To feel worried about lending money?

[redwiner]

I have a very close friend whome I know and trust well, I said I would lend them the money for a deposit to buy a house, as, like many people today they cannot raise the money themselves. However they have just told me that they may be losing their job soon, and whilst they may well get another one straight away-they also may not in the current employment climate.
My dilema is do I go ahead with my promise and lend them the money (about £15,000) and take the chance that if they don't get another job soon I may lose it if they get repossesed, or do I devastate my friend and say I am not going to lend it to them now-knowing full well that without my help they will lose the house and all the fees etc they have already paid out?
I am really having sleepless nights over this. The original plan was that about 6 months after moving in they were going to take out a loan to repay me.

If they're both currently unemployed surely no bank is going to proceed with the mortgage anyway?

"Some banks don't mind if your mother or anyone lends the deposit. I don't think they need it to be your cash."

But if it's a loan then you'd have to declare it under the outgoings/debts section. Most banks now deduct any additional debt from the amount they're prepared to lend, and they will factor in the repayments on the loan in the "affordability" test for the mortgage.

Also if they haven't exchanged then they really shouldn't be doing so if they already know their jobs are at risk - even if they've signed the mortgage paperwork they still have a duty to inform the bank about any change of circumstances with their job. This goes double for any payment protection insurance, because they will undoubtedly refuse to pay out if they discover that redundancy consultation had begun before exchange.

Not on topic exactly - but I am really shocked at the number of people on this thread who've been bilked of their savings by so-called "friends".

How can people act like that? You have to hope the people concerned have had a fair few sleepless nights in return.

It would become a debt when the deal is completed. I am not sure what people put if their parents lend them the money to pay the deposit which is very very common but technically you do not owe the money until the deal is done. Therefore it is not a debt when you fillin the form. If there is a sectino saying how are you funding the deposit them obviously have to answer that or will you be entering nito any future debts or will you be borrowing from anyone else to fund the deposit then you would certainly have to say so.

I'd have never offered, but you're under no real obligation to loan it. And under the circumstances - increased possibility of redundancy - I'd say no.

When situations change BANKS change their minds, INSURANCE COMPANIES change their minds, BUSINESSES change their minds.

This may have been a personal relationship, but was a business decision. OP has every right to back out of this deal, whenever she likes. Especially because the situation HAS changed and she can't entertain a greater risk of not getting her money back.

The situation is not the same as it was when she offered the money.

The friend has every chance to back out of the house purchase right up to completion tbh, OK so if she backs out after exchange she can be sued for the deposit, but she CAN back out, it does happen.

I'd say that if she feels she really has to go through with it cos it's her word.... and this thread has shown that when friends decide NOT to repay loans, the 'word' means bugger all, and there IS no duty to 'do the right thing and repay the money', then I'd be sitting that friend down and ask her - given she looks to be losing her job, - how she can guarantee that she will repay the money. I'd want to see her proposals in writing. THEN I would go and consider my decision... and then refuse to go through with it.

Seriously, no place for sentiment when your savings are on the line.

Dont do it, if you go through with it, then actually, you arent doing your friend any favours at all. If they get reposessed, it will go on their credit history for a long time, and in current climate, no-one can guarantee getting a job.
tell them you will be more than happy to lend when they get a job and you can be sure they will be able to afford mortgage, until then, you are protecting both your own money, and their future by saying no.

Its a difficult one and only the OP can judge the situation.

Have done this twice. We once lent £10k to a friend who was leaving a relationship and needed somewhere to live. He paid the money back within 6 months and made a lovely speech at his wedding about how he had been helped by us when he really needed it.

We lent another friend £2k and never saw it again.

I also gave my brother £10k when he couldnt work for some months as his wife was in hospital. It was money my dad left to me and it was right that it should go to him as they needed help and it was just sat in the bank. Thats what my dad would have done. Have made it clear this time that I'm not expecting it back. They have 3 small kids and it was a gift not a loan.

I think the rule for me is never lend money if you couldnt afford to or wouldnt give it away to that person.

Go ahead and lend her the money, you clearly love her enough to lend that much. She has a lifetime to repay it if you can afford to be without it for that long. Good friends are hard to replace, they help each other in times of need and don't take things from people that they know they can't repay.

