Intra-family loan for house purchase

Colin61

Hi, our son is about to buy his first property and we would like to boost his deposit by loaning him £20,000 to be repaid over 20 years at 0% interest,

We propose to formalise this as a witnessed agreement.
We have considered placing a lien or charge on the property but believe that the agreement is sufficient.

Does anyone have any experience of such an approach?
What are the downsides?
Are better alternatives available?

Regards, Colin

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worried_jim

Downside- how will it affect family relationships if/when unable to pay?

[Deleted User]

Also, have you identified a lender who will accept a loaned deposit?

Colin61

Deleted_User wrote: »

Also, have you identified a lender who will accept a loaned deposit?

We are in the process of checking that aspect. He has already saved a sufficient deposit and our loan is to boost his deposit so that either his LoanToValue reduces or he can afford a better property.


Thanks, Colin

Colin61

worried_jim wrote: »

Downside- how will it affect family relationships if/when unable to pay?

A good point.... the current relationship is good and the prospect of repaying the loan is also good (given its value and the time-period) However, one cannot predict the future (!) ... it's a difficult one to answer.


Regards, Colin

jonesMUFCforever

Look for something like lend a hand mortgage - you deposit the £20k into a savings account with the lender and get good interest on it and get your capital back in 3 years provided the son has kept up the repayments.

If you then decide to continue with lending him money that will be up to you.

Sncjw

You do realise they will take the loan into account of what they can afford and they will take that money off what they are prepared to lend them. I went to a mortgage advisor and said if I was loaned money rather than gifted it would reduced the amount of money they would loan me for the mortgage. Think carefully if it would benefit your son or not

Colin61

jonesMUFCforever wrote: »

Look for something like lend a hand mortgage - you deposit the £20k into a savings account with the lender and get good interest on it and get your capital back in 3 years provided the son has kept up the repayments.

If you then decide to continue with lending him money that will be up to you.

Thank you, we had flirted with the Barclays' Springboard scheme ( similar to the Lloyds' Lend A Hand scheme) At the time, we dismissed it as it didn't offer a better rate based on LTV. ( I.e , it seems to be primarily aimed at those with zero or minimal deposits) I'll re-evaluate it... perhaps the simplicity of avoiding a formal loan may offset the slight interest rate variation.


Thank you,

Colin

Colin61

Sncjw wrote: »

You do realise they will take the loan into account of what they can afford and they will take that money off what they are prepared to lend them. I went to a mortgage advisor and said if I was loaned money rather than gifted it would reduced the amount of money they would loan me for the mortgage. Think carefully if it would benefit your son or not

Hi, thank you for highlighting that... as we intend to raise this as an interest free loan, can I assume that his mortgage eligibility ( i.e how much he can borrow) wouldn't be affected?


Thanks, Colin

Sea_Shell

Even if it's 0%, the lender will still factor in that £X per month is also being paid back elsewhere, so it will effect affordability.

Edi81

You may be well placed to post on the mortgages board. The brokers there will know how likely it is that your plan will be accepted by a lender. Lots of them don’t accepted borrowed deposits or second charges.