Our daughter is purchasing a property for €385,000. Herself and her partner are looking for a mortgage of €200,000, as we’re giving them €50,000 and so are his parents and they have saved the balance.
Unfortunately, the mortgage company is refusing them this mortgage as he wants to move job to Dublin.
Is it possible to loan them the €200,000 as my own mother has recently passed away and we have that amount sitting in a bank account? Would Revenue allow this transaction as they would not have to deal with a mortgage provider?
Also, can we just inform their solicitor that we are loaning them the money? I have asked their solicitor certain questions regarding this matter but he just says that that isn’t his job and that I have to contact a financial adviser!
Ms D.D., email
Your daughter and her partner are in a very fortunate position. Already, both sets of parents have found themselves in a position to gift the couple substantial sums to make their home purchase viable. This is on top of their own creditable efforts to save comfortably more than 20 per cent of the purchase price of the home they are looking at – well above the 10 per cent deposit most young couples struggle to put together.
That leaves them looking for a mortgage of just under 52 per cent of the value of the home, which is incredible for a young couple. Assuming their current combined income is above €57,150, they would fall snugly within the Central Bank guidelines on mortgage lending.
But they have discovered the timorous nature of mortgage lenders right now. Any uncertainty at all has them bolting like a skittish horse.
Too much information
I’m tempted to say your daughter’s partner should never have mentioned the job ambition. As long as his current employment (and hers) meets the requirements, agree the loan, sign the papers and move into their dream home.
Banks ask a lot of questions around mortgages to make sure the resources are there to meet the loan repayments: as a general rule, it is foolish to give them additional info they don’t request – and future job intentions would be part of that. Presumably – and especially with a mortgage – your daughter’s partner would not be thinking of moving from his current job without some security about any new work in Dublin.
But, having let the genie out of the bottle, there’s no going back. Any other lender would now want to know why the mortgage was refused.
Still, again, this couple are lucky. You are in a position to be able to step in to replace bank lending with a loan from your own resources. The timing of your inheritance, and lack of any immediate plans for it, is fortuitous. And there is nothing to stop you stepping in to the breach left by the bank.
Frankly, your decision is none of the Revenue Commissioners’ business. You’ll have read that cash buyers have been dominating much of the housing market in recent years and it is true. There is nothing obliging people to take out a mortgage to fund a property purchase. In fact, being able to avoid it is likely to smooth what can be a stressful process.
Revenue’s only interest is whether the money is a gift or a loan. This clearly has implications for their lifetime inheritance tax-free threshold. To convince Revenue it is not a gift, you will need to charge interest equivalent to what you could have earned on the same money on deposit, according to current Revenue rules. Given current interest rates, that is clearly not a lot.
You can charge more of course – something between close to zero on current deposits and the 2-2.2 per cent they could expect to pay on a mortgage from a lender sounds reasonable. Bear in mind this will count as income from your own perspective.
Loan agreement
I'd be inclined to draw up a short loan agreement signed by both sides just in case Revenue ever questions the arrangement – or, indeed, should there ever be a relationship break-up. You don't want any lack of clarity in such an event over the requirement that the money be repaid and the joint responsibility for meeting the debt.
Quite rightly, no one ever wants to think about such scenarios but formal agreements are there precisely to take the emotion out of such obviously difficult situations.
It doesn’t have to be a legal document (though it can be if you wish, and I’d think it advisable given the sum involved), just a short form of words to the effect of what the amount is, that it is a loan subject to an interest rate equivalent to that offered by your bank for a deposit of that amount of money (or whatever you agree), and signed by both sides, ideally in front of a disinterested witness.
In relation to the solicitor, I can see his problem here. You're not his client, your daughter and her partner are. He is being paid to represent them, not you. Representing both sides of a funding arrangement like that proposed could present a conflict of interest position so he quite rightly is stepping back from giving you any advice and directing you elsewhere.
In terms of the transaction, yes, you can just notify the solicitor – or more accurately, your daughter and her partner can. He’d want it in writing (from you to them) but there’s no issue with that. He can then proceed with the legal side of the transaction.
At some point, he’ll require a draft or the transfer of funds to a client account but that’s fine too.
The issue of the tax liability/interest is a Revenue matter and of no concern to the solicitor – that arrangement is for you, your daughter and her partner to work out.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into
