Can I offer my buyers a private mortgage?

gterr

We have a holiday home in Scotland (not our main residence) which our friends wish to buy. It would be their main residence, no longer a holiday cottage, but the husband would continue to work for periods of the year back in England. They need a small mortgage, but have been turned down because the address of the house they wish a mortgage for is too far away from the address of the husband's job.

We would be willing to lend them the money in the form of a private mortgage, so that they no longer needed to apply for a mortgage elsewhere. We would obviously get an agreement drawn up, and a charge on the house in case of default. But is this legal?

We do understand that there are risks involved in lending to friends, but we don't actually need this tranche of money for anything other than generating retirement income. If granting our buyers a mortgage is legal, and if we could agree an interest rate that matched what we might get by investing the money elsewhere, then we'd be happy to do this.

I'd be grateful for your comments on legality, and also whether we should set up and interest-only mortgage, or a repayment mortgage, and what interest rate (percentage above base rate??) might be fair.

Thanks for your time.

hamster2013

you can, from a legal point of view, lend monies to your friend for them to purchase your property.
make sure all is documented though -
the type of mortgage (interest vs repayment vs...etc) is up to you.
You are now entering the territory only you can manage - dependent on what your relationship is...

is a fixed interest rate something you want to offer? how will it play on your relationship if what you are offering is above what the market lenders are offering?

have you thought of the conditions to what happens if he loses his job? What about if he dies? Is there any backup there (surely you have to answer that legally - would you kick his wife out? Does he have children, would you kick them out if they are unable to pay the bills?)

secure yourself as prime lender on the property - what would happen if your friend gets into debt, or gets sued by the courts and they seize his property?

what are the implications on yourself on the tax? your 'interest' will be liable for tax... and what happens if you die? your loan is also subject to.... inheritance tax!!

there are 101 things and more to consider.
I would speak to a tax advisor and solicitor to ensure you have it all covered up