Personal loan to Mum - can it be secured against her house?

Hustiniano

Hi
My mum needs to get some money out of her house as her savings are running out. Rather than my Mum entering a formal equity release (lifetime mortgage) agreement with a 3rd party with the associated high interest rates involved in that , I want to instead make a personal loan to her and have the loan secured against the house, to be paid back in full to me only when the house is finally sold, and to charge minimal interest vs the 3rd party lender.

I approached a solicitor to see if he could help set up a loan agreement in this manner, and he is insisting that I cannot do this as in his opinion, to make a loan secured against a property, I need to be and FCA Accredited organisation.

I don’t believe this is true - what does the forum think? Is he right ?

Also 
1) I believe I need to charge some interest so that it is not seen as a gift?

2) I also believe that if the loan is secured by the house, then when it comes to social care means testing her for care support, when we get to that stage, then the loan amount will reduce the value of her house for the purposes of means testing and so ensure the loan is eventually repaid, and not eaten up in care costs leaving no value in the house to pay me back.

Any comments on the above assumptions would also be appreciated 

Many thanks

mrschaucer

You need a new solicitor.  It is perfectly possible to put a charge on a house as security for a loan, and would probably be referred to as a private mortgage. 
1)  If you want to charge interest you can (taxable) but I don't think it's compulsory?  The terms can be whatever you agree.
2)  Just like a commercial mortgage, the charge against the property will be repaid to the lender when the property is sold, before the remaining monies are released to the ex-owner.

user1977

Your solicitor is talking nonsense - there's no need to be regulated unless you're doing it as a business.

And no, there is no need to charge interest.

Hustiniano

Thank you so much to both replies. I was sure the solicitor was misinformed, but I needed some certainty from this forum before I argue the case - as he charges by the minute to talk to me!
I think I might look for a new one to represent me!

Loza2016

We did this recently with no problems. 

Bought a house before our sale completed. 

In-laws payed for the new house then registered a charge against it. Was a simple form we all signed that was done by the solicitor handling the purchase. 

CKhalvashi

It should be possible without being authorised as a formal loan to family.

I'd advise ensuring the loan is a commercial one, likely at a subsidised interest rate (the HMRC beneficial loan rate should suffice, it's currently 2%) to ensure you're earning similar amounts overall to a savings account, but there's no need to make this compound (interest on interest). It will protect your/your mothers position should there be care bills etc down the road, especially if it could be proven the money would need to be borrowed anyway and this was a cheaper way to do it than via commercial means.

I am not a lawyer and legal advice will need to be sought in any event.

canaldumidi

Just to add, if you DO charge interest (however modest) on the loan, you'll have to declare it as income to HMRC.....! Perhaps another reason not to do so.

You could draw up a simple deed yourselves specifying the loan, amount, interest, any other terms, and when/how it is to be repaid.

You could also register the Charge yourselves. Land Reg Rep here will direct you to correct forms if you post on the Land Registry thread.

CKhalvashi

canaldumidi said:

Just to add, if you DO charge interest (however modest) on the loan, you'll have to declare it as income to HMRC.....! Perhaps another reason not to do so.

You could draw up a simple deed yourselves specifying the loan, amount, interst, any other terms, and when how it is to be repaid.

You could also register the Charge yourselves. Land Reg Rep here will direct you to correct forms if you post on the Land Registry thread.

Of course all taxable income would need to be declared. Sorry for not making that clear. I do not in any way advocate tax evasion.

I'd go with (for tax purposes) an annual payment of interest (potentially broken down monthly) in this case, however that would be a private matter for you both to discuss in this case.

Hustiniano

Thanks for all your help. I think it sounds sensible to charge a small amount of interest (and of course pay the tax on it) so that the assessment for care bills in the future does not have any issue with the arrangement - as CKhalvashi says. Thanks

We have a whole other issue to deal with first as the house was bought before registration was required, and so we need to do a voluntary first registration... the same solicitor wants to charge me £850 plus the registration fee! So I am looking into how to do that myself with the FR1 form etc. I will head to the Land Registry Thread...

Rosa_Damascena

If you can waste money on poor legal advice, you can afford to gift your mother a bit of money.

onylon

Rosa_Damascena said:

If you can waste money on poor legal advice, you can afford to gift your mother a bit of money.

Probably that they don't want the money to be taken into account for Mums benefits and social care funding. No point giving Mum money if it's going to be syphoned away with no benefit to her.