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Mortgage to a Friend
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?
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?
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Comments
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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.The bigger the bargain, the better I feel.
I should mention that there's only one of me, don't confuse me with others of the same name.0 -
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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....
Do I need a credit licence or some other type of protection for her.
No....
There has after all been a lot of legislation mostly banking related which might impinge upon the situation.
You are not a bank.:)0 -
Absolutely do not do this. Friendships and loans do not go together.0
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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.0 -
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????0 -
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 luck0 -
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.This is a system account and does not represent a real person. To contact the Forum Team email forumteam@moneysavingexpert.com0
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