Advice on Second Charge

LisaOnline

I am a first time buyer and am quite far down the road of purchasing my first house. Unfortunately, I have hit a road block.

I am in the fortunate position of being able to borrow some money from my brother to put towards my deposit.

The purchase price is £158,000. Total deposit is £51,000 split £47,700 from my brother and £3,300 from me. I have very little scope to increase my share as I have to budget for solicitors fees etc.

He has asked that we have a written agreement and I am happy to do this. His solicitor has recommend he has a second charge on the property for the 30% invested. I will not pay him anything until the property is sold then he will get his original investment back subject to a proportional profit of loss from the sale.

The mortgage lender has rejected the second charge. I am yet to have full details as my solicitor only advised by yesterday.

I find this frustrating because I advised my mortgage broker of the situation before I applied for the mortgage so expected the lender to be comfortable this arrangement. I later discovered this was not the case.

I have now spent money on progressing the sale only to find out I may not have a mortgage. Having read some other posts, it is now apparent that lenders don't like the idea of a second charge.

If the property does get repossessed, they will be first in the queue to get their money back. Why is lender uncomfortable with this arrangement?

Does anyone have any suggestions of what I can do that might help me sort this out with the lender?

I know very little about mortgages so any advice would be welcomed. I'd really like a new home for Christmas!

Many Thanks.

BitterAndTwisted

A second charge on the property may not be the only device your brother could use to protect his investment. Speak to your solicitor about drawing up a Deed of Trust or something similar

DVardysShadow

LisaOnline wrote: »

.... If the property does get repossessed, they will be first in the queue to get their money back. Why is lender uncomfortable with this arrangement?

Lender is probably uncomfortable with this arrangement for 2 reasons

• Second charge means that in the event of a failure to pay and a repo, they now have to take into account the nee to pay off another charge holder
• Giving brother a charge on the property turns him from a part borrower to a part lender. Your loan to value becomes about 98%, which is far too high

BadgerFace_2

I would say it's not the fact that you are going to have a second charge on the property...it's more to do with the fact that you have just declared to the mortgage company you only have a 2% deposit, they will have nothing to do with this, unless the money was declared as a gift.

LisaOnline

Thank you all for your comments.

I'm in a bit of a lose-lose situation. Can't afford to buy on my own and can't buy with the help of my brother. Just seems a bit unfair.

Will see if my solictor can offer any helpful advice tomorrow....

silvercar

If a second charge was put on the property after you had bought it and moved in, there is little the lender can do. Lots of people take out home improvement loans and second mortgages after living in a property, I don't think the first charge holder needs consulting.

BadgerFace_2

silvercar wrote: »

If a second charge was put on the property after you had bought it and moved in, there is little the lender can do. Lots of people take out home improvement loans and second mortgages after living in a property, I don't think the first charge holder needs consulting.

That would be fine, but technically illegal as you would have to lie about the source of deposit.

BUT, if you want my honest opinion, this is what I would do- I would say it was a gift from my brother, then sort it out after I'd been in the property a couple of months. In my eyes, it's no different to shared equity, which is not illegal.

The problem you have is that if the house price fell by a couple of % over the next couple of months or years, you now have a house worth £150k, with £155k of borrowing against it. Which isn't too clever and is why the bank asks for a decent cash deposit.