Is this possible? Helping family

JJM100200

Hi first post. I believe this forum is the place to go for advice and to sound out an idea before I waste my time seeing a solicitor or spending money on an idea that has no legs etc.

I would like to help out a family member who has fallen on hard times and unable to get a mortgage due to various very bad credit related decisions and foolishness.

I am looking to sell my house as my circumstances have changed for the better (got very lucky) and moving to a boat (life time dream).

The rough idea is (if possible and legal). My small terraced house is owned by me with no mortgage and is valued at £70,000 (2 estate agent valuations) My preferred selling point is £65k+ though I would consider any offer on the open market over £60K. My family member is unable to raise the money from traditional lending sources.

Would I be allowed to sell the house to him for £60,000 and then enter in to a private mortgage between me and him (if that is the term) i.e. they pay me direct in instalments? or I raise a charge against the property for the balance etc if they sell it for example. I am in no rush for the money (Like i say I am lucky).

Not sure what the best option is to help them and that is where you guys I hope can help me weigh up the pros and cons. What ever option I take I want it to be legal so please identify any tax implications or charges i need to be aware of.

Thanks.

ThePants999

Yes, nothing illegal about a private mortgage. (FWIW, since you're doing them a massive favour with the private mortgage, I wouldn't be giving them a £10K discount on top of that!)

Make sure you
- agree everything, from the interest rate and the conditions under which it'll change and how much by, to whether they can take a payment holiday, to whether they can change the term, to what happens if they don't pay - I recommend you look through the T&Cs of an actual mortgage for all the sorts of things you should consider
- put everything in writing
- register a charge on the property (using a solicitor) so that the debt is properly secured on the property.

Please do understand, though, that it is extremely common for friends and family to fall out over financial matters. If you do this, you are putting your relationship with this family member at severe risk.

Jenniefour

JJM100200 wrote: »

Would I be allowed to sell the house to him for £60,000 and then enter in to a private mortgage between me and him (if that is the term) i.e. they pay me direct in instalments?

Yes, you could do that, perfectly legal.

But............."and unable to get a mortgage due to various very bad credit related decisions and foolishness." - this should give you pause for thought. You might be the next person who's on the receiving end of his poor money management/decisions.

Buy your boat, keep your spare money in case you ever want to get a home back on dry land (or other things you might have plans for) and stay lucky.

JJM100200

Jenniefour wrote: »

But............."and unable to get a mortgage due to various very bad credit related decisions and foolishness." - this should give you pause for thought. You might be the next person who's on the receiving end of his poor money management/decisions.

Buy your boat, keep your spare money in case you ever want to get a home back on dry land (or other things you might have plans for) and stay lucky.

I can see where you are going with that one and you are not the first person to say it. However, the reasons for the poor credit is something we could all fall foul of. He never protected himself while in love ran up debts/credit lines they split and he was left holding a shed load of relationship debt as it was all in his name that he defaulted on. Like I say foolish and bad decisions more than being poor with money.

My current position is that I could own the boat and a house at the same time. My plan for the next few years is purely the boat I do not want a house. I do not plan to be in the country much over the next few years. My passion is boats and that is where I see myself for the rest of my life unless illness or old age puts me in a care home.

Thanks

Cakeguts

My advice on this would be don't. You have to also think of this from the point of view of the relative. You don't want to put him into a position where he can't maintain the house or he can't clame some benefits that he might need. He would also have to sell it and live on the rent if he wanted to get a retirement property.

JJM100200

ThePants999 wrote: »

Yes, nothing illegal about a private mortgage. (FWIW, since you're doing them a massive favour with the private mortgage, I wouldn't be giving them a £10K discount on top of that!)

Make sure you
- agree everything, from the interest rate and the conditions under which it'll change and how much by, to whether they can take a payment holiday, to whether they can change the term, to what happens if they don't pay - I recommend you look through the T&Cs of an actual mortgage for all the sorts of things you should consider
- put everything in writing
- register a charge on the property (using a solicitor) so that the debt is properly secured on the property.

Please do understand, though, that it is extremely common for friends and family to fall out over financial matters. If you do this, you are putting your relationship with this family member at severe risk.

thanks for that. I will arrange a chat with a solicitor asap to see what they advise. Do you know what the situation is with tax on this type of arrangement?

Do you know if there are any restrictions on accepting services in lieu of payment? My family member is a marine electrician we are a family of boat people and potentially will do a lot of work on my boat project. Potentially I would consider works in lieu of some payments etc. If this has legal implications I would not go down that route and would insist on the cash payment instead and then pay him to do the works etc.

I accept that I may not get all of the money back. One other option is to just gift the house to him but again I do not know about the legal or tax Implications. If I gifted it to him I would expect him to do a full restoration on my boat though lol.

