First charge on property through loan.

GoldenOldy

Good Morning

Here’s hopefully an interesting one!
I have a relative purchasing a property to live in.
They are looking at doing an equity release roll up mortgage so they can afford to live there.
If i were to make the payment instead of the equity release company, and make sure they have right of occupancy for ever, could I place a charge on the property somehow so that in future years , on the sale of the property , the money owed could come back into my estate?
The property has not yet been purchased by the way.
Many Thanks

eddddy

Yes - you can lend them money to help them buy a house.

And the loan agreement can be that they repay the loan when the house is sold. (Will you add interest?)

You can put a charge on the house to secure the loan.

All the above assumes they're not buying with a mortgage,

(There are a few associated risks to consider as well.)

daveyjp

It's a simple process to set up a loan and mortgage deed for an individual lending money to someone to purchase a property.

Just ensure the arrangement is included in your will so if the worst happens and you pass first the executors know you have an asset covered by a charge.

GoldenOldy

Good Morning Eddddy. Thankyou.
I had intended adding interest, less than the equity release company ,but on the same sort of basis re compound interest

They are not buying with a mortgage.
Could I ask, what are the risks/perils of such an action please?
Thankyou

theartfullodger

Would they need a mortgage also>??  If so v unlikely mortgage lender would agree unless they have a signed deed of gift from you to relos.  

Keep_pedalling

You have to consider what would happen in the event you died before them, or needed the money back because or went bankrupt or divorced.

Charging interest obviously creates tax complications and might be a bit pointless if you are the main beneficiary of their will.

eddddy

GoldenOldy said:

Could I ask, what are the risks/perils of such an action please?

A few examples...

• They inadvertently set up the wrong buildings insurance (or forget to set it up) - the house burns down - they don't have enough money to repay your loan

• They don't look after the property - it becomes a wreck - it doesn't sell for enough to repay your loan and interest

• The property market tumbles - it doesn't sell for enough to repay your loan and interest. (A bit like being in negative equity with a mortgage - but perhaps more likely, as the debt is increasing over time, due to interest.)

GoldenOldy

Thankyou. Thats all good to consider.

Here are my thoughts to mitigate, what do you think?
so no mortgage involved.
i am not as far as i know the main beneficiary of their will.
I will pay the buildings insurance.
I will loan 1/2 the max amount the er company is willing to loan to mitigate the possibility of falling prices (so 1/4 of the property value)
I will create a lifetime possession clause (i think i may have just made that up!), so they may live there irrespective of what happens to me.
I do not need the money back in my lifetime, however should something catastrophic occur, i could ask for repayment and they cold then take out the equity release.

Does this all sound feasible do you think?

SDLT_Geek

I wonder if you will get caught by consumer credit protection rules.  I think they might apply where the loan is by way of business.  It might be that those rules would not apply if this is a "one off" for you.

GoldenOldy

Sdlt…I have no idea about that one at all. I have never done such a thing before, it just seems the correct thing to do to ease someones considerable psychological burden.
Unsure where to get that information really,

user1977

SDLT_Geek said:

I wonder if you will get caught by consumer credit protection rules.  I think they might apply where the loan is by way of business.  It might be that those rules would not apply if this is a "one off" for you.

Correct, they only apply where you're lending in the course of business. Lending to relatives etc isn't going to be caught by it.