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Original poster

Private Mortgage for Friend

26 replies

Caribun · 04/10/2024 18:47

I hope someone can help as we're getting very confused thinking about it!

We're in the very fortunate position of moving to our new home with no mortgage and wanted our friends to move into our current house. They're struggling to get a mortgage, so were going to arrange a private loan/mortgage between us with no deposit, no interest and approx 75% of the value of the house to give them a helping hand.

The problem we keep getting confused with is what they'd do if they wanted to move. They'd need a 'proper' mortgage if they wanted to move, but they'd still owe us money if they moved before the term was up?

We have no desire to be landlords, and they want/need to get onto the property ladder so please don't suggest that we rent to them!

OP posts:
whoopdeedoo · 04/10/2024 18:51

This is very generous of you but has disaster written all over it. Never lend money to friends unless you are absolutely prepared to never get it back.

Original poster
Caribun · 04/10/2024 18:53

whoopdeedoo · 04/10/2024 18:51

This is very generous of you but has disaster written all over it. Never lend money to friends unless you are absolutely prepared to never get it back.

Worst came to worst and they stopped paying us, we could afford to lose the money. We'd prefer not to, hence not just giving them the house, but we could.

OP posts:
Silvertulips · 04/10/2024 18:54

Friends? So not family?

So many loop holes here!

Sell it to them for 75% less and they should get a mortgage - or even 50% less

Or even sell them 50% and keep 50% so they build equity and you retain some value.
ove to know what you’re thinking here!!!

Original poster
Caribun · 04/10/2024 18:58

Silvertulips · 04/10/2024 18:54

Friends? So not family?

So many loop holes here!

Sell it to them for 75% less and they should get a mortgage - or even 50% less

Or even sell them 50% and keep 50% so they build equity and you retain some value.
ove to know what you’re thinking here!!!

As close to family as they could be.

They can't get a 'proper' mortgage for various reasons, which is why we aren't just selling it to them at a reduced price via a traditional mortgage.

We were hoping to give them a hand onto the property ladder by having a home in their name, open to suggestions about how else we could do it or what we're doing wrong.

OP posts:
Candyfluffs · 04/10/2024 18:59

Why don’t you rent it out to them at a very low cost? Either way I’d consult a solicitor.

menopausalmare · 04/10/2024 19:03

Please don't do this. Keep money out of friendship.

Original poster
Caribun · 04/10/2024 19:08

Candyfluffs · 04/10/2024 18:59

Why don’t you rent it out to them at a very low cost? Either way I’d consult a solicitor.

Because we have no desire to be landlords and everything that would entail.

Yes I think we'll have to speak to a solicitor.

OP posts:
Mumsgirls · 04/10/2024 19:23

A friend of my mum did this years ago. Legal mortgage deed drawn up and charge taken on property. Loan interest free.
After ten years Mum wanted to move, sold house in usual way, debt replayed and equity used to buy the new house with normal bank mortgage. Friend long gone, but remembered for kindness that gave a foot on housing ladder. If Mum had defaulted, friend would have been legally able to get possession of property, to sell on. Only difference was nil rate mortgage, which you are generous enough to agree. Pity there are not more such friends around.

CoughedBulldozerNumber · 04/10/2024 19:35

When a bank lends a mortgage the deeds are drawn up with a "charge" on the property whereby the bank has first call on the proceeds of the sale of the property if it is sold.

It should be possible for you to place a similar charge on the deeds. You will need your own solicitor to make sure this is done right. It will mean that the property is considered theirs but if they sell it their conveyancing solicitor will not give them the funds without returning what is yours to you. You will need to keep rigorous accounts to be able to prove how much they have repaid and hiw much is still owed.

It's important that you do it this way - if you structure it as shared ownership you will incur capital gains tax when you transfer ownership to them. If you don't have a charge on the property you will end up paying inheritance tax on your own asset if your friends were to tragically die before paying off the debt.

AboutVattime · 04/10/2024 20:03

I am
Going against the grain and saying you are a truly lovely friend.. don't let others fob you off .. if you can afford to loose it then it's a completely different deal ! Well done you for being my best of all qualities.. kind .. ❤️

ToffeeSquirrels · 04/10/2024 20:12

Why don't you retain ownership
OP but let them live in it rent free so they can save the money for a deposit/mortgage later?

Wibblywobblybobbly · 04/10/2024 20:12

You need a solicitor involved to draw up an agreement and put a charge on the property in your name. Otherwise there are lots of situations in lwhich you might not get lyour money back e.g. death, divorce, care homes.