JJM100200

Cakeguts wrote: »

My advice on this would be don't. You have to also think of this from the point of view of the relative. You don't want to put him into a position where he can't maintain the house or he can't clame some benefits that he might need. He would also have to sell it and live on the rent if he wanted to get a retirement property.

Could you expand on that please. These are the things I came to the site for all the things we need to consider.

I am sure and so is he that he can maintain the house he earns over £30K a year. He has been with his current employer nearly 10 years though only earning over £30K for last 2 years. He wants to buy in that area and has been trying to get a mortgage on other houses but has been declined due to the defaults.

When you say might not be able to get some benefits how would a private mortgage impact that compared to a high street bank provided mortgage?

I am fully aware that I may not receive all of the money back but to be fair I accept.

eddddy

As others say, it's all achievable. But when drawing up the mortgage agreement, you need to consider all scenarios.

For example, what if...

- He loses his job and can't afford to pay the mortgage until he gets a new job.

- Something very bad happens (an injury?) and he's unable to work for an extended period (or forever), so is unable to pay you.

- You and he fall out, and so he just decides not to pay you.

- He makes some more "foolish and bad decisions"


Also, from your post, it sounds like you will be giving him a 100% mortgage - so he will have 'no skin in the game'.

So if he decides to walk away after a few weeks/months - he will lose practically nothing.

Mortgage lenders generally like people to put some of their own money into a property (e.g. 10%), because it makes them much less likely to walk away from it.

Jenniefour

JJM100200 wrote: »

I can see where you are going with that one and you are not the first person to say it. However, the reasons for the poor credit is something we could all fall foul of. He never protected himself while in love ran up debts/credit lines they split and he was left holding a shed load of relationship debt as it was all in his name that he defaulted on. Like I say foolish and bad decisions more than being poor with money.

I'm not saying your relative is a bad person, I get what you're saying. But mixing money/property with family can go badly wrong and cause big relationship problems. Think about how you might feel if e.g., you ever need to evict your family member because he's fallen badly behind with payments.

My current position is that I could own the boat and a house at the same time. My plan for the next few years is purely the boat I do not want a house. I do not plan to be in the country much over the next few years. My passion is boats and that is where I see myself for the rest of my life unless illness or old age puts me in a care home.

Sounds brilliant.

Ask yourself why you're willing to take a punt with someone who may not be able to get a mortgage from an ordinary lender. If he can't get a mortgage on his own then your risk is higher. A bank/mortgage lender can withstand risks. You sound like a kind, generous person - make sure it doesn't backfire on you and put any serious dents in your own plans.

Addition - You and he could live in your house, he could be your lodger, do the boat up together in exchange for very low rent. Then when he's saved enough for a decent deposit and his defaults drop off then he can buy your house with a mortgage from an ordinary mortgage lender, and you can give him a bit of leg up with a discount if you want.

JJM100200

eddddy wrote: »

As others say, it's all achievable. But when drawing up the mortgage agreement, you need to consider all scenarios.

For example, what if...

- He loses his job and can't afford to pay the mortgage until he gets a new job.

- Something very bad happens (an injury?) and he's unable to work for an extended period (or forever), so is unable to pay you.

- You and he fall out, and so he just decides not to pay you.

- He makes some more "foolish and bad decisions"


Also, from your post, it sounds like you will be giving him a 100% mortgage - so he will have 'no skin in the game'.

So if he decides to walk away after a few weeks/months - he will lose practically nothing.

Mortgage lenders generally like people to put some of their own money into a property (e.g. 10%), because it makes them much less likely to walk away from it.

It is one of those situations where I am happy to take the chance with this particular family member. I have relied on them in the past and they have always come through, I trust them. However, I do agree with the saying you never truly know someone. So risk is always there I just think this one is a calculated risk I am happy to take.

In terms of the scenarios you present they could cause issues depending on how the deal is perceived from the outset. I would treat it as a business deal though I accept that it could go south. In some of the scenarios you present i.e. he can't work due to injury/illness I could afford to write off the debt. Would never tell him that upfront but it is something I could afford.

I think the deposit thing is a good shout as it puts some of his hard earned cash on the line.

JJM100200

Jenniefour wrote: »

Ask yourself why you're willing to take a punt with someone who may not be able to get a mortgage from an ordinary lender. If he can't get a mortgage on his own then your risk is higher. A bank/mortgage lender can withstand risks. You sound like a kind, generous person - make sure it doesn't backfire on you and put any serious dents in your own plans.

That is a good shout. I think it is that this particular person has done a lot for me over the years. I got my chance in life to get on the housing ladder by someone giving me a deposit. In the worst case scenario I could write the debt off, though I would not tell them that.

I suppose I could just gift them the property but I believe if i have understood the .gov.uk website properly i would have to pay tax and they could be taxed also if they sold the property at any point.