Would there be a way of helping a friend with a mortgage?

Albermarle

I have a longtime friend who's recently got divorced, her husband left her with very little other than signing over the house to her which is worth circa £575k. The mortgage was in the husbands name but it was an old endowment type that has now ended and once the lump sum has been paid it will still leave about £130k owing on the house.

Just looking from a different angle.
When you get divorced, ideally there should be a final financial settlement, with legal force.
Assets are normally shared out 50:50 if no children involved. Often there will be an exchange of assets, for example, one gets the house and one keeps their big pension. 
If this was done then the potential outstanding amount of £130K would have been taken into account.
If there was no legal agreement and just an informal arrangement where he just signed over the house, there could be grounds for reopening negotiations ( just guessing as I am not a legal person) if she was unfairly treated.
On the other hand if she got the better end of the deal, it would probably be better to stay quiet.

GDB2222

Bigphil1474 said:

OP, to be fair, if you are charging interest and getting a share of any increase in property value, then you are doing far better than your savings account pays. House prices are predicted to go up by as much as 20% over the next 5 years (obviously this isn't guaranteed). If they did go up that much, your 22.6% share of the property would go up from £130k to around £156k as well as the 6% interest return - quick maths would suggest that's in the region of an extra 3-4% a year on top? There's a risk the house might be worth less, but I'd say that's unlikely unless it's a pit.
. 
Personally, it would depend on how close a friend this is. I can only think of one friend I would consider doing this for, if I had the opportunity. Could you pay off the mortgage with a view to her down sizing asap as opposed to waiting 5 years? She could be mortgage free and pay you back within a year, even if she has to move a few miles away and buy a car. 

I'll second this, and just point out that, if this a great deal for the OP, then it is a terrible deal for his friend. I would suggest that 6% interest is fair without the share in house price growth. Or possibly 3% plus the growth. 

The op and  his friend should each have a solicitor, and the friend’s solicitor may point out that this isn’t a good deal for her. 

sheramber

Remebr you may have to declare the interest received and pay any tax due on it.

Schwarzwald

TheSpectator said:

Personally I would say it's bonkers to consider this. Only do it if you can afford to lose the money or are prepared to wait years for it.

My personal rule to lending money to Friends & Family is:

be prepared to let go of one - either the money or the person.
If not prepared to do that, do not do it.

At £135k .... that is a lot of money to let go .

Would you prepared to let go of the friendship?

Schwarzwald

Nelson1100 said:

... I think for the difference in what I'm earning already vs the risk of it all going south it might not be worth doing. 

The difference in yield is 1.5% gross.
Net of taxes say approx. 1.0%
1.0% on £135k is £1,350 per year or £110 per month.
at the same time you lose the flexibility to access that money freely, so deduct some value from that again.

Does less than £100 pcm really change your life?
worth risking your friendship for that?

I would expect a No.

Bookworm105

as this would be a "private" loan secured against a property it is a regulated activity and would need permission from the Financial Conduct Authority 

How to make loans to individuals in compliance with all regulatory requirements | Addleshaw Goddard LLP

https://www.handbook.fca.org.uk/handbook/PERG/4.pdf

saajan_12

The legal paperwork of this really isn't the issue - you can get a loan agreement drafted with whatever terms you decide. The problem is really when the clauses hit against reality and there's a friend involved. Even when you've thought of the what ifs and agreed in writing, its different when it actually happens:
- What if rates fall and times are tough for her, will she think you're mean for still expecting the 6%?
- What if you need the money back sooner for an emergency, she's making the payments but you think she's mean for going on holiday instead of repaying you extra as its 'your' money. 
- What if after the 5 years she can't raise the capital £130k as 
- What if she can't pay and you'd agree after x missed payments you'll repossess - will she hate you for turfing out her family?
- ...

So all in I'd say YES abolutely more hassle than its worth for you. The only way it makes sense is if you're thinking of it just to help her and would be happy to let the money go if she couldn't pay. 

If you are still keen then two bits that the proposed set up is wierd..

Nelson1100 said:

my friend has said she'd be happy to give me 6% on £130k for the next 5 years plus a % of any increase on the house price in that time. 
...
Technically I'd own a quarter of her house until I was repaid so is this going to be a legal minefield to tie up? What would need to be done in case of her death or loss of her job? Would it count as a second home for me? 

If you're getting a reasonable interest rate on par with fixed loans / bonds, then the pay off at the end is a fixed amount, no % of increase. If its an equity loan / investment, then the interest is lower and the return is mostly by getting a % of the final value. With the latter, its not jsut the second home consideration (which might be workable), but it also means a lot if your return comes at the very end, plus how do you work out the value in 5 years if she ends up staying longer? 

If you think the 6% is too much then I'd negotiate that up rather than mix the two types. 

Nelson1100 said:

..
 sell and downsize but because of family commitments she's keen to stay in the area for another 5 years and there's not much for sale locally that would suit her.

How could I ensure I'm paid after the 5 years?

Are you saying she'd ONLY pay interest during the 5 years and pay off the capital £130k at the end by selling up and moving? There's a reason that residential mortgages are usually repayment, because banks don't think borrowers will necessarily sell up and pay the mortgage off, whereas a BTL landlord might. If she wants to stay longer in the area, or prices in the new areas are relatively higher, then you're still out the full £130k rather than having a chunks gradually paid off. Can she afford a reasonable capital repayment each month too? 

FlorayG

There is another possibility - this is what one of my friends did when she couldn't afford the house ( I have a couple of threads about it and it is finally sorted)
Your friend could sell the house to you. You get a BTL mortgage on it and rent it back to her for a low rent that covers your costs with a lifetime interest (so you can't give her notice to quit). When she eventually wants to move you have the house to sell. 
It's fraught with complications as my thread shows, but it's an option

noitsnotme

FlorayG said:

There is another possibility - this is what one of my friends did when she couldn't afford the house ( I have a couple of threads about it and it is finally sorted)
Your friend could sell the house to you. You get a BTL mortgage on it and rent it back to her for a low rent that covers your costs with a lifetime interest (so you can't give her notice to quit). When she eventually wants to move you have the house to sell. 
It's fraught with complications as my thread shows, but it's an option

Additional stamp duty, higher interest rates on BTL mortgage, tenancy agreement, landlord legal duties (gas safety, etc), self assessment tax return for rental income, possibly pushing the OP into a higher tax bracket, CGT when it’s sold.

I haven’t read your thread but it sounds like an expensive mess.  The friend would have to be desperate to keep the house to go down this route. And the OP a VERY good friend for all the extra expense and responsibilities they would have to take on.

caprikid1

"her husband left her with very little other than signing over the house to her which is worth circa £575k."

It feels a little bit more than "Very Littlle"  450K is not very little.

Feels like you may be too close to the situation to be objective in terms of money lending.