Uncle Offered to Finance My Mortgage!

Slimms

My uncle has kindly offered to finance my mortgage when the current fixed period has elapsed.

I am extremely keen to take him up on the offer as he is offering very favourable terms and i will no longer be at the mercy of the banks and their 'hidden' fees. However, i don't want either party to lose out in any way and so would appreciate any input on the common pitfalls which may arise from such an arrangement.

My partner and I purchased the home two years ago in both of our names. Our current fixed term period finishes in March 2009.

We have thought about the following questions and would value any input on the answers, but are sure there are problably many other factors that we have failed to consider so would be interested to hear any other comments.

1. Is it possible for my uncle to loan me the money to pay off the outstanding balance on the mortgage without incurring any tax penalties for either party.

2. How can we ensure that my uncle would be compensated, without putting the house in his name, should my patrner and myself default on the repayments to him or either of us died.

3. what type of legal document could we draw up to specify the terms of the loan

4. If we wanted to terminate the agreement in a couple of years and pay my uncle back by getting a new mortgage from the bank is this possible? i.e. could we get a mortgage from a bank given that on paper it would appear we have already paid the mortgage off.

Thanks in advance

Troubled_Joe

I can't advise on the tax implications but drafting up a mortgage is relatively simple. Your local solicitor should be able to do it for less than £500.

getmore4less

Simple view

1. No tax on making the loan for either of you.

2. He puts a charge on the property just like a mortgage company would, so you cannot sell it without paying him back.

3. Probably similar to a mortgage doc.

4. Yes you make it part of the agreement just like on a normal mortgage and you remortgage as normal.


The uncle would be liable for tax on any compensation/gains he gets for lending you the money. Normaly this would be interest which counts as income but it may be possible to arrange for payments to be treated as a capital gain(not looked into that before).

Robert_Sterling_3

Keep life simple.
Get a mortgage from a building society.

Kavanne

Robert_Sterling wrote: »

Keep life simple.
Get a mortgage from a building society.

Yeah but if the uncle is offering a very attractive rate, very low arrangement fees (ie: just paying the solicitor), no ERC...?

Can only see probs if the OP has problems paying...

socrates

Family + business = big mistake

Kavanne

socrates wrote: »

Family + business = big mistake

I dunno..... I lent my mum £30000 to pay off her mortgage. This gave me a 10% interest in her house as it was valued at the time, several years ago. She is now about to sell for £400000+ (conservative estimate in the current climate)... she is making a massive profit and and so am I, and she's been mortgage free for that time so had a much better quality of life. Yay! Although if you have a tight, money grabbing relative, it might not be so good...

socrates

All of these things are fine when they work out.

Add in non blood relatives, divorce etc. Then it becomes a nightmare.

Never a borrower or a lender be - when it comes to families

slopemaster

I don't see the problem, so long as its properly sorted with a charge over the property.
I took out a 10-yr loan from a family member, paying only what they were losing in interest. after 3-4 yrs I was in a position to pay it off, so I was able to do this with no penalty.
Very helpful to me, no real problem for them - so not necessarily a 'big mistake'

Robert_Sterling_3

As Socrates said do not mix business with family.
.......................................................................

Get a normal mortgage.

Then kind uncle can still help you out in other ways.

dimbo61

Have you considered an offset mortgage ( I am with the Yorkshire Building Society )
Then you take out a tracker or fixed rate mortgage and your uncle has an offset account in his name ( which only HE has access to ) and offsets a big portion of your mortgage.
You pay a lot less interest and if things go bad and you end up splitting up with your OH she/he has no claim on UNCLES money in offset account.
If he needs some of HIS money he just takes it out of his account.
You also need to set up an offset account so you can also build up your savings which offset your mortgage ( and pay it off quicker ! )
Your uncle would need to declare the interest he is getting from you on his tax forms !! SIMPLE REALLY