Borrowing money from a friend to buy a house

littlened

We've got a mortgage offer at 8% with a company, they're being really picky with everything, and we have a gut feeling they're saying anything so that they don't have to give us a mortgage.

A friend / someone I work closely with has a lot of savings, and has suggested that he borrows us £67000 to buy the house, and we pay it back at 7% for 2 years, then a % over the base rate after that.

It would solve our problems, but straight away I'm thinking of issues this might cause. Our intentions have always been to get a high % mortgage for a couple of years, then re-mortgage with a high street lender in a couple of years time as we'll be in a much better position. Borrowing the money from someone else would still leave us wanting to do that.

To give you some history, we've had difficulty getting a mortgage as I can't provide 3 full years accounts, only 2.

The house we're buying is 4 bedroomed, 2 bathroom and a garage ex council house. Our offer on the house is £82500. The house sold in 2006 for £117k. It needs a new boiler as it was stolen a few weeks back, and generally needs some tidying up. We believe that once the work is done, it'll be worth in the region of £100k. In great condition at it's peak, probably around £130-140k.

A couple of things I'm thinking about.

1) We'd need a contract drawn up, because even though we have every intention of getting a mortgage in 2 years time, there might be factors outside of our control with prevent us from doing this...so the lender has to be ok with the fact it MIGHT take 25 years to pay the full balance back.

2) When we try to re-mortgage, the property might have dropped too much in value to be able to get a mortgage, but on the other hand will the price really drop 20% from what we're paying for it now in 2 year?

3) When we do try to re-mortgage, we'll need enough equity in the property. At least 10-20%.

So, I'm just after some general thoughts on this, would it be a good idea providing a contract is drawn up?

poppysarah

Normally when your mortgage company is being picky it is because they are not sure you can afford the mortgage.

I really wouldn't get into hock with a friend over such a large amount of money.

If you're having trouble getting a mortgage now then don't get one. Save like loonies and put yourself in a stronger position.

jaynes2326

I have no idea about property prices in two years time - you'll get plenty of opinions either way. However if you take this loan from your friend you would really want a private mortgage drafted. You can have included a clause that you will use 'your reasonable endeavours' in the future to remortgage 'on similar terms' with a high street lender and clear the private mortgage. This means that if you cannot remortgage in the future then you don't have to. Have a chat with the solicitor who will be acting in your purchase.

Be prepared for the solicitor to carry out money laundering checks on your friend.

Be prepared for the friendship to be affected! It is usually not a good idea to mix friendship and money. Be very sure that your friend takes independant legal advice.

Good luck.

m_13

Whilst it's kind of your friend to offer I'd avoid borrowing money from friends as if things go wrong it's very difficult to recover from.

I wish you luck

pinkshoes

If the house is £82,500, and you've only got an 8% deposit (so £6600), then I'd say you're probably not ready to be buying a house yet!!

Borrowing from anyone other than a professional lender is a bad idea, so don't do it.

As for only having 2 years of accounts and thus getting a rubbish mortgage deal, why not just save up for another year, have 3 years of accounts, and get a better mortgage deal?

hethmar

Never borrow from friends - especially a huge amount of money like that. Wait a bit longer, save a bit more or look at cheaper houses.

littlened

pinkshoes wrote: »

If the house is £82,500, and you've only got an 8% deposit (so £6600), then I'd say you're probably not ready to be buying a house yet!!

Borrowing from anyone other than a professional lender is a bad idea, so don't do it.

As for only having 2 years of accounts and thus getting a rubbish mortgage deal, why not just save up for another year, have 3 years of accounts, and get a better mortgage deal?

1) we've got a 20% deposit, the house is 82500, and we have a mortgage of 66000, which is 80% of the purchase price.
2) We want this house, it's a bargain, and there's literally been anything like it on the market in that price rang.
3) We want to start a family, and don't want to wait another year to move house.

I get the gist that this generally isn't a good idea so I'll knock it on the head and continue with the mortgage we have and see if we can satisfy their needs.

hethmar

Have you tried a broker rather than just one provider?

poppysarah

Is the house a repo?

linniebabe69

Hi, im new to this mortgage business and know very little about it to be honest which is why i am seeking help and advice here but borrowing from a friend is recipe for disaster.

I feel you may need to think about it as if you came into difficulties with your repayments, you need to consider the repercussions of

a) how you are going to pay it back

b) where this leaves your friendship

c) how it will affect and impact upon your friends life if you dont repay it back in the specified time

it is too much of a big commitment and could leave you in a mess, in the middle of a legal arena with added charges and promote stress and undue pressure

i know all of these points are negative and i can totally understand how the offer would be tempting as you really want your house BUT alarm bells are ringing...i have seen similar before and that was within a marriage and it blew the two people involved apart.

please dont do it, wait a little longer xxxxxx good luck xxxxxx:A

SouthCoast

Run away.....................FAST.