Deferred repayment loan to friend

Tom_T

A friend lost 50% of his savings overnight due to Brexit. That is true and easy to verify as I know the company.
He had been encouraged to put his savings into shares in the company he works for.
That seems a lot more common than I thought. I think M&S do it??
The shares have come up about halfway but there is no sign that they will regain their previous worth. They are connected with building materials.
Now is the best time for him to get on the property ladder if he's ever going to manage it.
He has 2 kids a girl & a boy so needs min 3 beds.
I said I could loan him the missing 25% on a delayed repayment 0% plan to help with the deposit because in 18 months his wife will qualify in a medical job and her earnings will increase substantially.
Now his mortgage advisers are telling him that I must gift him the money and he can repay me IF he wants.
I can't afford to give him it. I was prepared to stretch to help him out until she was earning more and that's as certain as most things can be.
I don't understand why if most of our University Education system can acknowledge deferred loans the mortgage deposit arrangements cannot.
The other alternative could maybe be where I gained a tiny percentage 3% share in his property becoming a creditor rather than a joint owner incase of his insolvency. That would mean he could buy me out as soon as he could afford it but that it would means he has some small legal fee to pay.
Truly I think the mortgage company which is effectively Royal Bank of Scotland could be a lot more helpful and imaginative to assist people. After all the have had tons of our public money and are supposed to be helping people get on the ladder.
Any helpful information or advice gratefully appreciated.
This is getting urgent to straighten out now.
Thanks.

-taff

If you don't give him the money as a gift, his affordability will mean he will get less money, because you are loaning him money. Banks don't work that way, I don't think they ever have.
No bank is supposed to help epople get on the ladder, they are there to make money. Your friend is a risk if he has two loans to pay back, yours and the mortgage, so it's less likely he'll get the mortgage.
If you go on the mortgage with him, if he fails to pay it, you are equally liable for the whole of the mortgage.
He might as well wait until his wife is qualified, and in the meantime, save a bigger deposit.

Tom_T

Crickey that was fast where were you? Now looking under bed & worried��

-taff

Just got home from work, first post I read....

And I can smell your fear......

Tom_T

That'll be the socks I'm afraid!.

Seriously yes I am concerned of course. This "gift" is not what I offered. Also it bothers me that the banks & co are so easily able to mess us about and create limitation where they should be assisting fair, sensible opportunity.
You have acted to aid government forum to make new assessment.
I a way I am asking more than one question.
There is a lot of stuff I don't know. So I'm asking about that.
There is some stuff I am finding out so I'm offering that and asking some other questions.
Hopefully the result could be some gain somewhere for someone.
These sorts of forums can help inform just as they can support the cynical status quo if they don't question. aka banks and government.
By the way I've got my cricket bat out now so ready for anything hiding under the bed!
Have a safe day ��

gycraig_2

Tom_T wrote: »

That'll be the socks I'm afraid!.

Seriously yes I am concerned of course. This "gift" is not what I offered. Also it bothers me that the banks & co are so easily able to mess us about and create limitation where they should be assisting fair, sensible opportunity.
You have acted to aid government forum to make new assessment.
I a way I am asking more than one question.
There is a lot of stuff I don't know. So I'm asking about that.
There is some stuff I am finding out so I'm offering that and asking some other questions.
Hopefully the result could be some gain somewhere for someone.
These sorts of forums can help inform just as they can support the cynical status quo if they don't question. aka banks and government.
By the way I've got my cricket bat out now so ready for anything hiding under the bed!
Have a safe day ��

You almost seem annoyed that a company who is going to loan your friends hundreds of thousands of pounds would be a bit wary about who they do this to.

The deposit scheme is in place to make sure people can raise certain funds before buying a house to show responsibility. If you neee to borrow the small deposit needed in the vast majority of cases you can't afford the house.

You are debating whether to lend your friend money who you know personally but are annoyed that banks have strict lending criteria ?

Pixie5740

If you want to own a share of the property then you will need to go on the mortgage with your friend meaning each of you will have joint and several liability for the whole mortgage. If you already own a property then you (plural) will have to pay the additional 3% SDLT.

Very few mortgage lenders (I can only think of one and it's not part of the RBS group) will allow more people to be named on the deeds than the mortgage which is very sensible from the lenders point of view. If the borrowers default on the loan the lender wants to be able to sell the property to recuperate their money, they don't want someone named on the deeds but not the mortgage blocking the sale.

As you've already discovered, lenders do not like borrowed deposits. Gifts are acceptable but you could be asked to sign something from the mortgage lender to confirm that it is indeed a gift and not a loan. Then you'll be up !!!! creek without a paddle should your friend be unable or unwilling to repay you further down the line. Why would lenders want to lend 10s if not 100s of thousands of pounds to people who haven't been able to save a deposit and have to borrow more money to do so? Remember what the mortgage market was like in 2007? Is that really what you want to go back to.

You might want to consider something like the Barclays' Family Springboard Mortgage. I'm not sure if it would be suitable since you're a friend rather than family but it's worth looking into. Other than the options are:

1) You gift the money to your friend and hope he pays it back.

2) You don't lend your friend the money and he cuts his cloth accordingly.

Pixie5740

Your friend hasn't lost his savings because they weren't savings they are an investment. Investments go up and down so they might recover, you never know. Furthermore, when companies have share schemes for their employees they often offer matching shares so your friend might not have lost all the money he put in. For example, my company offers 2 free shares for every share I buy so if I invest £1,000 I end up with £3,000 of shares. So even if the share price drops to 50p, I'm still better off than if I had invested nothing.

Tom_T

Interesting point. Truth is I offered to loan my friend under very fair criteria that I think are sensible because his family will increase their earnings.
It is his mortgage advisers/bank who are telling me that I must now make this a gift not a deferred loan after they had agreed the mortgage. I think it's because they never thought of that and can't be bothered to. So yes I guess I am very annoyed with them for that.
I was quite clear. And there is precident for recognition that qualification increases income.
Instead of accepting my limitation and working with that this Bank are putting me under pressure to find an easy way round an issue instead of either limiting my friend at the outset or considering updating their policy to include deferred loan on the basis of that future increase in income that students are encouraged to accept.
Obviously I haven't been there for key conversations and people especially some sellers push things where they want them to go.
This has gone wonky but it seems it's the bank pushing me to accommodate them more than anything else. So yep def bit cheesed with them.
Actually that been quite a helpful question/observation cos I hadn't understood why I was annoyed so well. Thanks.

Tom_T

Thanks for the suggestions, I'll try to investigate and passing on.
Increasingly it seems likely that the bank didn't properly assess the deposit before making my friend an offer that he then acted on.
The result is that the bank limitations have been applied after the event and I am being asked to make a commitment with much more serious implications for both me and my friend because of that lack of care. Or something like that.
It is curious how this kind of exchange can be helpful, if not as helpful as a conversation, my eyes are going now. Gonna have to leave it for a bit but thanks to those who make helpful comments.
Somehow I'm going to have to have a conversation with my friend today.
At the moment I'm only too aware that his family's future could be affected very much by whether I can stretch beyond what is sensible for me.
It's quite easy to say harsh things about him and me from a distance.
It's another thing to consider his kids and their future.

Tom_T

True share investment is share investment.
Also true that for many people in that company the immediate effect of Brexit was and the subsequent effect still is quite a shock. Nobody saw it coming.
As far as I can tell Martin's advice is buy now if you poss can???
People's ages can make a difference too.