Helping A Friend Buy A House

chrispepper1989

Hi,

I have a friend moving back from a different EU country (he has lived there for 2 years, but was previously born in UK and lived here for 30 odd years).

His dream of living abroad has somewhat turned into a nightmare and he has decided to come back. But it has crushed his dreams of becoming a homeowner. Principally because of the deposit he had saved up will have to be spent largely on moving back and also he won't be classed as a "UK resident" until he is living somewhere in the UK apparently.

I really want to help him out, I am fortunate enough to have some cash reserves myself and my current 'good life' situation is largely thanks to him.

I was wondering about a couple of options

1. Get him lodged with a friend (I don't have space) to get his UK residence and lend/give him some deposit money
2. Buy him a house under my name, have him rent (i.e. pay the mortgage) and then buy the house off me after length of fixed price mortgage

Option 1: I'm not sure how simply lodging would affect his Mortgage application, i'm guessing from an applicant point of view he would be better of renting, but cash-wise, 6 months of rent would really deplete his reserves. So it seems a bad start.

Also if I lent him the cash, rather than gifting it, I know he would have to declare this as a loan which may again, affect his mortgage application. I'm not sure I'm prepared to simply gift him the cash. But I suppose it depends on the technicalities of what counts as a 'loan', i wouldnt want monthly payments or interest. he could just pay me it back in say 2 years or something.

Option 2: This seems the more sensible option to me, but as I am already a homeowner and landlord, I'm not sure how easily I would get a mortgage. More importantly, I'm almost sure I couldn't get a residential mortgage? From memory, BTL mortgages require a more hefty deposit, so that would almost certainly rule that out too!

p.s. I know they say you shouldn't mix money and friends, but I've helped out friends before and its had its ups and downs but on the whole i'm happy to do it

davidmcn

chrispepper1989 wrote: »

he could just pay me it back in say 2 years or something.

Well, that's a loan, isn't it? What lenders are (mostly) expecting is a no-strings-attached gift. And they don't all accept gifts from unrelated third parties anyway.

I'm almost sure I couldn't get a residential mortgage?

If you're not living with him, no.

fairy_lights

Honestly both of those scenarios have the potential to get complicated.
Does he have a job lined up for when he returns to the UK?
Could you let him stay with you rent free while he gets back on his feet?

chrispepper1989

fairy_lights wrote: »

Honestly both of those scenarios have the potential to get complicated.
Does he have a job lined up for when he returns to the UK?
Could you let him stay with you rent free while he gets back on his feet?

On the job front, he has a few options, he will definitely have one before he returns, it's just a matter of choosing for him at the moment, fortunately for him, his skills are in high demand .

I wish I could put him up, as that would be a simpler option. But the two problems with that, I simply don't have space (I have 2 pets and 2 kids in a small 3 bed). He also has a wife and 2 cats! I'm asking around though, but it is a little bit strange to put your friends up with your mum for example haha.

I know they have potential to get complicated, and I was prepared for that, it sounds like they are total non-starters though .

Is it true as a none-UK resident he has no chance of getting a 10% residential mortgage?

p.s. I know what I mentioned was a loan, but I assumed that lenders were more interested in loans that lead to a financial burden... I wondered if in this case, it would even need to be declared? Would it be fraud to not declare it?

G_M

I was wondering about a couple of options

1. Get him lodged with a friend (I don't have space) to get his UK residence and lend/give him some deposit money
2. Buy him a house under my name, have him rent (i.e. pay the mortgage) and then buy the house off me after length of fixed price mortgage

Well the lodging idea is a good one as a srating point.

If you lend him money, don't just assume that as he's a friend it ca be done informally. Draw up a deed specifying how/when repayment is due, interest (if any) etc. And place a (2nd) Charge on the property he buys.

If a gift, don't expect it ack.

2.
You'll have to pay the aditional 3% SDLT
You'll need a BTL mortgage
You'll need to declare the payments he makes as income
You'll need to comply with all the usual tenancy regulations
You'l need a back-up plan for if he can't pay the rent( eg no job). Would you evict? Just pay the mortgage yourself? For how long?

chrispepper1989

G_M wrote: »

If you lend him money, don't just assume that as he's a friend it ca be done informally. Draw up a deed specifying how/when repayment is due, interest (if any) etc. And place a (2nd) Charge on the property he buys.

Yes that's what I have done in the past, draw up a proper contract, it's in the best interest of both parties (as far as the friendship is concerned)

G_M wrote: »

You'll have to pay the additional 3% SDLT
You'll need a BTL mortgage
You'll need to declare the payments he makes as income
You'll need to comply with all the usual tenancy regulations
You'l need a back-up plan for if he can't pay the rent( eg no job). Would you evict? Just pay the mortgage yourself? For how long?

Yer I figured as much, I think the average BLT 25% deposit is a killer there. The other extra complications I could work with