Second charge on a house from family loan-what are their rights?

moneysavingnovice_1

Hello,
This is my first post on a forum but I can't seem to find the answer to my query anywhere...
Me and my partner have recently bought a house together which needs complete renovation (estimated cost of £10-£15k) Its a huge project but means that we will hopefully make a good profit on the house value and wont have to move for many years.
His parents are lending us the money to renovate the property, they have been very involved from the beginning and it was their suggestion that we buy the house as its a great investment.

They have been advised by their solicitor to place a second charge on the property when the renovation is complete for the total money that they have spent.
I know that this means they will be second to the mortgage lenders when the house is sold to get their money back, but it just seems slightly aggressive from what I've read, unless you are borrowing from a loan company.

What rights will they have? My only worry is that they will be able to dictate, as and when we sell the house, and how much for in the future. I just dont want to agree with something I'm not sure about and would appreciate any advice.
Many thanks in advance.

telboyo

If you read the thread on here about lending money to family and friends you will see why their solicitor is advising them as he is. Have you arranged a repayment plan with the lenders or are you going to pay them back upon the sale of the house. The reason for the second charge is so that when you sell the house the money owed will automaticalloy go to them. Otherwise what is to stop you from selling the house and pocketing the 15k and then denying the loan ever existed. If you find this generous offer of a loan why don't you go to a traditional lender and try for themony.

RDG

A second charge is to ensure they get their money back when the house is sold. It maybe as a percentage of the property or for the value.

Over that I do not believe they have any other rights unless they are specified in a seperate contact for the loan. However im no expert.

ryecatcher_2

When my then boyfriend, now husband and I bought a house together his parents insisted on a second charge too. One of their friends had loaned a significant amount to their daughter and partner to buy a house. The daughter and partner split but on sale of the house the ex insisted on taking half of the sale profits (back in the day when selling your house was at a profit!) so the parents lost out on half the money they'd loaned out to their daughter.

Given that we weren't married at the time and we were being loaned a significant amount of money I thought it was only fair that they secure their investment. Our second charge lasts 6 years so it is possible to put a time limit on these agreements.

They have no rights over our home beyond the security of knowing that their investment is safe - there's no element of making a profit involved as they'd simply get their money returned to them. In fact, given that they'd have gained some amount of interest if they'd placed the money elsewhere I'd describe it as a small loss.

moneysavingnovice_1

The other option I thought would be to draw up a loan agreement with the solicitors, I have no qualms with signing anything that states the money is not mine, my intention is not to run off with anything (in fact i have alerady signed a deed of trust to state that my partner has put more deposit in than me)

I just dont want to find myself in a situation down the line if we were to break up and sell the house, or move, they wanted to hang on to their investment and stop a sale going through.

Dont get me wrong its hugely generous and I wouldnt have dreamt of owning a house at my age without their help, I just need to know all the facts before I get involved in signing anything, and I wasnt sure on this one.

jonesMUFCforever

OP you may see it as aggressive but it is a damn sight cheaper than borrowing on a loan or mortgage?
Turn the situation around - how would you feel if you got ripped off sometime in the future.

As I see it you can decline their offer and get the finance elsewhere - your choice.

Judith_W

I know this can cause problems with mortgage companies etc having an additional charge against a property. I am getting a substantial deposit paid for by my FIL until my guaranteed inheritance comes through when I'm 30. Rather than adding a charge we are doing a separate legally binding agreement relating to paying back the investment.

moneysavingnovice_1

Thanks, think its best to try and get the second charge then, as long as the mortgage provider agrees, this protects their money and peace of mind all round.
I got scared off from another forum where an ex-husband was preventing a sale going through.
People do desperate things in desperate times!

opinions4u

guaranteed inheritance comes through when I'm 30

Hit man booked then?!!