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If i was a lender...

jph101
Posts: 9 Forumite
A friend of mine wants to buy a house. I have no problem lending her the money but i do wonder if i would get the money back, may be she was to die, may be she got into debt and sold and didnt repay me. No that i think any of these things will happen its best to be prepared for anything. Can i take a first charge on the property and act as a mortgage provider? Is this contract equal with bank mortgages? No other money from anyone else will be used to buy the house.
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Comments
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Maybe if you employ 50 people to act as a compliance department?
What if they stopped paying you back - are you going to pay for a solicitor to take them to court?
What about being registered and audited by the FSA, could you cope with that?
Can you accurately calculate their mortgage balance, taking account of daily/monthly interest, changes to payment dates?
What im trying to say is it will be complicated, you will not have the same rights as a lender (and a lot less ability to enforce any rights) and it will be very difficult.
Lending money to friends is fraught with problems, however you do it. Lending them enough to buy a house is asking for trouble.
Gary.0 -
You should be able to take a first charge over the property.
As you say it is best to be prepared, life insurance is pretty cheap but the chances of her dying during the term are pretty minimal. She's a lot more likely to lose her job or become ill and unable to work. Friendships become pretty strained when things relating to money go wrong.
In theory it would work in same same way as a bank mortgage however banks have iron clad terms and conditions which cover every eventuality. It might be worth speaking to your solicitor to see if they could use a bank offer letter as a template so you are covered.
There are a lot of questions you need to think about. What interest rate will you charge? how will this vary as rates go up? is she putting in a deposit? are you expecting any share in any growth in the value of the property?0 -
Thanks jimbo, i was just going to get repayed after ten years, either she would get a mortgage or it would be sold, and i would take five perent of any profit she makes. The house is being bought way below market value and thats after prices here have tumbled by sixty percent in the last three years.0
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5 percent of a profit - very bad investment if I understand it correctly. example:
Current price: £100K
After 10 years, say the price is: £200K
You get back you £100K and 5% of £100K (£5000).
This is similar to putting your money in a fixed savings account for 10 years on a rate of 0.5% annual interest rate.
If you are not doing this for money but for friendship, then its your choice. However if you are doing this as an investment, its BAD deal.0
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