Second Charge?

mungoshrewsbury

We want to protect the cash gift we are giving our son to buy his first flat. I understood that a second charge (after the mortgage lender) would ensure that the cash balance of any sale could not be spent on fast cars or similar! The mortgage broker says that no lender will agree to a second charge (even though it only relates to any balance after their loan is repaid in full.)
Anyone had any experience please? Thanks.

kingstreet

I think it is fairer to say no lender advertises it will allow it. However, if you are saying this is a gift, a lender is going to be suspicious if you then want security over the property.

One of the clauses you will have to agree to on the gifted deposit letter is that "this gift is non-refundable and non-interest bearing and we will not retain any interest in the property whatsoever."

holly_hobby

That is absolute rubbish, in general of course lenders accept 2nd charges ... BUT as 1st chargee (if held with title restriction), the registration of a 2nd or subsequent charge is at the lenders complete discretion, so they can and do refuse requests.

In this case, ou have provided a gifted deposit to help your Son pch his home, which the lender has accepted as an unconditional gift. The attempted registration of a charge to proctect this "gifted" capital will somewhat give the impression that the donation was apparently anything but a gift (given that you want the sum protected in your name).

Lenders will not accept gifts that are conditional or in exchange for any beneficial rights to the property.

So whether he is yet to complete OR the mge has already completed, if you don't want the lender asking questions on the accuracy of this non-conditional gift, and possible withdrawal of mge offer or other action (if already completed), I'd steer away from any 2nd charge request - I can understand your concerns as a parent that you don't want him wasting this capital on frivilous things (should he sell the property), perhaps you could speak to him to alleviate your worries and put in place a trust deed instead ?

Hope this helps

Holly

PS - just noted post crossed with Kings. whom has picked up on the same issues.

kidmugsy

Hello, Holly. I asked about a second charge on another thread. Would you have any comment to add to the two I got there?
https://forums.moneysavingexpert.com/discussion/4575889

dimbo61

Have you looked at Offset mortgages with YBS and " Friends and Family" where you have a Linked offset account.
Now your Son will still need his own deposit of 15% but you can help reduce the amount of interest he pays

opinions4u

If the second charge is registered after completion there is little the lender can do about it.

Thrugelmir

opinions4u wrote: »

If the second charge is registered after completion there is little the lender can do about it.

Second charge cannot be granted without permission of first. As ranking of charges needs to be agreed upon.

Goldiegirl

opinions4u wrote: »

If the second charge is registered after completion there is little the lender can do about it.

In my time at the Halifax, prospective subsequent lenders would ask if they needed our permission to register a second charge.

We always responded 'no'. As long as we had first charge, we didn't really care who ranked below us. We'd get our money in event of repossession, so that's all we were bothered about.

However, in this case, the OP shouldn't be registering a second charge, as the money is a non returnable no strings gift. Once the money is given to the son, they should have no further interest in it.

holly_hobby

opinions4u wrote: »

If the second charge is registered after completion there is little the lender can do about it.

The only instance where the permission of 1st (or other) chargee is not reqd by LR, is if there is no restriction on title (which mge lenders include withtheir registration at LR), OR in the event of a charging order being appointed through the courts (which may be enforced without any chargee's permission, regardless if they have restricted title already in place).

So registration of a 2nd (and subsequent) charge will ordinarilly require the permission of at least the mge lender (whom always takes 1st chargee position) - to which the request can be, and is often, refused.

The only time permission is not reqd is if there is no title restriction - even then the 2nd chargee can't do anything (ie force sale) without 1st chargees agreement.

Which won't be the case here, as this is new mge borrowing, which will most certainly have restriction on title with LR to prevent such issues.

Regardless of which the issue we have is a reserved gifted deposit - which is not acceptable to a mge lender period - 2nd charge or no 2nd charge.

Hope this helps

Holly

holly_hobby

Goldiegirl wrote: »

In my time at the Halifax, prospective subsequent lenders would ask if they needed our permission to register a second charge.

We always responded 'no'. As long as we had first charge, we didn't really care who ranked below us. We'd get our money in event of repossession, so that's all we were bothered about.

However, in this case, the OP shouldn't be registering a second charge, as the money is a non returnable no strings gift. Once the money is given to the son, they should have no further interest in it.

How strange - given the above discussion re title restrictions (unless halifax didn't use them ?) ....

Generally speaking, requests are often refused if the lender believes in giving consent, it will increase their exposure on repossession. This may be because they believe the mortgagors increased borrowing will have an negative impact on they continuing to be able to service the mortgage and/or due to insufficient free equity - ie to repay the mge debt & plus arrears of payments, interest and legal costs resulting from any poessession order.

I don't for a minute dispute that this may be (or have been pre LLoyds) Halifax's stance, but it does surprise me given in my experience that the above is a general decision tree used by lenders - to take the attitude we have first charge so don't care about who comes next, is rather surprising given the above paramaters that can affect their security on forced sale.

Holly x

Goldiegirl

That was the reponse we gave at the time - I worked in a large service centre, so we did get quite a few enquiries of this nature.

It was felt that we couldn't actually stop anyone registering a charge of any sort, so permission wasn't needed.