Legal Advice Required.

shaz77_2

Hi All,

I am currently in the process of buying a house, however due to me being unable to meet the full 30% deposit required my brother has invested a one off lump sum which will give him a 20% share in the house.

I have a mortgage taken out on the property and my brother is registering a charge to protect his 20% investment within the property.

My brother would like the property sold within in 12 years and for him to receive 20% of the sale amount after expenses and he has also indicated that if he dies between now and then he would like me to take ownership of his 20% share. How can these two clauses be include before the purchase of the house is complete?

Thanks in advance.

G_M

Your mortgage lender may be unhappy about a 2nd mortgage being registered on the property.

This aside, you need to get a solicitor to draw up an agreement between you and your brother specifying the terms of the agreement. Because of the charge I would advise discussing this with your conveyancing solicitor.

shaz77_2

G_M wrote: »

Your mortgage lender may be unhappy about a 2nd mortgage being registered on the property.

This aside, you need to get a solicitor to draw up an agreement between you and your brother specifying the terms of the agreement. Because of the charge I would advise discussing this with your conveyancing solicitor.

Thanks, however there will only be one mortgage on the property and that will be the one I take out, my brother's is making a separate lump some investment that is not from a mortgage.

G_M

my brother is registering a charge to protect his 20% investment within the property.

Same as a mortgage!
He's lending you money, and gets rights over the property till the money is repaid.
The bank is also lending you money, and gets rights over the property till the money is repaid!

sonastin

If, godforbid, the bank reposses your property, they won't be happy that they have to pay your brother 20% of the sale price. Are they aware that your brother is putting this charge on the house? If you are trying to do it without telling them, it might prevent you from getting your mortgage.

silvercar

sonastin wrote: »

If, godforbid, the bank reposses your property, they won't be happy that they have to pay your brother 20% of the sale price. Are they aware that your brother is putting this charge on the house? If you are trying to do it without telling them, it might prevent you from getting your mortgage.

The mortgage lender will have first charge on the property and your brother second. That way if they repossess they have first dibs on the money.

The only thing that could prevent you getting a mortgage in this way, is if the lender asks if you have borrowed elsewhere to raise the deposit. These days it is more common for people to borrow from family to fund a deposit, so it won't be unusual, though some lenders prefer the borrower to show evidence of being able to save the deposit themselves.

shaz77_2

I spoke with my solicitor, he has advised that the Mortgage lender will have first rights on the property should I run into trouble, after this the preferential creditor,e.g. the revenue and third my brother with his "Registered Charge", will this be acceptable to the bank?

Annisele

It might be acceptable to the bank, but will it be acceptable to your brother?

Say you're buying the property for £100k, you put in £10k, and your brother puts in £20k with the idea that when you sell, he gets 20% of "the sale amount after expenses". Your brother will have a second charge.

If house prices go down 30% and you sell for £70k, then your brother gets nothing in return for his £20k.

If house prices go up 30% and you sell for £130k, then your brother gets £26k in return for his £20k.

So - his money is at a fair amount of risk. Are you both sure that's what you both want?

shaz77_2

Annisele wrote: »

It might be acceptable to the bank, but will it be acceptable to your brother?

Say you're buying the property for £100k, you put in £10k, and your brother puts in £20k with the idea that when you sell, he gets 20% of "the sale amount after expenses". Your brother will have a second charge.

If house prices go down 30% and you sell for £70k, then your brother gets nothing in return for his £20k.

If house prices go up 30% and you sell for £130k, then your brother gets £26k in return for his £20k.

So - his money is at a fair amount of risk. Are you both sure that's what you both want?

I've probably misunderstood one of your points, however if house prices go down by 30% my brother would still get £14,000.

poppysarah

Doesn't sound like a smart plan.

If the bank says you need a 30% deposit then save and wait for prices to fall! That's what they're factoring in - they don't want to lose money...but chances are your brother will.

Fees for selling will gobble up a lot of money too.

silvercar

shaz77 wrote: »

I spoke with my solicitor, he has advised that the Mortgage lender will have first rights on the property should I run into trouble, after this the preferential creditor,e.g. the revenue and third my brother with his "Registered Charge", will this be acceptable to the bank?

It only needs to be acceptable to the bank in terms of the mortgage application. Will they be happy that your brother is providing a lot of the deposit? Some banks will require any family money to be gifted rather than loaned. This is so that they are confident that you can afford the repayments to the bank and any repayments to your brother.

The existance of a registered charge should not be a problem as the bank's charge always comes first. (If they did get funny, you could always register it a month after you bought, once the mortgage is already in place).

The only problem is if you fall out with your brother and need to remortgage. With a charge in place the brother needs to agree a deed of postponement if you changed lenders.