Loan between friends - Anything to look out for?

Andrew_Ryan_89

Hi guys,

Someone I know is lending another person £30,000 to keep his house from being repossessed. The agreement is for the total to be paid back over 4 years or the remaining balance in full when the house is sold. There will also be no interest payable, instead, that person gets to live in said house rent free.

I have been asked to have a look at the contract and have found a few free ones online. Just wondering if there is anything I may miss or should be aware of, especially with the interest free clause in exchange for rent free living.

powerful_Rogue

Andrew_Ryan_89 wrote: »

Hi guys,

Someone I know is lending another person £30,000 to keep his house from being repossessed. The agreement is for the total to be paid back over 4 years or the remaining balance in full when the house is sold. There will also be no interest payable, instead, that person gets to live in said house rent free.

I have been asked to have a look at the contract and have found a few free ones online. Just wondering if there is anything I may miss or should be aware of, especially with the interest free clause in exchange for rent free living.

Tell your friend not to do it unless they can afford to lose the whole amount.

Friends & loans is never a great mix. Just have a search of the forum to see the amount of horror stories.

warehouse

Whoever is loaning the money should be prepared to lose every penny and a friend to boot. If they can't afford to lose it all then they shouldn't loan it. There have been so many cases on here that it's very rare to see a loan paid back.

Start searching.

happyandcontented

Andrew_Ryan_89 wrote: »

Hi guys,

Someone I know is lending another person £30,000 to keep his house from being repossessed. The agreement is for the total to be paid back over 4 years or the remaining balance in full when the house is sold. There will also be no interest payable, instead, that person gets to live in said house rent free.

I have been asked to have a look at the contract and have found a few free ones online. Just wondering if there is anything I may miss or should be aware of, especially with the interest free clause in exchange for rent free living.

Don't do it.......

bris

30k, you need to get a second charge on the house for that kind of money, not doing so is madness.

powerful_Rogue

£30k over 4 years interest free is £625 a month. If they are already struggling and facing a repossession, how are they going to afford £625 a month?

What are the repercussions if they say "I can't afford it this month?"......

As bris pointed out, if they are crazy enough to go ahead with this, then a second charge on the house is most certainly required.

Also, unless you are a qualified solicitor, I would be getting the person that wants the loan to get an agreement sorted by a qualified solicitor, not a mate.

Andrew_Ryan_89

powerful_Rogue wrote: »

Tell your friend not to do it unless they can afford to lose the whole amount.

Friends & loans is never a great mix. Just have a search of the forum to see the amount of horror stories.

Friend ironically was in a similar situation. Borrowed money for a business venture that went wrong and the bank repossessed his property. When the house was sold, despite having a value of £300k+, he ended up walking away with £80k after the debt was cleared, bank fees and the fact it was sold below market value. He has no family, no job and too old buy another house and start again unless he plans on moving to Blackpool or something.

He has been living rent free for the past 18 months now and it suits him. He's not by himself, doesn't have to pay rent for a property he is just living in and he is close to his other friends.

In regards to him getting his money back, it is near certain. First situation if the house does not sell quickly, he has two people (the lender and the lenders child) who both have decent jobs which make the repayments a somewhat small expenditure for them. Secondly, the house sells (it is up for sale now) and he gets paid back in full.

powerful_Rogue

Andrew_Ryan_89 wrote: »

Friend ironically was in a similar situation. Borrowed money for a business venture that went wrong and the bank repossessed his property. When the house was sold, despite having a value of £300k+, he ended up walking away with £80k after the debt was cleared, bank fees and the fact it was sold below market value. He has no family, no job and too old buy another house and start again unless he plans on moving to Blackpool or something.

He has been living rent free for the past 18 months now and it suits him. He's not by himself, doesn't have to pay rent for a property he is just living in and he is close to his other friends.

In regards to him getting his money back, it is near certain. First situation if the house does not sell quickly, he has two people (the lender and the lenders child) who both have decent jobs which make the repayments a somewhat small expenditure for them. Secondly, the house sells (it is up for sale now) and he gets paid back in full.

No offence, but the same story has been relayed on this forum many times over the years, yet the lender ends up asking for advice on how to get their money back. The fact you said "near certain" would be the major alarm bell for me.

Again, if serious, get proper professional advice. Will be worth it in the long term.

System

Andrew_Ryan_89 wrote: »

I have been asked to have a look at the contract and have found a few free ones online.

Hope they're better than the one on Judge Rinder someone used. Impressive document, lots of terms, looked like it had been written by a lawyer. Only problem was one badly worded term meant that the debt was not collectable because the way it was worded meant there was no actual end date for when the loan was due.

For £30,000 your friend would be well advised to employ the services of a solicitor.

warehouse

Andrew_Ryan_89 wrote: »

it is near certain

That word beginning with n is exactly the point.

System

Andrew_Ryan_89 wrote: »

In regards to him getting his money back, it is near certain.

No it is far from it.

First situation if the house does not sell quickly, he has two people (the lender and the lenders child) who both have decent jobs which make the repayments a somewhat small expenditure for them.

Firstly it isn't the child's debt so they're not liable and cannot be assumed to make or be chased for the money, the child assuming they're an adult quite possibly could choose to leave home in the next 4 years and would they be able to afford to help then given they have their own home to pay for?

Secondly, the house sells (it is up for sale now) and he gets paid back in full.

Assuming that:

a) In 4 years time that they're in a financial position to be able to get a mortgage so they can actually sell the house and buy somewhere else which with enough arrears on their credit file in the previous 6 years to lead to repossession they won't.
b) Assuming they could get a mortgage or would move to rented it actually sells with at least £30,000 equity left in it
c) The friend doesn't default in the future like he has already and the mortgage company don't foreclose and auction it off for a fraction of its value
d) The friend doesn't go bankrupt which given they're wanting £30k to save having their home repossessed is a high probability.

Edited because I found yet another pitfall I'd not thought of. I'm sure if I give it another hour I'll think of several more which kind of points out to the fact it is a VERY BAD IDEA.