WolfFoxHare · 04/10/2024 20:18

Only do this if you can afford to lose the money.

AppropriateAdult · 04/10/2024 20:39

If they sell I'd imagine they can either use that money to buy another house, while continuing to pay you back, or pay you back in full with the proceeds. But I would agree with PP's suggestions to draw up a proper agreement with a solicitor.

You sound like a lovely friend.

TwoeightTwoeightTwoOhhhh · 04/10/2024 21:14

I agree with @ToffeeSquirrels
retain ownership, charge £1 rent but proper rental agreement with a deposit saved in the official scheme. Once they have saved up enough as either a deposit for a proper mortgage, or as the payment you agree in full, then sell it to them.
Draw up an agreement that major repairs get added to the house price unless you are happy to pay those too (eg if it needs a new roof)
I’d also add a time limit to the deal so if in 10 years (or what ever you agree on) they haven’t saved enough then the deal is off.
it’s very generous of you to do this, but unless you’ve won euromillions you don’t know what your financial future holds. You really shouldn’t give away your security even if it is your best friend. What if your partner waltzes off? Would you end up sleeping on the floor of the spare room in the home you used to own?
as the saying goes… fit your own mask before helping others

SoNiceToComeHomeTo · 04/10/2024 21:17

Oh, let them live in the property for a nominal rent and save up a deposit. Then they can get a mortgage and buy it off you, for a below market price if you want. Acting as a bank to good friends is bound to be a disaster and will leave a strange kind of audit trail whenever they want to move, which might prevent them getting a mortgage.

Icanttakethisanymore · 04/10/2024 21:25

The answer to your question is -

If they wanted to move they’d sell the house you sold them and pay off the outstanding loan with the proceeds from the sale. They’d have whatever equity they had built up in the property to buy another one. If they couldn’t get a mortgage they’d have to find a property which was affordable with the equity they had accumulated in the property you sold them. Unless of course you’d be willing to continue the loan agreement once they had moved to a different property?

Are you specifically keen for your friends to live in your old property? Once you’ve sold it to them (for 75% of the market value) they could immediately sell it and pocket the 25%.., would that be ok?

LadyLolaRuben · 04/10/2024 22:15

This is very generous of you. I know someone who has done this for similar reasons. You need to get a financial advisor and solicitor advice for a rock solid agreement to protect you all

redtrain123 · 04/10/2024 22:23

Why are they struggling to get a mortgage? Not enough deposit? Poor credit history? (Are they reliable with money? Employment? Etc).

Could they get a mortgage for 50% of the house. You then own it 50:50. They maintain it etc (in lieu of rent) and then if they sell, you each get 50:50 of the sale.

StMarieforme · 04/10/2024 22:29

I would do what you are doing if I could OP. Please bear no heed to the nay sayers.
If they wanted to move, they would sell the house at current market value, clear what they owe you (<75% of market value) and then use the other >25% as a deposit on their new place.

I suggest they spend the interim improving their credit rating so that they can get a mortgage in future too!

Original poster
Caribun · 05/10/2024 08:36

Thanks everyone.

If they sold it immediately and made 25% profit, that's fine, we don't mind at all. They're keen to move into our area and homes here are expensive so this was a way to help them, if they want to live here.

The alternative that we may offer is to boost their deposit for them with no expectations of repayment, to help them buy a house of their choosing, which is probably more straightforward!

They were struggling to get a mortgage partly because of deposit but also partly because they are self-employed, and haven't had their businesses for long.

OP posts:
Silvertulips · 05/10/2024 10:52

What do you need from this property?

75% value? long term? Effectively giving them 25% deposit.

Could you charge rent on the 75% into a long term savings account which will add to the 25% deposit - then at some point them will have 40/50/60 % deposit giving time for their business to grow and be in a better position for a mortgage in the next 3 years?

Zanatdy · 05/10/2024 21:37

I’d seek legal advice as friendships (however close) can breakdown. Whilst your offer is extremely generous, often money can be the cause of relationship breakdown’s so tread carefully.

cabbageking · 05/10/2024 21:46

To comply with money laundering regulations the mortgage provider should verify income and where any deposit came from. If you are involved you need to be on the mortgage to safeguard your investment or you may be asked to sign that this is a gift that can not be legally claimed back.

You leave yourself vulnerable if you have nothing set to paper. Get some advice about options.

Farting · 05/10/2024 22:15

Don’t do it. I predict you’ll lose the friends and the house.