If you lent money for a mortgage deposit...

[Dingo33]

How did you agree repayment?

We are considering lending an amount to a family member. If you have done this I'm interested how repayment works? Did you just wait until the house was sold and then get back your share of the deposit plus whatever % the property has increased in value (adjusting for any capital payments eg extensions the owners have made I'd assume)? Or was there a set repayment schedule?

Oh my dear god...

You really, REALLY do not want to do this without a solicitor and an ironclad legal agreement!

I would personally prefer monthly repayment because life is complicated and you don’t want your money to disappear because something happens like divorce or one of the parties becoming a gambler or something.

The mortgage company might not like you having a stake in the house. Somebody more in the know will be able to comment on that aspect.

The family member that provided financial help to us had to provide a letter to our solicitor stating that the money was a gift and that it wasn't to be repaid to them.

Same here. Had to pay over £100 to get the letter notarised also. Basically stating we have no claim on the money after gifting

Needs to be a legal contract drawn up by solicitor.

Unless it's amount you're happy to never see again.

Personally, I wouldn't do it unless I could afford to do it as a gift.

If you must, monthly repayments and a proper legal agreement, but I think you'll find a mortgage condition is that the deposit can't be borrowed

Have a charge placed on the house in your favour. BUT you would need to bear in mind that the mortgage would have first priority, but this would probably be the best way to ensure you get your money back.

I wouldn't imagine we'd deal with the mortgage company, I'd thought the money would go directly to the family member and they'd just add it to their deposit pot? I didn't know that about the mortgage often being conditional on deposit not being borrowed. I'd thought it was quite a common thing for eg parents to lend to children.

It's not an amount we'd be in a difficult situation if we lost it. I mean we don't want to throw money away and would like to see a return but we've had a similar amount invested in shares for 10+ years and not needed to withdraw it.

Thanks for the thoughts everyone.

We’ve loaned DD money for a deposit but we’re not in any rush for it back and have a n agreement that it’ll be paid back when she sells in the future. We gave the loan in addition to a gift as she couldn’t quite stretch to the place she wanted so we helped out.

I think it depends on the circumstances. If we needed the money back asap or it was more of a business arrangement and formal loan to help someone then I’d get a solicitor involved and have a watertight contract drawn up. Even then, I’d be very concerned I never saw it again.

With money laundering regulations the people you give the money to have to say where it came from. You have to provide a letter saying it is a gift or it is taken from the amount they can get as a mortgage.

Either make it a gift or forget it.

We recently gifted DS2 part of his deposit. We had to put in writing that it was a gift and also evidence where our money had come from. Likewise DS2 had to evidence where all of his deposit had come from. I think the recipient of your loan will find it hard to get a mortgage if they are get a loan from you. Friends son had issues getting a mortgage because he had a car loan. It’s all about affordability.

We were leant a couple of thousand pounds from both sets of parents for our deposit 13 years ago. We wrote up an agreement signed by independent witnesses and them and ourselves. Neither set of parents insisted on us paying back but we said we'd pay back within the year as a lump sum as we had received it. This is what we did. First to my in-laws then my parents. IIRC all together it was 6k.
A few years later we did the same for my bil for his deposit. He paid us back the same way only as it was 5k we agreed that he'd pay us back in 2 years.

They will absolutely be asked where they got the funds for a deposit from, and have to provide proof. If the bank see it comes from a parent/ relative, they will be asked to provide proof of where that money comes from (savings, sold a car, etc), and the relative will need to provide a deed that it is a gift. If they declare it is not a gift, but a loan, the amount of that loan/ repayments will be taken off the amount that they can borrow on the mortgage.

In our personal circumstances we borrowed a sum from FIL, he signed to say it was a gift with no repayment due. If that had stayed the case, he wouldn't have a problem, however we repaid the amount a year or so later anyway. Technically however, I believe it is fraud to sign a deed to say it's a gift and then have an arrangement to repay.

@Dingo33 only ever lend or gift to offspring!! never, ever to siblings because you will never get it back in a million years!! some people have a cheek even asking for a large loan like that!!!

If the loan is to be repaid when they sell, how does that work? How will they buy the next place if they have to repay a chunk of the equity?

If it's not a gift then it will affect the mortgage as will be considered as debt/outgoings. The mortgage company will look at bank statements and wish to know where the substantial amount of money came from. If you told them falsely that it was a gift then you'd obviously not be able to have anything in writing regarding repaying it.

Some new house builders (Redrow) incentivise using gifted money for the deposit - so if you've relied on a cash gift from your (eg parents) then Redrow will pay you £1000 reward AND your parents also get the same £1000 reward/incentive.

In your circumstances OP I would def only consider this with a legal document outlining what happens, who owes what, when is re-payment due etc. My preference would be a repayment schedule, perhaps not starting straight away, but still with a defined, dated, payment schedule

We lent to DS. We gifted some and lent some. Obviously we had to lie and certify that it was all a gift. But he knows it wasn't and pays us back each month. If he stopped paying us back, we would be mighty pissed off, but legally we wouldn't have a leg to stand on.

Gifted to children not a “loan”. If you need the money back don’t do it.

Yep. I second that. 🌹

Did you just wait until the house was sold And if it's never sold? Not everyone does purchase house-hopping. Some people just buy once and live there the rest of their life.

You'll have to lie and say it's a gift, usually you'll have to write a letter or sign a form from the mortgage lender saying it's a gift. If it's done as a formal loan, you could be consider to have an ownership stake in the property, and the repayments will be a debt for whoever you're lending to.

Yep this. It will affect affordability.

This is all really helpful, thanks.

Nobody has asked for anything, it was just a thought I had that would help out my sibling and also allow us to invest in property.