Decide what is more important, your friendship with a person who would take that much money from you knowing she may not be able to pay it back, or a whole in your savings which may never be refilled (or at least not in the immediate future), but with the knowledge that you helped a friend in need.

if you do this, please get a legal agreement showing you have given her the money and that she agrees to pay it back or you could be minus a friend and a lot of money. And never ever, promise to help someone like this again. you actually haven't helped her, she needs to be able to stand on her own feet going forward, not come to you each time she gets low on funds.

separate point but if she hasn't exchanged , she might be wise NOT to go ahead with purchase anyway as house prices (particulaly new builds) may fall over the next year or so. Your £15K deposit may not even exist (as equity) in her home this time next year.

If she waits a year or two and saves - she may be able to get a smaller mortgage on the same size house??

Wether she has already exchanged or not is key point.

I haven't read all of the thread, but if for any reason you do decide to go ahead and lend the money, can't you just get something drawn up by a solicitor to say there is a charge against the house
So if worst case scenario happens and the house gets repossessed, you will at least get your money back from the proceeds of the sale of the house

Here are some points that might help

1. If it's a new build it might be that the OP's friend has paid a reservation fee to secure the property but not yet exchanged contracts. Reservation deposit is usually anything up to £1,000 and is offset against the purchase price. If she doesn't exchange then the reservation deposit is forfeited. This means the OP still has the chance to pull out of the loan without putting her friend at risk of defaulting on completion as her friend isn't yet contractually bound to buy the property if she doesn't want to go ahead but her friend will lose the reservation deposit plus search fees etc

1. The loan by OP to her friend has to be disclosed as being a loan to the friend's lender. Otherwise this is mortgage fraud as not all the material facts are being disclosed. If the OP was intending to pay the money directly to her friend's solicitor's account rather than into her personal account then her solicitor is under a duty to the lender and also professionally bound to make appropriate enquiries as to the provenance of the money (money laundering regulations etc). If there is any doubt as to whether the money is a gift or a loan then the solicitor is under a duty to disclose this to the lender.

1. The best way to secure the loan is by way of a second charge over the property with it all properly documented and registered etc with agreed terms for its repayment, penalties for late payment etc. This would all have to be disclosed to the lender and, in the current economic climate, the likelihood of the bank agreeing to this are minimal. If the OP doesn't go down this route then the loan is completely unsecured and if her friend didn't repay then the chances of recovering the money are pretty minimal. A claim through the court would expect to be based upon evidence of the loan ie. a loan agreement, equitable/ legal charge etc. If there is none of that then there is little the OP can do and she could risk losing yet more money in legal fees etc. even if she went via the small claims court. Worst case scenario, if she really needed the money then she may have to consider the bankruptcy route but if her friend has other loans that are secured in some way, bank loans etc. these could take precedence so the OP's chances of recovering the money even if she insitigated the process would be diminished.

1. If her friend has exchanged and OP withdrew her offer now and her friend was unable to complete, she would be obliged to pay the seller the balance of the 10% deposit of the purchase price, would be liable for the seller's costs and could also potentially be liable for any losses that the seller incurs on a resale of the property. This could include any loss as a result in the downturn in the market so could be the difference between the price the friend agreed to pay and the price the seller eventually sold it for. This could be quite expensive and the lender would not be in a position to help out with that as their loan would only take effect on completion of the purchase and be secured against the property.

1. The fact that the friend's job is at risk is a very serious point as well. I can't remember off the top of my head whether a bank will generally differentiate between a rumour that a job is insecure or if the formal redundancy/ consultation process is underway but the OP's friend really should check the small print of the lender's terms and conditions and the original application to check what is said. If she has mentioned it to the solicitor then the solicitor may also be under a duty to disclose this to the lender (solicitors are usually instructed by the lender and the buyer on a property purchase). Either way, not giving it further thought at this time and winging it is a very risky strategy.

OP, hope that the basic information above gives you some context about the legal bits to consider when deciding whether you want to go ahead or not. Morally you are on difficult ground because you did agree to help her out in the first instance and she has relied on that to go ahead. However, she is putting both herself and you and in a very difficult situation by not fully disclosing the facts about the loan and it does sound as if she is stretching herself way too much at this time. If, as I hope, point 1 applies then surely it is better for her to walk away now with relatively small losses than risk losing her home, destroying her credit rating, risking bankruptcy and losing her friendship with you?

Sorry, have just realised this is a VERY long post (I'm a boring rambling lawyer if you couldn't tell! :))

Sorry meant to say that the friend could possibly recoup some of the losses on fees etc if she pulls out by offering them to another buyer if they are still less than three months old at the time that the resale goes through so only real loss then would be the survey and bank fee.