Thinking about helping relative with bridging loan

dllive

Hi

I have a relative who is selling a property. He has seen a property he wants to buy and is desperate to get it. So much so that he's thinkig of taking a bridging loan.

I dont know anything about bridging loans, but presume theyre expensive.

As it happens, Ive got a chunk of cash thats been sat in a fixed savings account for a year. It matures in a few weeks. So Im thinking of lending that to my relative to save him from getting a bridging loan.

Are there any legalties or tax implications from me doing this? I know Ill the opportunity cost of me losing any interest that I could earn on that money, but this is pretty minimal in the grand scheme of things.

This is a new situation for me, so just wanted to sanity-check it on this forum before offering the suggestion to my him.

Thanks

eddddy

Firstly, does the current property have a mortgage, and will the new property need a mortgage?

If so, does your relative understand that they (probably) won't be able to have 2 mortgages running at the same time?

So, for example, they'll need enough cash from you to pay off their current mortgage, and pay the deposit on the new house (plus selling and buying expenses).


The general risks with bridging loans are things like...

You lend them say, £300k, and they expect to sell their current house for £300k to pay you back, but in the meantime...

• The property market tumbles, and they have to sell for £250k - meaning that they can't afford to pay you back

• When they sell, the survey uncovers a major problem - they either have to find £15k more to fix it, or reduce the selling price to £270k (so can't afford to pay you back)

• When they sell, the legals, searches or survey uncovers a major problem which takes 18 months+ to resolve. So you have to wait 18 months+ for your money.

• The chain below them falls apart 2 or 3 times, so it takes 18 months+ to complete their sale. So you have to wait 18 months+ for your money.

• They were over optimistic about what the current house was worth - and end up selling for £275k (so can't afford to pay you back)

Or a combination of 2 or more of the above.

ReadingTim

Suggest that the only question you need to ask yourself is "can I afford to lose this money?" in the event your relative is unable or unwilling to pay you back.  

user1977

ReadingTim said:

Suggest that the only question you need to ask yourself is "can I afford to lose this money?" in the event your relative is unable or unwilling to pay you back.  

The loan could be secured, so at least the OP would have the fallback of being able to repossess the property. But still a potential risk of a big shortfall (depending on how much equity the relative is putting in).

Hoenir

How many months are you willing to wait before receiving your money back?

dllive

Thanks guys. 

So, it doesnt sound like there are any legal/tax implications for me, as such. (otherwise it would have been highlighted by now)

As you say, the biggest risk is the cash.

He currently owns his property outright. He's wanting to buy this new property now before selling his old property (hence the bridging load).

Good question about how long Im willing to be without the cash. Something for me to mull on. Any other questions I should consider?

If its easy enough for a solicitor to draw up a contract securing the loan against the property then so much the better.

Veteransaver

user1977 said:

show previous quotes

ReadingTim said:

Suggest that the only question you need to ask yourself is "can I afford to lose this money?" in the event your relative is unable or unwilling to pay you back.  

The loan could be secured, so at least the OP would have the fallback of being able to repossess the property. But still a potential risk of a big shortfall (depending on how much equity the relative is putting in).

If it's being bought with a mortgage then the mortgage company would be very unlikely to allow a second charge on the property. And anyway the mortgage company would be first in line if they needed to repossess it.

user1977

dllive said:

So, it doesnt sound like there are any legal/tax implications for me, as such. (otherwise it would have been highlighted by now)

If you're being paid for your trouble then there'll be Income Tax on any interest.

MattMattMattUK

dllive said:

Thanks guys. 

So, it doesnt sound like there are any legal/tax implications for me, as such. (otherwise it would have been highlighted by now)

As you say, the biggest risk is the cash.

He currently owns his property outright. He's wanting to buy this new property now before selling his old property (hence the bridging load).

Good question about how long Im willing to be without the cash. Something for me to mull on. Any other questions I should consider?

If its easy enough for a solicitor to draw up a contract securing the loan against the property then so much the better.

What will you do if he does not repay you, are you willing to take him to court? Owing/being owed money can change people it can sour relationships, I have seen relatively minor amounts owed totally destroy relationships, personally I would not lend. 

Olinda99

tax implications - if you charge interest you need to account for it (same as you do.for your current maturing interest)

what interest will you charge? more than 'easy access' rates I assume - say 1 year fix rates? will you charge the maximum or or 'lose money' by charging less?

what are your wishes should you die?

secure the money on the existing house, not the new one. 

dllive

Thanks guys. All food for thought.
It may be that I decide not to offer the loan. But at the very least I wanted to give it some thought.