Mortgage or family member - which is better all round?

InfoFinder

Hoping someone can help my understanding a bit!  Has anyone been in a similar situation? or is in the banking/mortgage field?

We have had an offer on our current property and have accepted, and we have a mortgage offer in place to purchase our next one, but a family member has suggested we borrow the money from her personal bank because her money is just sitting there, and effectively is making her a loss as inflation is greater than the interest she is getting so it is financially better for her to use the money as opposed to leaving it in the bank. She said the money isn't needed, and won't be for a long time, she is financially very secure, and this pot of money is more of an inheritance for her daughter than anything else, who is only 9 right now.

We are both very close, and I have never missed a mortgage payment with Santander since I purchased my first house in 2009, so I am not worried about that, I would just like to make sure we are not taking advantage of her, as in I don't want her to be out of pocket by letting us use the money, and I want it to be above board i.e. solicitors to protect us both.  

Therefore, long term, is this a good idea? will it be more beneficial for us both doing it this way? the amount needed would be 210,000, over 25-30 years, and i have been offered a few different mortgage packages by my current mortgage provider, as well MIP with a different high street bank, all between1.5%-3%.

Thank you in advance for any comments. 

lonibra

Is the private mortgage interest-free?

InfoFinder

lonibra said:

Is the private mortgage interest-free?

I would want it to at least cover any money she could have had in interest, which isn’t a great deal at the moment I know, so maybe 1%. She did say interest free to start with but I said no. 

[Deleted User]

I would go for a regular commercial mortgage.  Lending between friends rarely ends happily, especially over that sort of sum and time period.

Annisele

I'd be a little worried about whether she understands what she's offering. On the one hand, apparently she thinks "it is financially better for her to use the money [by lending to you] as opposed to leaving it in the bank". But on the other hand, "she did say interest free to start with but I said no". An interest free loan obviously isn't financially better for her than getting a paltry rate of interest from the bank.

For her, this looks a bad plan. If she was a sufficiently close family member that you might be inheriting the £210k at some point anyway, it might be OK. But that 9 year old daughter is going to be old enough to buy a house of her own before your 25-30 year loan runs out. What happens if your family member wants to use the money she's lent you to put her own daughter on the property ladder?

Plus, savings rates are low now - but they're not necessarily going to stay low for 25-30 years. What agreement will you have about changing rates in future? (You could go for base rate plus 1% or something - that's not an impossible problem - but it'd need thinking about.)

Your relative is also going to have to be dealing with tax returns re the interest (which she might not be too fussed about if she has to complete them anyway).

Personally, if I could afford a regulated residential mortgage I wouldn't touch an arrangement like this with a bargepole. But I'm a fairly cautious person - attitudes to risk vary.