Shared ownership with In laws

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We currently rent a small 2 bedroom house in Surrey. We pay slightly under market rate as my in laws are the landlords. They brought the property for us to rent, with the plan that when we move out they will continue to rent it out. The house would probably be valued at about 320k

As with everyone we are completely out priced when it comes to buying in the area. We are both in reasonable jobs and have saved up about £30k deposit. Including deposit and mortgage our maximum budget would be 240k. We can not face downsizing to a 1 bed flat (which is the only thing we could afford). Our other option would be relocating at least 40miles away from where we are.

We want to know if there would be an option to arrange shared ownership. So we own say 75% of the property, they own 25% and we pay them a small amount of rent on top of our mortgage. When it comes to selling we split the sale price by the percentage ownership. I can't find any information for this online, only local authority/ new build options.

I trust my in laws implicitly. They are comfortably off, have paid off their mortgage on their house and ours. They have a daughter who they will want to help to move out one day soon. They genuinely want to help us but not give hand outs. I think they might be on board with the idea.

Is this a horrendous idea? Will it massively disadvantage my in laws or put them at risk? How would we go about arranging this?

Any advice/opinions welcome

If you have the cash to share ownership with them then it's fine as long as the legal documents are there to show who owns what part. If you're going to try to get a mortgage on that basis I would say you have very little chance.

Yes we would need a mortgage. Have we got no chance with the banks? I imagine on paper it looks high risk.

How about exploring the option of you In laws giving you a private mortgage, if they own the property, you are in, outright?

Would they consider selling you the flat for £270k with the proviso that you pay back the remaining £50k in the next ten years or whatever timeframe can be agreed upon? Depending on how much they paid for the flat, they might have to pay up to 40% on any profit so it might be worth their while selling it on cheaply and getting the money in dribs and drabs over the coming years.

40% tax on any profit

I'm pretty sure that you can't do that lalalonglegs. It's called tax avoidance If memory serves [and it may not] as and when they die, their affairs will come under scrutiny and tax may come due to the OP as the discount on the property will be viewed as a gift way in excess of the current allowances.

Plenty of parents purchase homes with their children with it clearly listed on the deeds / mortgage as to who owns what and what will happen when the house is sold.

It's more complicated by the fat that you will also have an ownership in the property so if your marriage broke down, or your DH passed away that would have to be catered for within the agreement. Joint tenants/tenants in common or whatever it's called.

Furthermore from your PIL's perspective, leaving divorce aside if you simply wanted to move on from the property and release equity, or if they suddenly needed money it could make relationships very strained.

Is there a mortgage on the property at the moment? If not, I think that makes life easier. They may not want to sell though.

It sounds like that would be a transaction at an undervalue. The amount of the undervalue would be seen as a gift from the ILs to the OP and her DH. This can have tax implications depending on the IL's situation, how long they live etc, whether they ever go bankrupt etc.

It's really not simple since the parents already own the property. Effectively they would be selling part of a property they already own to the OP. If the OP had the cash to buy then fine, the legal documents can be drawn up setting out the shared ownership arrangements. If the OP doesn't have the cash (which from the sounds of it she doesn't) then she needs to get a mortgage on part of a property. Not necessarily easy in this scenario. You need to speak to a mortgage advisor.

Could you just buy a 10 percent stake in the house using your £30k and then gradually increase that stake as you manage to save more? Effectively buying them out in stages without needing a mortgage loan.

Go and talk to a solicitor, with PILs. There are many possible solutions and just as many possible pitfalls, dependent on your job/pension/tax situations.

Get lots of advice, the money you spend on it will be worth it in the end if you and PILs can find a mutually agreeable solution.

Your PIL may well be using this property as an investment and you are asking that they sell you the biggest share - so they would make less of a return?

Doesn't sound very fair!

Thank you all for your advice, we definitely will be speaking with a solicitor to find out our options. They own it outright. We would need a mortgage, currently have a reasonable deposit.
Sally - when we move out PILs plan to sell the property. We are incredibly lucky and if they are not on board with the options we put to them then we would absolutely go with what they say. However they genuinely want to help us, but we couldn't accept a hand out.

Sorry your first post said they will continue to rent it out!

Worth asking them isn't it?