Implications for getting a mortgage for my sister and her husband

I am considering buying a property for my sister and her husband. It seems they cannot get another mortgage -. She bought a house -value 240K in 2007 and is paying this mortgage ( along with rental income received). They got married and lived there for a while but have since moved out to live with his mother. long story short . my sis wants her own independence and a property in a neutral location - rural .( the reason they moved is that he did not like the town and is from a farming background. He has land and they were going to build but ...the mortgage is the problem. they both work- his income is not fixed but not a problem. they are renting the property in town at moment. longer story short- If I was to buy this new property - what way should i go about getting them to pay the mortgage(125K) and what tax implications are in it for me (us). I am in a permanent pensionable job and my husband is self employed and also company director

What's your plan. The title suggests something different to your final question.

If you buy the property and rent it to your sister and her husband then you pay tax on the rental profit after expenses. If the rent is below market value then there may be a gift but there is a €3,000 exemption so that should not be an issue.

Why doesn't the BIL sell a site in order to build?

Why do you think it would be a good idea for you and your husband to get involved.

You could do one of the following

1) You could lend them the money. They buy the house. Your loan would be secured on the house. If they don't repay the loan, you repossess the house.

2) You could be named on the mortgage but not on the deeds of the house. If they default, you would have to pay the mortgage.

3) You buy the house yourself and rent it to them. This doesn't seem to be what they want to do.

4) Banks have lost confidence in guarantees. But it's possible that a lender might give them money if you guarantee it.

5) You could lend your sister the money to pay off the negative equity on her home and sell it. With that gone, they might be able to borrow.

6) You could lend your sister the deposit. They should be able to get some mortgage.

7) You can stay out of it and let them continue renting.

Work out which of these you want to do and we can then figure out the tax implications.

Whichever you do, make sure that you write a comprehensive agreement about it. You will have to cover what happens if they split up.

I think buying the house and renting to them at up to €250 per month below market rent probably makes the most sense from a tax perspective.

The €3,000 annually below market rent falls under the limit before gift tax is payable. It will reduce the tax you have payable on rental profits or, possibly, remove the tax liability altogether when expenses are taken into account.

Their below market rent should put them in a good position to pay the negative equity on the current place off as quickly as possible. In a few years, you could look at the possibility of selling them the place.

Sorry but the best thing to do is not get involved at all.

If they can't agree on where to live and need "neutral" territory there could be other issues in the marriage, might seem a bit extreme but if I were you, especially in a situation where your husband is self-employed and unlikely to benefit from any social welfare payments should things go awry with his business where would that leave you?

It's nice to help family, but this site is filled with examples of where it has gone wrong.

Let them rent somewhere or sort out their own issues regarding property.

What is the current value of the house belonging to your sister.
Could your sister not sell their current property and transfer the mortgage to the property that they are interested in.
Maybe you devise a rent to buy scheme with them where you buy the property and rent it out at a price that repays you your investment, interest costs, LPT charges Insurance costs and other outgoings. You would need to sort out repairs and renewals as well. I only suggest this as you retain ownership of it until it is paid for.
I am not a fan of the rent to buy method or variations of it.
You have got a lot of options from other posters.
Personally I would not get involved as it has the potential to go on for along time and has a high likelihood of causing family friction.

Take the advice about not getting involved very seriously. This is likely to end in tears and family division, unless you are happy to write off the money lent!!!

I think it's ok to get involved, as long as you try to do it as commercially as possible and as long as everyone knows what is being agreed.

If at all possible, your involvement should be as short-term as possible.

If you are names on the mortgage and their situation improves, the bank will probably agree to removing your name.

That is a nice way of helping out a family member, using your credit rating but not your cash.

Brendan

True Brendan, once the OP takes on board the advice here and the risks.

Your earlier message outlining the options is the first thing to think through.

The most suitable option should be chosen only after the OP and her husband have discussed the risks to their own financial situation if her sisters marriage breaks up or they can't pay back the money for whatever reason.

Then, insist on a legal agreement being written up and agreed by all 4 people involved with all potential exit options agreed and if necessary, all 4 should have a will which states what happens if they die.

Family and borrowing money is risky and she will always be your sister .
If nothing goes wrong, it could all be fine, but not discussing the risks in advance increases the seriousness of any row that might happen.

I wonder what percentage of these arrangments work out and what percentage fail. The proplem where it fails is it's not just monetary loss.

I have a few queries on this if anyone could offer any advice please.

1) In relation to Brendan's point 2. Above, could a mortgage be taken out by one couple, the title deeds changed into the name of the second couple with the mortgage paid by the second couple in full who will live in the property. For instance if the second couple could not obtain a mortgage for themselves.

2) if the first couple were to purchase the property and let to the second couple, would the exempt CAT not amount to €6000 per annum due to there being two people involved on each side, giving two exempt gifts of 3k?

3) Could the CAT exemption be used in both directions e.g. as a gift from the first couple in the form of a lower rent payment sought and also as a payment by the second couple renting to make up any shortfall in the mortgage amount being paid by the first couple.

Hope this makes sense