Legal Charge For Loan - Your Guidance Please

bankingonit

We've been rather silly and built up substantial debts on our credit cards. The banks are now killing us charging 25% interest (let's have the discussion some other time on the morality of this).

Very luckily a friend has come into some money and offered to loan us enough to zero the credit cards.

Quite reasonably she wants us to sign papers that take a legal charge on our house while we repay her a much more reasonable interest rate (about 8% above base - so she's doing OK out of it too).

By way of background - We live in the England, but we've got a self-cert, interest-only mortgage with an Irish bank that was secured by the state. Mortgage to property value is probably about 70%. We're not in a position to apply for another credit card or extend our mortgage.

I've been looking around the Internet for people's experiences with legal charges, but beyond court cases (clearly hoping we don't get to that!), surprisingly there isn't a great deal of info around.

We were wondering if the lovely people here could help?

Has anyone here had experiences with Legal Charges? What was it like?
Do the banks just say - yes that's fine - and ask no questions?
If they question, what do they ask?
What are their yes/no criteria?
Any other tips?

All guidance will be gratefully received. We're really keen to reduce the considerable press that we feel under from considerable monthly payment that we have to pay to the credit card companies (and yes, we now know how daft we were building up the debt to start with!)

Many thanks in advance.

Thrugelmir

If your friend has had papers drawn up. Then you should take independent advice by consulting a solicitor yourselves.

The second charge on your property that your friend is requiring merely secures the debt.

Conrad

Would be pointless giving a rough list of the criteria for a second charge that your first charge lender would accept. All you need do is contact your lender and see how it goes, simples. Why bother with research when it won't affect the lenders decions anyway, they will either decline or accept, period.

Personaly there would not be enough equity for me to lend to a freind in your position, and here's why;

1) Your valuation will almost certainly be over the top - owners always over value just as they over estimate thier childs singing voice / football ability.

2) If you got into serious troble and were repossessed you might well be very bitter and or somewhat not in full control of your senses, so it's par for the course for the owner to wreck the place to get back at the Bank. For example by removing all copper pipes and anything else that can be flogged. This would eat right into any equity as the sale price would go down.

3) The balif, police attendance, court, lender and lock smith charges can easily amount to many thousands

4) In the event of repo, you might have 18 months areas - so another few thousand

5) The property market might be very depressed


For these and other reasons I'd want at least 40% equity before giving someone the cash!

bankingonit

Thrugelmir wrote: »

If your friend has had papers drawn up. Then you should take independent advice by consulting a solicitor yourselves.

Good advice Thrugelmir, thanks. Had been thinking along those lines. Trust the friend, but I know solicitors can be quite tricky

bankingonit

Thanks for your thoughts Conrad.

Blimey! Glad our friend is less stringent than you!

On the valuation, we've been pretty modest on our estimates, but take your point. Particularly like your child's singing voice comparison.

We're asking as we always like to be prepared to know what to accept. So to be clear, there won't be a whole lots of (salary/situation) questions, just a Yes ... or No?

Thrugelmir

bankingonit wrote: »

Good advice Thrugelmir, thanks. Had been thinking along those lines. Trust the friend, but I know solicitors can be quite tricky

The "paperwork" needs to cover all eventualities. Your solicitor's role will be to look after your interests .