Mortgage to a Friend

John_21

I have a friend who wants to buy her council house. The variability of her income probably prevents her from obtaining a mortgage from the banking system. Many years however have shown me that she is reliable and I am able and prepared to lend her the money. I can see this would raise question marks for many people but this side I have a firm handle on.

Obviously I would expect a charge upon the house. What are the legalities of this? Do I need a credit licence or some other type of protection for her. There has after all been a lot of legislation mostly banking related which might impinge upon the situation.

I do not in principle forsee any problem with agreeing terms for the loan i.e. interest rates etc. Could we draw up a suitable document together?

What is the process for the placing a charge upon the house?

cattie

This doesn't answer your questions, but do be sure your friend understands the full implication of home ownership, especially as it doesn't sound as if she has a good income.

All maintenance & repairs that were previously the responsibility of the council will then be down to her. If something like the boiler conked out, this could be a cost of £2-3k to replace. Then there is the cost of buildings insurance she'd need to take out & it would be in your interests as mortage lender to ensure that this is done. Also, what would happen if your friend lost her job or became disabled & became reliant only on state benefits, how would she meet the mortage payments?

It's admirable that you want to help her, but ensure she realises that as a tenant she will always have an affordable roof over her head but as an owner occupier with a limited income, there will be no guarantee of this.

antrobus

John_21 wrote: »

...

Obviously I would expect a charge upon the house. What are the legalities of this?

You get yourself a solicitor. Do not do this without legal advice.

John_21 wrote: »

...
Do I need a credit licence or some other type of protection for her.

No.

John_21 wrote: »

...
There has after all been a lot of legislation mostly banking related which might impinge upon the situation.

You are not a bank.:)

dealer_wins

Absolutely do not do this. Friendships and loans do not go together.

Ergates

antrobus wrote: »

You get yourself a solicitor. Do not do this without legal advice

This, times infinity, no returns.

Also, whilst, it's good that you want to help your friend, take a very long hard think about if you should do this. It's not just the risks to your money (which you seem to have considered). Lending a friend a significant amount of money will change the dynamics of your relationship, possibly for ever.

Your friend will be *literally* indebted to you.

jonesMUFCforever

John how old are you?
How old is your friend?
Mortgages tend to be for 25 years or so - can you wait that long to get all of your money back?
What if????

foxy-stoat

Assuming you already know that if you can afford to lend it you can afford to lose it - the information in post #3 is all you need to know + you need to factor in legal costs to take out the charge and legal costs to remove the charge when you get fully paid out. I would also make it a term of the loan that she needs at least decreasing life insurance so the balance of the loan will be paid on death - probate sales can take a long time.

Good luck

System

John_21 wrote: »

I have a friend who wants to buy her council house. The variability of her income probably prevents her from obtaining a mortgage from the banking system.

I can guarantee with 100% certainty that it does absolutely nothing of the sort. I've been a mixture of agency worker on zero hours contracts and self employed for the last quarter of a century and had absolutely no issue getting a mortgage. I last bought a house at the height of the recession in 2010 and got a mortgage from Santander with no problem.

If you value your friend don't do it. If they come upon hard times and have trouble paying it'll make for a very frosty relationship. Interest rates for mortgages are so low that there's little monetary gain to be had lending from a friend. And if they're declined for mortgages by financial institutions who have teams of very highly qualified and experienced risk assessors then what makes you think it would be a good idea?

They live in a council house, they have a secure tenancy, they're in no immediate need to find somewhere to live so I would assist them to find a mortgage, not supply one.