Mortgage to a Friend

in Loans
7 replies 1.2K views
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?

Replies

  • cattiecattie Forumite
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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.
  • antrobusantrobus Forumite
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    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_winsdealer_wins
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    Absolutely do not do this. Friendships and loans do not go together.
  • ErgatesErgates Forumite
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    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.
  • jonesMUFCforeverjonesMUFCforever Forumite
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    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-stoatfoxy-stoat Forumite
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    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
  • SystemSystem Forumite
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    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.
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