Loan To Family Member

Dottidi

Hello, I’m looking for a bit of advice. 

A family member has split from partner and is looking to buy him out of the mortgage. 

She’s seen mortgage advisor etc and it has been agreed that she can take over/transfer mortgage to herself. But requires enough funds to give him his share of accumulated equity. 

She has asked to borrow in the region of £30,000 from me. I do have the money, but would need it back in approximately 5 years….as I approach my retirement.
I feel that I need to protect myself, and my retirement fund. Could anyone tell me what I need to do to insure this money is returned?
Thank you

enthusiasticsaver

Don’t lend it. My advice would be never to lend money you can’t afford to lose. If the bank does not think she earns enough to lend it to your family member why do you think she will be able to afford to repay you? If she cannot afford to increase the mortgage to buy out her ex then they either need to sell the property or he has to wait for his share. Neither of those scenarios are your problem. Support by all means but I would never advise lending even to a family member especially if your retirement depends on it. There is no way to ensure she repays you unless you take a second charge which her lender will not agree to anyway and you are prepared to go to court to enforce repayment. 

My standard reply is that if a commercial lender won’t lend then there is usually a reason like she is already over committed. 

Herzlos

How about you buy a £30k share of the property from him (or his entire share), and then she can buy it back from you later?

elsien

What will you do if she is not able to pay it back in the timeframe? She can’t work due to illness, she loses her job, any number of scenarios. Because that has to be your starting point.

Ryan_Holden

Echo all the above, it's horrible to have to say no, but if it's not small change to you and you need it back within a certain time then absolutely don't lend it to her.

You have no idea what the next 5 years could bring. She might become ill and unable to work, she might be unemployed, there's nothing you can do.

Wonderful gesture, but absolutely not worth the risk.

Don't even buy a share in the property because you may never be able to get her to sell up.

MalMonroe

Hello, I'm another vote for NO. Definitely not, nuh-uh, no way.

Don't do this, either as a lump sum or any share in any property. Or as instalments or anything else.

With the best will in the world, things do go wrong and then relationships are ruined and relatives fall out and never speak again. And the lender usually ends up with nothing.

I'm totally with enthusiasticsaver, above, who said not to lend money, unless you are prepared to lose it all/never see it again. (In fact their whole post is absolutely spot on.)

That money is hopefully gaining interest for you while it is sitting in your savings account as well.

Borrowing or lending anything is fraught with problems, as we often see on this forum.

Sometimes people just have to find their own solutions to problems - it seems cruel but it's the best way for everyone. I have been in a similar situation when my marriage broke down but I'd rather have starved on the streets with my young daughter in tow than borrow from anyone, relative or not. We sorted things out and we managed. Didn't always get what we wanted but did get what we needed.

You are right, you DO need to protect yourself, that's not selfish, that's just being sensible. And you shouldn't have to make any excuses either. Just because someone knows you have the money they need or want doesn't mean you have to give it to them.

I wish you all the very best but please do hang on to your retirement fund. There's no way you can ensure that you'll get it back if you give it away now. (Because that's what you'll be doing, giving rather than lending).

This is all my own opinion obviously but so many people have posted on here over the years about regretting lending money to others because they haven't been or never will be reimbursed. 

Nearlyold

From personal experience when we lent a similar amount of money to help a very close family member buy their first house with their partner I'd say don't do it. 

sourcrates

You can lend them the money by all means, but nothing can protect you from them not repaying you.

No amount of agreements, legal action or anything else can force them to pay you back, if they don`t want too, or can`t for some reason.

Lend on the basis that it`s a gift that might be repaid one day, or don`t do it at all.

Jami74

Dottidi said:

She has asked to borrow in the region of £30,000 from me. I do have the money, but would need it back in approximately 5 years….as I approach my retirement.

It would cost her £500 a month, every month, for the next 5 years to get it all back to you in time. Could she afford that on top of the mortgage and costs of keeping a house?

And it would cost you the missing interest. Not sure what rates are available for that amount of money, but at 4% would earn you £1200 a year. 

Voyager2002

I echo all the previous answers... the only way that this could work would be if she had a firm plan to sell the house after five years, and you were a joint owner until then. Is she perhaps keeping the family home until a child goes to university? In that case it might be possible to devise a realistic plan. As everyone else has said, there is an awful lot to go wrong...

Brie

I would accept that you might want to give this person the money.  But as others say - don't assume you will get it back.  Great if you do but if you absolutely need it then it's not a good idea. 

What has happened in my family is that parents "gave" one sibling a large amount to cover the cost of a significant house renovation.  That amount was then listed in their wills so that, assuming there was enough money left, the full amount was deducted from sibling's share of the inheritance.  The problem with this is that sibling has had an interest free amount for a 3 decades before the rest of us might get a penny.