First charge on property through loan.

AskAsk

user1977 said:

AskAsk said:

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.

we came across this when my ex wanted to give his parents a loan and put a charge on the property that they were proposing to buy.

we couldn't find a solicitor that would do the charge for us as they don't have knowledge in this area and the one we found dealt with equity loans, but for businesses.  the solicitor said you can't put a charge on a property without risks as you aren't authorised under the financial conduct authority to lend money, so you are starting off on the wrong foot, so to say.  it doesn't matter if you are doing it as a one off, you aren't legally allowed to lend money and hold assets as collateral without a licence, and you certainly aren't allowed to charge interest on the loan as you don't have a licence to do this.

so if it came to it, and there is a dispute, you could actually lose the charge as it was put there "incorrectly" in the first place if it was ever investigated.

The solicitor was incorrect, as explained above - there are no regulatory requirements where your lending is not in the course of a business.

so a specialist solicitor is wrong?  right, get you.

user1977

AskAsk said:

user1977 said:

AskAsk said:

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.

we came across this when my ex wanted to give his parents a loan and put a charge on the property that they were proposing to buy.

we couldn't find a solicitor that would do the charge for us as they don't have knowledge in this area and the one we found dealt with equity loans, but for businesses.  the solicitor said you can't put a charge on a property without risks as you aren't authorised under the financial conduct authority to lend money, so you are starting off on the wrong foot, so to say.  it doesn't matter if you are doing it as a one off, you aren't legally allowed to lend money and hold assets as collateral without a licence, and you certainly aren't allowed to charge interest on the loan as you don't have a licence to do this.

so if it came to it, and there is a dispute, you could actually lose the charge as it was put there "incorrectly" in the first place if it was ever investigated.

The solicitor was incorrect, as explained above - there are no regulatory requirements where your lending is not in the course of a business.

so a specialist solicitor is wrong?  right, get you.

He may have been a specialist, but not in the Consumer Credit Act.

jennifernil

I did this for our daughter and put a charge on the property, using a local solicitor, there was no problem doing that, but we are in Scotland, if that makes a difference.

She paid me interest at a lower rate than a regular mortgage, this was declared for tax,  but as I only have a minute pension, I did not have to pay any tax on it.

As you would be lending to an older person, who might require care later in life, you do really need to secure your loan by way of a charge to stop all the money from a sale being used for that purpose.

user1977

jennifernil said:

but we are in Scotland, if that makes a difference.

Not in relation to the regulatory point, consumer credit legislation is not devolved.

sheramber

https://www.lblaw.co.uk/knowledge/blog/loan-agreements-do-i-need-financial-conduct-authority-approval-to-make-a-loan-to-a-friend-or-family-member/

https://www.beswicks.com/legal-advice/lend-child-money-buy-house/

AskAsk

sheramber said:

https://www.lblaw.co.uk/knowledge/blog/loan-agreements-do-i-need-financial-conduct-authority-approval-to-make-a-loan-to-a-friend-or-family-member/

https://www.beswicks.com/legal-advice/lend-child-money-buy-house/

the first link is what i was talking about and user1977 seems to think that my specialist solicitor is wrong!

some people obviously haven't heard of loan sharks and legislation to stop this happening.  sure, people are free to lend money to friends and family but when it comes to you legally holding assets as collateral and charging interest, it falls into a different realm and we are then talking about possible profits / business intentions as well as exploitation.

you could claim to have lots of friends and family and run a little dodgy business of loan sharks, and this is what my solicitor was talking about.  that if you do want to put on a legal charge, you need to make sure it is water tight as any subsequent dispute over the charge, and it can be shown that you had lent the money with the intention of making a profit, you are going to get in trouble with the FCA as you aren't authorised to lend money and make profit from it, and most likely HMRC as you are unlikely to be declaring these interest payments to HMRC for tax purposes!

this is why they have strict rules in place to stop this sort of thing happening.

user1977

AskAsk said:

sheramber said:

https://www.lblaw.co.uk/knowledge/blog/loan-agreements-do-i-need-financial-conduct-authority-approval-to-make-a-loan-to-a-friend-or-family-member/

https://www.beswicks.com/legal-advice/lend-child-money-buy-house/

the first link is what i was talking about and user1977 seems to think that my specialist solicitor is wrong!

That's because they are. I have in the past given legal advice on this very point - it's lending in the course of a business which is the distinction. You can charge interest to your relative if you like (yes, you'd potentially need to pay tax on it, but that's a separate matter).

Have a look at the hundreds of previous threads here involving people lending money to friends/family - has anyone previously advised that you need a licence before you can do so?