Loan to a friend as mortgage deposit

kingstreet

Herzlos said:

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

That is not the case. That would apply if it was a gift. It isn't, it's a loan.

Grumpy_chap

Mlasso said:

I started thinking if I can lend him money for the deposit.

he didn't even ask me to borrow him any money, but I would like to offer it if it can be safely done.

Don't do it.

Firstly, you have to assume that the loan will never be repaid
Secondly, you have to expect that this will be the end of the friendship
Thirdly, it is rare that a lender will accept a loaned deposit.  Even rarer when that is from just a "friend" as opposed to parent.

Fourthly, and this is the biggest consideration in my opinion, it would be most odd and I feel rather intrusive if I had a friend randomly offer me a substantial amount of loan just out of the blue - I would actually be rather offended as it is making some rather giant assumptions about my financial position and ability to stand on my own two feet.  It would make me think twice about that friend and potentially bring the friendship to a rather abrupt conclusion.  That only offers the benefit of resolving the first three matters I suppose.

Other than being wholly altruistic, you have not indicated what is in this for you.  Is this person more than just a "friend"?  If this is within the context of a relationship and potentially the next step of building your life together, then an arrangement on the property purchase other than a loaned deposit might be more appropriate.

Mlasso

Thank you everyone for the answers! I will not be doing this then, I was hoping that there is a legal version that I get some safety from it, but if there isn't I am not going to offer any help in this case.

Thanks again!

Sistergold

Not a good idea, let your friend figure out his own life and stop meddling. 

km1500

there is a legal version - a second charge on the property

as already said, your friend should go to a mortgage broker and see if they can get a mortgage that will allow a second charge.

Murphybear

You have no guarantee that your friend wont lose his job or have to stop working if he becomes ill and will struggle financially.  I agree with the others, don’t do it,   There are some new builds around with lower deposits.  

Herzlos

kingstreet said:

Herzlos said:

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

That is not the case. That would apply if it was a gift. It isn't, it's a loan.

Absolutely, they'd need to lie to the bank in order to get it accepted as a deposit. That lie would then prevent them being able to reclaim any of the money via court. It's a serious lose lose situation.

kingstreet

Herzlos said:

kingstreet said:

Herzlos said:

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

That is not the case. That would apply if it was a gift. It isn't, it's a loan.

Absolutely, they'd need to lie to the bank in order to get it accepted as a deposit. That lie would then prevent them being able to reclaim any of the money via court. It's a serious lose lose situation.

No. As I said there are lenders who will accept a loan and will also agree to a second charge. Can we please stop perpetuating the myth that someone will have to lie about it being a gift!

kingstreet

Here is Santander's criteria, for example, where a loan is used for deposit;-

Loan Where the source of deposit is a loan, you should provide the following details in the notes section on Introducer Internet: Amount; Lender (explain background if not a financial institution); Loan terms (e.g. interest rate, payments required); Any security required e.g. second charge; and Confirmation that payments have been factored into affordability.

saajan_12

kingstreet said:

Herzlos said:

kingstreet said:

Herzlos said:

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

That is not the case. That would apply if it was a gift. It isn't, it's a loan.

Absolutely, they'd need to lie to the bank in order to get it accepted as a deposit. That lie would then prevent them being able to reclaim any of the money via court. It's a serious lose lose situation.

No. As I said there are lenders who will accept a loan and will also agree to a second charge. Can we please stop perpetuating the myth that someone will have to lie about it being a gift!

Sure, but it materially reduces the pool of available lenders, so may not get the best rate, plus it may reduce the amount the lender is willing to lend.