Loan for Purchase - why is this so difficult.

Charliecloud

My son will be a first time buyer. The property will be in his name.  We have the money and want to 'loan' him the total purchase price. We have a legal loan agreement which is filled out and ready for signature. It will be an interest free loan.
We found a place, offer accepted. 10 weeks into the process our conveyancing solicitor is insisting it should be a 'gift' and is now dragging their heels on getting to exchange of contracts. 
I can see no legal reason why we cant 'loan' him the money and have him pay back the capital on a scheduled loan repayment plan.
Are we missing something ?

MattMattMattUK

Charliecloud said:

My son will be a first time buyer. The property will be in his name.  We have the money and want to 'loan' him the total purchase price. We have a legal loan agreement which is filled out and ready for signature. It will be an interest free loan.
We found a place, offer accepted. 10 weeks into the process our conveyancing solicitor is insisting it should be a 'gift' and is now dragging their heels on getting to exchange of contracts. 
I can see no legal reason why we cant 'loan' him the money and have him pay back the capital on a scheduled loan repayment plan.
Are we missing something ?

The issues is not a "legal reason", it is the terms and conditions imposed by the mortgage lender. If he has an additional loan then that will reduce his borrowing power on the mortgage as it requires repayments. Also as an unofficial lender that further complicates the process. 

The bit you are missing is that the mortgage provider does not allow it, no mortgage provider allows loans from friends or family members to be used as deposits. 

GentleGiant01

If, a year down the line, your son stops paying the mortgage, and he still owes you money, then the bank would have a very hard time reselling the property to get back their cash because you have a legal “stake” in the property. 

That and it also effects his affordability. You’ll be better looking at the family springboard mortgages, or just gifting him the money. 

eddddy

MattMattMattUK said:
The issues is not a "legal reason", it is the terms and conditions imposed by the mortgage lender. 

GentleGiant01 said:

If, a year down the line, your son stops paying the mortgage, and he still owes you money, then the bank would have a very hard time reselling the property to get back their cash because you have a legal “stake” in the property. 

The OP is saying they want to lend their son the total purchase price - so presumably that means no other mortgage lender is involved:

Charliecloud said:

My son will be a first time buyer. The property will be in his name.  We have the money and want to 'loan' him the total purchase price. 

@Charliecloud - what exactly did the solicitor say?

Have you drawn up the loan agreement yourself, or are you asking the solicitor to do that? Are you wanting the solicitor to put a charge on the property?

Charliecloud

@ddddy : We used a legally approved loan agreement form, it was also sent to the solicitors. They are saying (to the sellers agent) it's a conflict of interests. I have left a message for the director of the firm to ring me back today.

user1977

Charliecloud said:

our conveyancing solicitor is insisting it should be a 'gift' 

Why do they think it should be a gift?

I presume by "our" solicitor you mean your son's solicitor, and you aren't legally represented? Or is the problem that both you and your son have instructed the solicitors?

Loza2016

Not sure why it needs to be gift. 

We did this end of 2020. In-laws  paid for our property as we needed to be cash buyers before our sale completed. 

We signed documents to put a charge on the property & confirm interest would be paid in line with Bank of England base rate. 

All done by the solicitor who had previously done the same for my SIL. 

eddddy

Charliecloud said:

@ddddy : We used a legally approved loan agreement form, it was also sent to the solicitors. They are saying (to the sellers agent) it's a conflict of interests. I have left a message for the director of the firm to ring me back today.

That sounds very different to what you said originally. 

A 'conflict of interests' probably means that they cannot act for / advise both you and your son about the loan. 

Perhaps you've been asking the solicitor questions, or put things in the loan agreement, that has made the solicitor think there's a risk of a conflict of interest.

(And perhaps they mean they can carry on, if you change your mind and call it a gift.)


You can ask the solicitor what steps they want taken, to remove the risk of a conflict of interest.




Edit to add,,,

Charliecloud said:

They are saying (to the sellers agent) it's a conflict of interests. I have left a message for the director of the firm to ring me back today.

Hopefully, you don't mean the director of the estate agent's firm.

You absolutely definitely shouldn't be taking legal advice from the seller's estate agent. You should only take legal advice from your solicitor.


TBH, if it's your solicitor who has told the estate agent about a 'conflict of interests', I would be giving the solicitor a bit of a b*llocking, for divulging that info to the EA - especially if they hadn't told me first.


(Was the solicitor recommended by the EA?)

Charliecloud

@eddddy - It was the director of the firm of solicitors. It's now 1145  and no return call, it was the solicitors who told the EA about the conflict of interest. The EA did not recommend the solicitors.
We were originally advised by the solicitors to have drawn up the loan agreement with our son, so that the money could not be misconstrued as a gift. 
I have just now emailed the solicitors what steps other than 'gifting' need to be in place to remove the conflict.

MovingForwards

Tell the solicitors it's a private mortgage, like a bank mortgage only you are the lender.

What kind of loan agreement have you found, as it might be the wording of that causing the problems.

[Deleted User]

Loza2016 said:

Not sure why it needs to be gift. 

We did this end of 2020. In-laws  paid for our property as we needed to be cash buyers before our sale completed. 

We signed documents to put a charge on the property & confirm interest would be paid in line with Bank of England base rate. 

All done by the solicitor who had previously done the same for my SIL. 

@Charliecloud I'm in the same boat as @Loza2016. We did very similar in 2020. We got an agreement contract / document from the internet that covered everything we wanted and that was agreed between us and my parents. The only difference was that we insisted on paying back an element of interest so this was factored in to the agreement. 


Our solicitors asked to see this agreement along with a letter signed by my parents to also explain the situation and what they wanted to do. I think other than that my parents didn't have to do anything (other than they did have to show the source of their funds as per usual regulations). I can't really understand why you're having such an issue when it's the entirety of the purchase price.

Ah thinking about it - I know we were asked if my parents wanted a charge on the property. As they didn't there was no issue. Solicitor did say it gets more complicated when a charge is wanted. Do you want to register a charge on the property? That could explain a conflict of interest.