Helping out a friend - what are the risks ?

quixonte

Hi All,

Looking for some advice, so appreciate your thoughts here.

A friend and his partner are trying to buy a flat, but have had their mortgage offer declined. Its down to the poor credit rating my friend has, not down to defaults. He's recently left uni and has started working and runs his own business. Never had anything on credit before.

His partner doesn't have a high enough salary to purchase the flat on her own.

What would be the risks if I take the mortgage out with his partner ?

The obvious one would be that I am liable for the mortgage as well, and failure to pay would affect me and my assets ?

I would be added onto the flats ownership paper work (it would be just his partner and I)

The flat is a new build (off-plan) and they will be putting down a 25% deposit. So, the flat will have some reasonable equity.

The plan would be in two years time when he has some good audited accounts, he would be able to remove me from the mortgage (how would this work ?)

Also, are there any other options ?

Massive commitment and a whole lot of trust involved....

Thanks
Q

beecher2

My advice would be - don't do it as it sounds like a huge risk. Why can't your friend just wait two years until he has good audited accounts and then buy? If he's just out of uni, there's no guarantee that his business will survive, let alone be profitable.

On top of this, new builds lose value immediately so you have no guarantee that the LTV will be low enough to get a new deal.

You also don't know what the lending criteria will be in two years time - you risk being stuck on this mortgage while you want to get on with your own life.

What happens if they split up - your friend isn't even on the mortgage so can simply walk away, leaving you and the ex with all the responsibility

I can't see why you would even think about doing this to be honest.

quixonte

Should have added this before - they can't wait as they signed up to buy the flat during constuction, so are worried the builder will start legal proceedings if they don't go through.

beecher2

Seriously - don't get involved! You sound like a good friend, and it is a shame they've been caught out but it is crazy to conclude missives without a mortgage deal and I think it would be mad to try to bail them out. What is their solicitor advising them to do?

firstaspect

I really wouldn't risk it. As you say, you are making a massive commitment with a lot of trust. What if your situation changes, you want to take on a mortgage elsewhere, fall out with the friend, the friend and partner split up and the partner scarpers leaving you to pay everything. When money is involved even the tightest friendships can collapse, I really would advise against it.

quixonte

This is eating me up inside.....

What if, its changed to a buy-to-let and I have sole ownership ?

Thrugelmir

quixonte wrote: »

This is eating me up inside.....

What if, its changed to a buy-to-let and I have sole ownership ?

Why's it eating you up? Not your problem to deal with directly.

As others have said why take the financial burden and risk upon yourself.

Yogibear

I wouldn't do it my friend too risky good advise from previous posts,but at the `end of the day` it`s your decision maybe your friends are pressuring you trying to make you feel guilty a wee story which may help: my friend who I have known for over 22 years an ex-policeman introduced me to a caravan park to buy a caravan he was going to get £750 we arranged to split the money as we were going to buy a static caravan anyway,he didn't get the money but muggins here fought tooth and nail to get the money he got it last month did I get half did I hell the miserable swine kept it didn't even tell me he got it:mad:I found out from the sales office, now he refuses to answer my calls.

CloudCuckooLand

They need to check what they have signed. If its only a "reservation" it will not be as bad as if they have "exchanged contracts".

Totally mad people if they have exchanged contracts without the certainty of funding. They should ask their solicitor whether they (the solicitor) has professional indemnity cover for the poor professional service they appear to have received.

Your existing mortgage may well inhibit your ability to pass affordability checks anyway;
http://forums.moneysavingexpert.com/showthread.php?p=20346861&highlight=#post20346861

Steer well clear - unless you are very rich, so don't mind having your credit ruined and being unable to re-mortgage whenever its next necessary - seriously.

firstaspect

quixonte wrote: »

This is eating me up inside.....

What if, its changed to a buy-to-let and I have sole ownership ?

Do you already have a mortgage?
You may not even find a lender that will give you a mortgage to help out your friends if you do unless you have a large income.

I expect your friends have only put in a reservation, I doubt any solicitor would allow exchange of contracts without a mortgage offer in place so it shouldn't be too bad if they pull out.

supercat92

Think its a noble thing to even think of doing but its not worth the risks