Stamp duty when there is an additional investor

chozza

I'm looking at buying a property in london (will be my only property, having recently sold a house elsewhere) and a close friend is interested in investing around 50k (he wants to be able to stay there periodically which is fine), i would put in the other 150k and the rest would be mortgaged. It seems that this would incur higher rate of stamp duty, as he already owns a property.

Are there any ways round this which would provide some sort of protection for him (short of him just gifting the money to me), but without it attracting second property stamp duty?

Around 10 years ago i bought a property via a declaration of trust drawn up with my parents, whereby they put in the capital for deposit and i paid them back. They were existing homeowners, and there was no additional stamp duty as far as i can remember.

Keep_pedalling

Additional SDLT was introduced in April 2016 so would not apply 10 years ago. If you did not need a mortgage he could lend you the money and protect it with a charge on the property, but mortgage lenders are not keen on a 3rd party having a second charge in place.

user1977

What sort of mortgage? (i.e. what are you going to be using the property for?) Mortgage lenders don't like other people having an interest (unless they're actually joint borrowers).

chozza

user1977 said:

What sort of mortgage? (i.e. what are you going to be using the property for?) Mortgage lenders don't like other people having an interest (unless they're actually joint borrowers).

Yes originally i avoided a mortgage as my parents effectively lent me the money. This time would be different. He'll just have to gift me the money and hope i dont go to vegas instead.

DE_612183

The only way would be for him not to be on the deeds or have a charge - either he pays the additional stamp duty ( on a £500k property this would be about £25k ) or he trusts you...

AskAsk

my ex wanted to give his parents a loan of 50k so they could buy a house with cash as they were 50k short.  he had read that you can put a charge on the property.  however, when it came to it, we couldn't find any solicitor that would agree to do the charge as conveyancers that we had approached said they can't deal with the charge and we need to find a specialist solicitor.

we did finally find someone and he deals with equity loans.  he said that the financial laws in the UK makes it very difficult for someone to lend money and put a charge on the property because they are considered to be lending money and without a licence, you can not lend people money, which means that when it comes to it, you may not be able to get the money back as you aren't authorised to lend the money in the first place.

however, considering that there is a family connection here, he could draft a loan agreement and put a charge on the property, but that we should be aware that if it comes to an argument, there may be a possibility that we won't get the money back even with a charge on the property as we aren't authorised by the financial services to lend money.

he said we can also have an agreement drawn up with a charge on the property but not register it with the land registry.

so OP - you could get a legal agreement drawn up and put a charge on the property without it getting registered.  this will give your friend some comfort rather than trust that you won't run away with it.  it isn't fully tight and can still be challenged as he isn't authorised to lend you the money, but the legal contract can be used to claim the loan back and would be better than word of mouth.

user1977

AskAsk said:

he said that the financial laws in the UK makes it very difficult for someone to lend money and put a charge on the property because they are considered to be lending money and without a licence, you can not lend people money, which means that when it comes to it, you may not be able to get the money back as you aren't authorised to lend the money in the first place.

This was rather poor advice. Obviously you're allowed to lend people money (and recover it), it's only if you're doing it as a business that you need to comply with regulations.

AskAsk said:

so OP - you could get a legal agreement drawn up and put a charge on the property without it getting registered.

The mortgage lender is still unlikely to allow funds to come from a third party unless it's a (genuine) no-strings-attached gift.