was offere a gift from a wealthy family member when buying his first house, but asked instead to be lent a larger sum. Thus was repaid with regular amounts, and the balance on sale if the house.

When buying the next house a relative was struggling to sell a property, we agreed a loan as part of the purchase. Now more than 50% repaid after 8 years.

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