House Purchase - Mortgage and Family loan Complexities.

Spamsteiger

This is a first post on this forum as I’m seeking some advice on a forthcoming house purchase which is more complex than most.. I will try and summarise in as little text as possible to avoid confusion (and sending readers to sleep!)

Essentially it’s a new build purchase, we are due to exchange contract in 3 weeks and have a Mortgage offer on the table from a lender. Our solicitor is aware that to fund the purchase and complete in March next year we will require to borrow funds from a close relative, this is required for the Stamp duty payment / legal fees (as this is a 2nd property and we are required to pay a hefty stamp duty fee.) We have enough funds for the deposit and the mortgage covers the purchase price.

Our close relative has drawn up a agreement with his and our solicitor undertaking the purchase which states that it is not repayable until we sell our existing property in circa 2 years time and the loan would need to be repaid once we sell our current property and not before. Even if this is delayed further we will not be required to return the funds until the property is sold and we have released funds. We are planning to rent this current home in the short term and sell within 18 months to claim back the higher stamp duty rate. The agreement I know states it is to pay for Stamp duty / legal fees and furnishings.

We must position it as a loan and not gifting as this will have tax implication on the Relatives estate.

Our solicitor has stated they are obliged to inform the lender about the contribution of the loan (despite the monies not contributing towards the purchase price nor the loan impacting on our ability to repay the mortgage on a monthly basis). The solicitor has subsequently sent the loan agreement onto the lender although frustratingly it was not sent prior to either myself or my family relative for viewing to check the wording!)

We are currently awaiting their response but my financial advisor has raised concerns about their likely response.

Personally I was not aware that the solicitor is legally obliged to inform them of the loan as it is not directly linked to the purchase price and the close relative would not clim share or interest on the property.

What i would like comments on are…..

What is the likely response from the Lender? (Pull the offer immediatley / request that a loan can not be contributing in anyway and must be stated as a gift regardless if it is being used for stamp duty / fees / furnishings? / demand the agreement includes certain terms / agreements to protect themselves?)

It is possible we can proceed without this loan if the lender deems it to be an issue, although this would be a costly last resort and involve remortgaging a BTL property to release equity which is only 2 years into a 5 year fixed rate mortgage.

Thrugelmir

Spamsteiger wrote: »

Personally I was not aware that the solicitor is legally obliged to inform them of the loan as it is not directly linked to the purchase price and the close relative would not clim share or interest on the property.

The solicitor represents the interests of the mortgage lender. (Just happens you are paying their costs). Therefore is required by the nature of their professional code to duly inform the lender of any material facts/information.

They could claim recovery of the debt owed that's the issue. My word is my bond has no bearing. As there's an enforcable legal contract in existance. Trumps matters hands down.

To put matters into context how much are you being lent?

Spamsteiger

I believe the letter sent to the lender states that the amount would not be payable until our current residence sold and there are no monthly commitments or interest payable. Effectively a unsecured bridging loan. This would be signed by all parties.

Amount is Circa £30k

Tom99

Is there a 3rd property involved ie the one you are living in at the moment, or are you living in the the property this £30k loan is on?

What is the reason you need to own this property for the next 2 yrs?

If you are living in it then your mortgage offer on the new house would normally be with a condition you sell your existing house and redeem the mortgage on it. Or have you explained to the new mortgage co that you will be retaining this house?

Spamsteiger

The loan is coming from the relative,

The current property would be sold and from this there is sufficient equity to repay the £30k back. We are trying to sell although do not expect a sale hence why we are planning to rent it for up to 2 years as an alternative.

Yes there is a 3rd property we can draw additional £30k equity from although this is a last resort, due to penalty charges on remortgaging.