Private mortgage

I've moved house and haven't yet sold the previous one, which is owned outright.

Over the winter my nephew has been living there and now is interested in buying it but would struggle to get a traditional mortgage due to th nature of his work.

From my point of view I need some capital and some income to supplement my pension. With this in mind I wonder what happens if I go along the lines of saying that payments he makes over a certain level will go towards his equity in the property. So if he puts a lump sum of £20k in then he's bought a 10% share for instance. We can agree a base interest rate and anything paid above that goes towards equity.

Just looking for some thoughts and ideas before we agree a plan which most likely will need professional involvement as clearly there will be tax and other implications.

AnthonyL

== If you don't get what you need here, try uk.legal.moderated.

You're going to need legal advice about this. For example, what happens if you die before he's bought all the equity? Would he have any security or could your beneficiaries demand that he sell it so that they can get their legacies?

If you do go down this route, might it be simpler to - in effect - lend him the money to buy it off you? If (say) you agree that it is worth £200k and he pays a 10% deposit, you receive £20k capital now and lend him £180k. He makes monthly payments calculated to pay the interest

*and* pay off the debt over an agreed time period. You get a regular income.

He gets all of the equity straight away but the debt is registered against the property, enabling you to re-possess it in the case of default.

As I just said in the paragraph above.

That could readily be catered for in a Will though eg 5 years to sell or pay up.

Reverse problem of the above would now apply re provisions if I die?

But yes the idea has merits and I guess is effectively a "private mortgage" isn't it?

And of the small, but several, solicitors, I've had contact with more than a minor percentage have been pretty useless which is why I'm asking here for thoughts first. When I subsequently talk to one at least I'll have an idea of whether I'm talking to someone who knows what they are talking about.

Thanks anyway.

What peril ffs? I originally stated I would get things sorted professionally. You're not a solicitor as well are you?

Like some others I think you should think hard about the "failure modes".

In particular "I need some capital and some income" does not sit happily with "would struggle to get a traditional mortgage". Can you cope with him failing to make payments - better than with, say, a commercial letting? And would the family connection mean repossession was a realistic option if he failed to make payments?

If you can accept the risks then one of the options you have in mind looks to be very much like a bog-standard shared ownership scheme of the sort used by housing associations, but with a mortgage from you.

For my own needs any sale/income proceeds are a bonus as I have enough to live on from other sources. But if someone handed me a nice 6 figure lump sum I can think of things to do with it!

Commercial lettings by all accounts have their downsides but one advantage I see in him buying equity (ie any payments beyond an agreed threshhold) would cope better with the following scenario, wouldn't it?

I see that as more of an issue if I was to sell him the house with me as a creditor of some sort than if he were buying in and I retained a (hopefully reducing) share.

I'll look the housing association schemes up, thanks for that.

One thing to bear in mind is that if you continue to own it - or prt of it - you will be subject to CGT on any increase in value of your share since it's not your main residence.

Possibly. I haven't worked through the options in detail. I only had in mind the general point that if he doesn't pay the only way for you to get your money may be to evict him. That seems to me true whether he is your tenant, your mortgagor or (in a shared ownership scheme) both.

I'm not sure how easy it'd be to find a lawyer familiar with the details of such schemes. (And FTAOD I'm neither lawyer nor familiar with them.) But for a general idea you might have a look at

As far as I can tell, shared ownership is actually constructed as a long lease with a high ground rent. There may be special provisions, e.g. for tax, relating to housing associations (registered social landlords, or whatever the current term is). I presume any change in the share is done by a deed of variation on the lease, which is a conveyancing operation, so potentially expensive.

Since the abolition of MIRAS, I'm not sure that there is much difference between a mortgage and any other loan formally secured on the property.

There's an example in the link I posted this morning in reply to the OP. But I think it's a bit harsh referring to it as "ground rent" when the occupier has not paid the capital value of a long lease. ISTM fair to describe it as rent for the share not owned - albeit usually with provision for rent rises built in.

Depends what you consider "expensive". AIUI many solicitors would handle a staircasing purchase for c.£600.

I was using "mortgage" to mean a legal agreement by which a sum of money is lent on the security of property, land etc. I am sorry I did not think it necessary to say so. But it's along time since I've seen mortgage used in other senses, such as the actual conveyance of property by a mortgagor to a mortgagee as security for a debt.

A few months ago I was (informally) talking to an accountant and when I mentioned I'd lived in the house for 33 yrs he said I'd never live long enought to pay CGT. I didn't at that time pay a lot of attention to how he arrived at that.

CGT depends on the increase in value since when it ceased to be your primary residence. Having previous lived there a long time has no impact.

It's pro-rata-ed over the total time-period based on percentage of time in residence

if you live in it for 30 years of slow growth and then don't live in it for

10 years of rapid growth you will pay considerably less CGT than would just be due on the final 10 years taken alone.

tim

Yes it was something along those lines.

(I wonder just how much poor information is spread around to the unwitting.)