Loan to a friend as mortgage deposit

Mlasso

Hello, my good friend would like to take a mortgage as he got a significant salary increase and from that aspect he can finally afford a reasonable property for his family. However, it will still take him quite some time to save up for a deposit payment, so I started thinking if I can lend him money for the deposit.

However, I wouldn't want to do this without any guarantees, as I am well aware of a number of friendships ending and then causing further problems. I do not have any reason to suspect that at the moment, and to be honest he didn't even ask me to borrow him any money, but I would like to offer it if it can be safely done.

Can a deal like this be legally structured and what would you suggest as a repayment terms / method? I do not really wish to have any financial benefit from this, although covering inflation for example would be nice if it takes him years to repay.

Thanks!

_Penny_Dreadful

Mlasso said:

Hello, my good friend would like to take a mortgage as he got a significant salary increase and from that aspect he can finally afford a reasonable property for his family. However, it will still take him quite some time to save up for a deposit payment, so I started thinking if I can lend him money for the deposit.

However, I wouldn't want to do this without any guarantees, as I am well aware of a number of friendships ending and then causing further problems. I do not have any reason to suspect that at the moment, and to be honest he didn't even ask me to borrow him any money, but I would like to offer it if it can be safely done.

Can a deal like this be legally structured and what would you suggest as a repayment terms / method? I do not really wish to have any financial benefit from this, although covering inflation for example would be nice if it takes him years to repay.

Thanks!

Your friend will really struggle to find a mortgage lender who will accept a borrowed deposit. The arrangement you propose is likely to be a non-starter. 

Flugelhorn

the only way a mortgage lender would accept this is if it was definitely a  gift and not a loan - you would be saying goodbye to your money for ever.

If he has had a pay rise then time to start saving to get the deposit, there are better rates for savings at present so that should help it along 

kingstreet

There are lenders who will permit a loan and allow a second charge over the property. Broker assistance with this will be essential.

mr_stripey

Crops up on here a lot.

Aside from whether the mortgage company would accept a loaned deposit, ultimately even if you have a written agreement from your friend it means very little. If he stops paying you back there's not very much you can do about it.

There is certainly no "guarantee" to ensure you get paid back.

If you can afford to lose the money then gift it to him (which the mortgage lender will want to see proof of the gift)  and perhaps have an unwritten gentlemen's agreement he will gift it back in the future.

Most likely outcome - you lose your money and your friend - however well intentioned everyone is at the outset

user1977

kingstreet said:

There are lenders who will permit a loan and allow a second charge over the property. Broker assistance with this will be essential.

Though bear in mind that even with a charge, you'd be only getting whatever is left after the "proper" mortgage lender has had first bite at the cherry, i.e. whatever they sell for after repossession, minus the whole balance due to them (including their costs etc) - which may leave nothing for you.

But it does at least have a more practical effect of meaning the borrower can't sell the property themselves and disappear without first repaying everything due under the charges.

prettyandfluffy

If your friend has a decent salary and a good credit profile, a better strategy would be to buy a property requiring a low multiple of his income - say 2x, with the intention of trading up in a short period of time.  He should be able to save some towards the deposit which will be lower and may well get a higher % of the price so will need a smaller deposit.
I commend your intentions but would counsel against lending or gifting money to friends or family, it goes wrong all too often.

bluelad1927

Aside from whether it can be done or not the simple answer is if you want to stay good friends don't lend him money

motorman99

run Forrest, run….,…

Herzlos

To satisfy the mortgage lender you'll need to sign paperwork confirming it's a gift and you don't expect it back.

That'll then be used later when your friend doesn't pay you back.

Don't do it. He'll need to wait a while like everyone else, or raise the money in some other way like selling stuff he doesn't need.

MEM62

Mlasso said:

Hello, my good friend would like to take a mortgage as he got a significant salary increase and from that aspect he can finally afford a reasonable property for his family. However, it will still take him quite some time to save up for a deposit payment, so I started thinking if I can lend him money for the deposit.

In short - don't!  It will end in misery and you will loose both money and friend.