Saving is not our son’s strongest point
QWE ARE thinking of lending our son some money to use as a deposit so he can get a mortgage and buy a house. He gets a decent salary and so will be able to afford the mortgage repayments, but for some reason he has been unable to save any of the deposit himself. If we do this for him, are there any issues that we should be wary of?
ADECIDE whether you wish to gift or lend the money to your son. If the latter is the case, you need to agree the terms of the loan — such as when it should be repaid, whether you wish to charge interest and if the interest would be paid monthly, or rolled up and collected when the loan is repaid.
Your son will need to disclose to his lender the source of his deposit — that is, the loan or gift from you. Not all lenders are keen to proceed if the deposit is being provided by way of a third-party loan.
If you have a declaration of trust to protect your interest, that would have to be disclosed to the lender and the lender’s consent obtained. If your son has a partner who will also be living in the property, it might be wise to arrange a cohabitation agreement. You could have an interest in the legal title but then you would have to be a party to the mortgage and there may be tax implications, such as three per cent additional stamp duty if you already own a property. There may also be a capital gains tax liability when the property is sold. We regret that questions cannot be answered individually, but we will try to feature them here. Fiona McNulty is a legal director in the private wealth group of Foot Anstey (footanstey.com). I HAVE found a really lovely apartment which I am seriously considering buying. However, the estate agent has warned me that the property is quite cheap because the lease only has 70 years left on it. What difference does that make to me?
GENERALLY speaking, apartments are leasehold and leases are granted for a certain length of time. Residential leases used typically to be granted for a fixed term of 99 years but more recently have been granted for longer terms, including 125 years or even 999 years.
As the term of the lease shortens, the value of an apartment diminishes — so the price of the property should reflect the shorter lease.
If you need mortgage funding to buy the flat that could be a problem, because lenders are often reluctant to lend when the lease is short, and they will usually consider leases of less than 80 years to be short. Establish your lender’s criteria.
A lender may be prepared to get involved if you could extend the lease. If the vendor has owned the flat for two years, they should have acquired a statutory right to extend the lease. You need to establish whether the vendor is prepared to commence the statutory process and assign the benefit of that right to you.
The vendor would need to serve the statutory notice on the landlord following exchange and assign the benefit of the notice to you on completion. This is a complex procedure, so it is important for you to instruct a lawyer who is a specialist in this type of work.
WHAT’S YOUR PROBLEM? IF YOU have a question for Fiona McNulty, please email legalsolutions@ standard.co.uk or write to Legal Solutions, Homes & Property, London Evening Standard, 2 Derry Street, W8 5EE.