how do I protet myself if I lend money

Trishy_M
Trishy_M Posts: 12 Forumite
First Anniversary Combo Breaker
in Savings & investments


Hello,


I have a close relative who took out a loan that ended up being secured on the house. I think the company is called Together. Anyway he had problems a while back but spoke to them as you're supposed to, had payments agreed with them but they put charges and interest on and ruined his credit rating so the outstanding balance is more than at the start. He has been making their extortionate payments now for a few years but it won't be paid off for a long time. Its APR is really high.


We are agreed the loan has to go.


He is self employed so can't get a re-mortgage with a real bank (tried) but has an existing mortgage for £32000 that’s ok.


House = £140,000, mortgage £32,000 loan now £40,000.


I have excellent credit rating and equity in my house with a mortgage. House £140, mortgage £50. I have spoken to a lender and can get a good mortgage and in theory I am able to do one of the following:-


*We thought about me buying the house for £72,000 with a ‘gift’ of the difference to clear the mortgages on it with him making the payments (safe for me with the mortgage on that house not mine and property in my name) but I would have to be a landlord & work out tax etc and the stamp duty £5400 and solicitor fees will put £7000+ on top of the loan. We think that would be better coming off the balance.


*I take 2nd mortgage for £40000 on my house and he pays the repayment each month on top of his mortgage for 15 years until clear. He can afford the payments.


Sounds straight forward and I don’t believe there is any intention to take the money and run but stuff happens so:-


Would we need solicitors for a loan agreement or do it ourselves?


Can I make sure I get the outstanding money back if the house is sold?


Can I put anything and enforce it if there is a problem with the payments?


What if he dies?


Any ideas would be appreciated please.
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Comments

  • McKneff
    McKneff Posts: 38,819 Forumite
    Name Dropper First Anniversary First Post
    Don't do it.

    Thats the only way to guarantee you wont be shafted
    make the most of it, we are only here for the weekend.
    and we will never, ever return.
  • IanManc
    IanManc Posts: 2,079 Forumite
    First Anniversary First Post Combo Breaker Name Dropper
    You should not mix your finances with those of someone who cannot manage his or her own.

    I suggest you "protect yourself" by not getting involved and let your relative sort out their own mess.
  • Reaper
    Reaper Posts: 7,279 Forumite
    First Anniversary First Post Photogenic
    Several things concern me.
    * You have not included losing his job in your list. There is a reason banks are wary of the self employed because they view their income as less dependable.
    * If his past problems are over can he not increase his payments to clear the loan faster? If not because he is stretched that does not look good for the security of your loan repayments.
    * If he dies you will be an unsecured creditor
    * You would have to get any agreement in writing. Considering it's a fairly large sum I suggest a solicitor to draw up any contract and answer the sort of questions you have. The mortgage option is safer as at least you have security.
    * If he is unable to make all the repayments either deliberately or not this will put a strain on or end your friendship.
  • Trishy_M
    Trishy_M Posts: 12 Forumite
    First Anniversary Combo Breaker
    Thanks
    Whilst I agree with you on the not doing it, it has got silly with the loan company. I have searched on here for them and the only thing to do is pay them off. He is already paying £600p/m, with a real company this would have made a massive dent in the loan already.
  • thriftylass
    thriftylass Posts: 3,981 Forumite
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    Just don't do it. The risks are too high. Unless you have the money to just gift him 40k, don't. There are so many unforeseen, unexpected factors to consider.

    BTW just out of interest what is the term of the loan and the APR.
    DEBT 09/23: CC 6347 5120, Other 1763 NSDs 0/20 Planned debt free date: Dec 2024
  • inflationbuster
    inflationbuster Posts: 250 Forumite
    Name Dropper First Anniversary First Post Combo Breaker
    Talk to citizens advice about the extortionate loan? They may advise restructuring it.

    Let your relative sort out the loan.
  • Lungboy
    Lungboy Posts: 1,953 Forumite
    First Anniversary First Post
    Trishy_M wrote: »
    He is already paying £600p/m, with a real company this would have made a massive dent in the loan already.

    Not really, on a large loan like that it will take years to make a dent in the capital repayment.
  • aroominyork
    aroominyork Posts: 2,821 Forumite
    Name Dropper First Post First Anniversary
    Two pieces of advice about lending money: 1) only do it if you are ready to see it as a gift which is not repaid, and 2) anyone you lend money to will end up hating you.

    That doesn't mean don't do it, but go in with your eyes open and wary of turning someone else's problems into your own.
  • xylophone
    xylophone Posts: 44,338 Forumite
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    He might have to consider selling his property and renting a home?
  • ChesterDog
    ChesterDog Posts: 1,112 Forumite
    First Anniversary First Post Name Dropper Photogenic
    You are in danger of turning his problem into your problem.

    I have lent money to three relatives/friends over the years.

    Once they have it, they seem to develop the view that you mustn't have needed it yourself after all and won't miss it.
    I am one of the Dogs of the Index.
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