AIBU to consider borrowing a house deposit from a friend temporarily?

[Borrowingfromafriend]

We’re looking to buy a property and need £200k for a deposit. I have quite a bit more than this in equity in another property however, this will take a while to be ‘freed’ up and I need to move ASAP if I want this property.

A friend has suggested borrowing the £200k from her (she has a net worth of £50m+ just to put in perspective - this isn’t her entire life savings or anything). How would we go about this for a mortgage? Would it even be feasible? I would pay her back in full as soon as the other property sells.

Why not? She's offered (you didn't ask) & it's loose change to her. If I were her I'd be frustrated if you didn't!

just for clarification I'm not the friend 🤣🤣

I’m planning on discussing with a mortgage advisor this week.
Does anyone know if this would be accepted by the bank? I’m not sure how they feel about gifted deposits etc!

I’m not entirely sure that it would be legal.

I think it's exceptionally kind of your friend to offer and if you're sure you can repay her then I would gratefully accept. But I would go to a solicitor and draw up a loan agreement with a set date of when the money will be repaid. Borrowing money from friends can be tricky so it's better to have it all written out and signed.

You need a specialist mortgage broker I think.

What will you do if your property doesn't sell in the time frame you agreed to pay back the loan , or can't reach its estimated value ?

Your mortgage company would prefer that it be legally written in as a gift, but people do loan money so you’d just need to get it all written up.

You could also take a bridging loan, but if your friend is offering without any interest then it will save you money to go with it.

You’d need a specialist broker - effectively all your purchase would be collateral. Couldn’t you remortgage the property you intend to sell?

How could it possibly be illegal? A mortgage company might not like it but that doesn’t make it against the law.

OP I’m not sure a mortgage company would be keen as it looks more like money laundering than most gifted deposits do. I would imagine most mortgage lenders would think it not worth the hassle

I have £450k equity in another property. So there’s no issue with not being able to repay.

Lenders will require your friend to make a declaration that it’s a gift not a loan, and if it is a loan, the majority won’t accept it as a source of deposit. Even if your friend was prepared to make a fraudulent declaration about it being a gift, many lenders also don’t accept gifted deposits from friends, only partners and immediate relatives.

Yes but the money is needed quicker than this would allow.

I don’t think a standard mortgage company would accept the risk, but I might be wrong. You need a damn fine mortgage broker to guide you through this.

see how you get on with the mortgage advisor, but you may need to try others.

you'll be able to do it, but you might need a specialist, rather than run of the mill.

Then just get a bridging loan from a reputable bank like a normal person.

Borrowing £200k from a rich friend screams of fraud.

Absolutely this.

OP you need a bridging loan, mortgage companies won’t accept a £200k loan from a friend for all these reasons.

Ooo is she a celebrity?

Nope, you need a bridging loan. They won’t accept 200k loan from a friend, it just screams fraud unfortunately.

I don’t think a “good” or specialist mortgage advisor will be any use. This isn’t a complex situation and they can’t present it as something it’s not.

The simplest thing to do is probably borrow the money from your friend, and have it secured on the existing property. Then let the mortgage company for the new purchase know that the source of the deposit was equity in the other property. I think they are more likely to be happy with that than having their mortgage and the loan from the friend secured on the new property. At one level there is probably no need for the £200k loan from your friend to be secured on anything, but I think it'll make the paper trail more robust. Just my thoughts though :)

Presumably you're close/long term friends, rather than someone you chat to at the school gate occasionally?

She'll need to declare it as a gift, but she may feel it's worth the risk and given her extreme wealth, it's not going to be a disaster for her if you don't repay her when you sell your current home. Or gift her the same amount of money in the future, for those worried about this being somehow fraudulent.

Don't forget to account for the extra stamp duty when doing your sums, although you'll be able to reclaim this when you sell your current home (there might be a time limit, 3 years rings a bell).

What @ComtesseDeSpair said. IME it needs to be documented in writing as a gift from her to be accepted as funding for this transaction. An agreement to repay/give it back would have to be verbal and informal. I think you or she would probably also need to be able to show evidence of where the £200k came from, which bank account etc. Only she knows if this would be acceptable to her - she’d have to trust you a lot to do this. Tbh if she were my friend I’d advise her not to do it. My mother did this for me (not £200k) and that’s the kind of level of trust it would have to be. I think if you can’t buy this place, you can’t and them’s the breaks.

This would take absolutely ages and why would the existing mortgage holder on the property agree a change to another party? It would be far quicker to do the bridging loan, which OP has said will take too long

I mention it a a possible solution as, back in the day, it's how I used to extract equity to fund the purchase of additional buy to let properties, except rather than use a friend for the loan I used a bank. Either way, it can be done quickly with a good solicitor. At a practical level it's the same as a bridging loan as both are secured on a property so require a lender's consent, except a bridging loan would be more expensive :)

The fact that you need £200k quicker than just getting a bridging loan... which could take a matter of days... again screams fraud 🙄