Loan to sibling for house purchase deposit....

mikrt

My sibling has asked for a loan, to go towards a deposit on a house for family - long time renters.

Their proposal is to pay back in 12 months, which I think they may struggle with, with a new mortgage (but maybe not?).

However I am keen to help, but I have my own family to keep in mind too.

I am thinking (I still need to talk to my wife), about loaning the money, but have an agreement so that on his death, or sale of the house, a predetmined (fair) % of house value will go to my children.

Does that sound fair, or a bit too official for a family arrangement?

Thank you.

Pollycat

Can you afford to write off the money if they renege on payment?

What if they split up? Or lose their jobs?

Personally, I would have discussed this with my partner in great detail, examining every scenario before asking strangers.

With lending money, be as official as you like.

born_again

Charge on their house.

Could be fun time with Proof of funds, you will need to supply.

Albermarle

The conveyancer/mortgage company, will want proof of where money for the deposit has come from. Partly to show that the person buying the house has got the funds, and for anti money laundering checks.

The mortgage company will not be happy that there is another lender involved, even if it is a family member, and will almost certainly refuse a mortgage application in those circumstances.

The usual way is to sign a form that the money is actually a gift and that you expect nothing in return. This keeps the mortgage company happy, but it sounds like that would not be appropriate in this situation.

It sounds like a non starter.

lincroft1710

If they cannot save enough for a full deposit, what chance do they have of repaying the loan?

mta999

AgreeAgree with the above - a mortgage company is unlikely to give a mortgage if the money is a loan rather than a gift

mta999

PsPs yes the new editor does duplicate the first bit of each post

sheramber

If you have to ask advice from strangers on a forum you must already have doubts.

Listen to these doubts.

Exodi

"Neither a borrower nor a lender be."

Having learned life's lessons the hard way, I'll admit I scoffed at the remark where they suggest they'll pay it back in 12 months. I'd imagine it's more naivety rather than disingenuity, because as renters they are likely ill-positioned to forecast the costs of home ownership or getting the house up to scratch when they first move in.

It's always "I'll pay it back straight away!" when the money is being borrowed, you're the best guy ever then. It's only after time that the situation contorts, you haven't been paid, you're chasing them and you get "you know our boiler broke a couple of months ago and we had to get a dining table and chairs? Unless you'd rather we sit on the floor in the cold eating bread and water just so you can get your money?", you start to feel like you're a nuisance asking for your money back. Been there, done that, got the T shirt.

Personally if they're suggesting they could pay you back in 12 months, then I'd suggest instead they just rent and save it up over the next 12 months. What's one more year?

I'd much rather that than risk the financial and relationship damage from any issues. Many cite that as the reason for refusal - I don't want anything to jeopardise our relationship. I've lent and lost money to friends, I would do anything to avoid doing it for family (unless I was happy to lose it).

And that's assuming you could do it in the first place (they'd need to find a lender that allows second charges).

_Penny_Dreadful

https://forums.moneysavingexpert.com/discussion/6664833/loan-to-sibling-for-house-purchase-deposit

If they’re going to pay you back in 12 months why would a share of the house value go to your children?

Very few mortgage lenders accept borrowed deposits. You may well be asked to sign a document declaring the money is a gift, not a loan.

mikrt

https://forums.moneysavingexpert.com/discussion/comment/81970699#Comment_81970699

This would be instaed of the 12 months payback.