LISA with Private Mortgage

happy2B

Does anyone know if a PRIVATE MORTGAGE would meet the criteria for a LISA?
My daughter is looking to buy her first property. She has a good deposit saved in a LISA plus some additional savings. She meets all the LISA criteria - one of these is that she must buy with a mortgage.
The property she wants to buy is a good deal but is difficult to mortgage (it is leasehold and above a cafe). A family member (grandparent) could loan her the money. If this was set up as a private mortgage i.e. secured on the property, would this meet the criteria to satisfy the LISA requirement?
As far as I can see, a private mortgage appears to meet the definition of a mortgage. I have checked on gov.uk which did not specify. I telephoned their advice number. They said they did not deal with it because it was not taxable. They advised phoning the LISA provider - I said but surely you define the criteria that they follow? So I phoned the LISA provider - they didn't know and advised speaking to the conveyancer. But surely they would be in the same boat - simply following the criteria set by the government - who seem to be unable to tell me what their own criteria are!
Obviously we do not want to go down the route of committing money to this in a deposit, solicitor's bills, survey, etc, only to find that we fall at the last hurdle. Can anybody advise me for definite whether the private mortgage would satisfy the criteria? Or at least tell me who would be able to answer this question for me? Thanks.

MDMD

The LISA legislation (assuming she is in England and Wales) requires a “legal mortgage” to be taken out (schedule 31,6(6)(a))

https://www.legislation.gov.uk/uksi/2017/466/regulation/31/made

I believe this is a legal term which basically requires the Grandparents to take a legal charge over the property and so is a question for the conveyancer- they will almost certainly charge higher fees.

https://www.legislation.gov.uk/ukpga/Geo5/15-16/20/part/III/crossheading/mortgages

Green_hopeful

Yes a private mortgage is fine. A solicitor should be able to use a template one. We have one with my son. 

masonic

Green_hopeful said:

Yes a private mortgage is fine. A solicitor should be able to use a template one. We have one with my son. 

Can you confirm your son was able to make a penalty free withdrawal from his LISA to fund the house purchase backed by your private mortgage? This has been discussed several times, but I don't believe anyone has reported doing it successfully or the process they followed to ensure all LISA scheme rules were followed. Or are you just saying it is possible to set up a private mortgage (without use of a LISA)?

happy2B said:

So I phoned the LISA provider - they didn't know and advised speaking to the conveyancer. But surely they would be in the same boat - simply following the criteria set by the government - who seem to be unable to tell me what their own criteria are!

The conveyancer is responsible for ensuring the scheme rules are complied with and will need to sign a declaration to that effect, so it is up to them whether they would be happy to proceed and obtain the LISA funds from the LISA provider. It would be advisable to have a detailed discussion with them up front and preferably get their agreement in writing, so that they would become liable for any losses you suffer if they are wrong about being able to access the LISA funds without penalty in this scenario. You may need to shop around for a conveyancer who is willing to go along with your plan and has a good enough understanding of the rules.

Green_hopeful

Yes it worked. Legal mortgage all signed up and registered with the land registry. The solicitor sorted it out, but I had checked online first. I can’t remember where I found the answer but I suspect just on a government website. I think the mortgage had to have an interest payment as part of the legal requirements for it to be a mortgage but we just used a nominal amount. The tricky thing was getting the last bit of the bonus through because he bought in June and it takes a while to get it added but it was fine in the end. 

happy2B

Thankyou everyone for your advice. 
MDMD Yes we are in England.
We are also exploring the commercial mortgage route. In some ways we would prefer this to borrowing from family. But it looks like we will need a specialist mortgage and to go through an advise/broker, which has quite a high cost relative to the small mortgage that would be needed. Plus it could be done relatively quickly as the relative would not require credit checks, proof of earnings, etc. 
If we do decide to go the private route, it will be properly set up with a charge on the house. Partly because this is a requirement for the LISA. But also because there are other younger grandchildren and we need to return the money to the pot to be fair on them in the future.
Green_hopeful Could I just ask if you were dealing with a Lifetime ISA or a Help to Buy ISA? The former has the bonus added to it year by year, whereas the latter has it added at the time of purchase. Thanks.

UKPool

Hi happy2B,

Just wondered if you'd been successful as far as using a private mortgage to satisfy the LISA requirements are concerned as my two sons are in a similar situation.

Thanks

Ed-1

Just to provide clarity for future readers of this thread, using a LISA in combination with a private mortgage was fine before 6th April 2024, but the regulations have now been amended by

• providing that a first-time residential purchase will not qualify as a withdrawal from a Lifetime ISA if the purchase is funded by a loan from a person who is connected to the account investor (regulation 25(c)).

https://www.legislation.gov.uk/uksi/2024/350/note/made

badger09

@Ed-1
Thanks for posting that. Of no relevance to me or mine, but I don’t recall any mention of it in discussion of new ISA rules. Might come as an unpleasant surprise to some whose 1st purchase is partly funded by mortgage from bank of mum & dad or gran & grandad. 

masonic

Very interesting, thanks. Hopefully everyone who was intending to use this loophole did so before it closed.

Usedname

Green_hopeful said:

Yes it worked. Legal mortgage all signed up and registered with the land registry. The solicitor sorted it out, but I had checked online first. I can’t remember where I found the answer but I suspect just on a government website. I think the mortgage had to have an interest payment as part of the legal requirements for it to be a mortgage but we just used a nominal amount. The tricky thing was getting the last bit of the bonus through because he bought in June and it takes a while to get it added but it was fine in the end. 

I am finding myself in a similar situation, but no local solicitors seem to deal with private mortgages. In the off-chance that you still remember, who you be happy to share the firm/solicitor that did yours, and how much they charged?