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Borrowing to lend

mortgage deals, ideas and discussion
DaveE101
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Borrowing to lend

#25696

Postby DaveE101 » January 24th, 2017, 1:49 pm

Hi

My partner A (not married) is looking to buy her council property with the aim of renting it out for the minimum 5-year term before selling. Even though the property is in a tower block (low floor), it is in inner London so we are confident that there should be no problem with rental or eventual sale. The official valuation has increased 15% in the last 12 months. The discounted cost is well within normal multiplier range for a mortgage based on her current salary. Unfortunately, her credit history is very poor and it seems likely she will struggle to get a reasonable mortgage offer.

I, on the other hand, have a good credit history and an unencumbered rental property in addition to my residence (also unencumbered) where we will be living.

I was originally thinking of acting as guarantor to A to assist with her mortgage application but am now considering taking a BTL mortgage on my rental property and lending the money to A at cost. The property is to be purchased in A’s name only.

Thoughts:
I will probably get a better mortgage deal than A and more quickly
I will need a solicitor-drafted loan agreement and to take a charge over A’s property. How much is this likely to cost?
Would I fall foul of any credit lending requirements?
A will not be applying for a homebuyer mortgage so there would be no dishonesty over her intention to rent immediately.
I am risk-averse but the amount involved, though significant, is not life changing for me.
Taking the BTL mortgage will impact my credit record unlike the guarantee (unless things go bad)

Any other legal/tax/cost considerations, alternatives or suggestions?
Thanks in advance

Dave

Clitheroekid
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Re: Borrowing to lend

#25872

Postby Clitheroekid » January 24th, 2017, 8:53 pm

I could answer this question, and actually began to do so, but on second thoughts I've taken the view that this is one of the very few occasions where I can't provide advice simply because it would facilitate something I consider to be wrong.

Whilst I accept that your partner is legally entitled to force the Council to sell her the flat at a large discount and then let it out at probably several times what she's now paying I personally think it's a disgrace that she is able to do that.

I was never a fan of RTB anyway, but at least I could see some theoretical justification for selling to a tenant who was going to carry on living there.

But to my mind it's an abuse of the RTB system to do what your partner's doing. It's taking a housing unit out of desperately needed social housing and putting it into the private sector, and almost certainly at a rent that ordinary people whose families have lived in the area for generations couldn't dream of affording. And after profiting for 5 years from the inflated rent your partner then cashes in on the sale, pocketing the discount.

I must make it absolutely clear that I am not criticising your partner personally, or you either. Or, for that matter, the hundreds of thousands of others who are doing just the same. They're all acting in an entirely rational and sensible way in taking advantage of an insane law.

What I am criticising is a legal system that not only permits but actively encourages this exploitation of public assets for private profit, the destruction of the public housing sector and what amounts to an ethnic cleansing of lower income families out of large areas of London.

My apologies for using your perfectly innocent and reasonable post as an excuse for a rant, but there are some occasions when `professional detachment' doesn't work as well as it's supposed to, and this is one of them. Maybe someone else on LF can take a more objective view, but if not I'm sure there are plenty of solicitors who would be only too happy to provide the advice you need if you pay them their 30 pieces of silver!

Lootman
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Re: Borrowing to lend

#25877

Postby Lootman » January 24th, 2017, 9:09 pm

Dave,

One of my children wanted to go down this route, and I talked extensively to my solicitor and my accountant about the pro's and con's of different approaches. In the end I decided it would be inefficient to do this, and for a few reasons:

1) I didn't want a lien or charge against the property because, realistically, would I ever foreclose on one of my children?
2) I didn't want to make a direct loan or mortgage to her because I did not want to pay income tax on the interest repayments
3) It's not very efficient for inheritance tax because, depending how its done, either the property or the loan or the charge remains my asset
4) It sets up inter-dependencies that complicate the matter more than I want to deal with.

So I simply made her an outright cash gift to enable the purchase and otherwise I am hands-free. After seven years there is no inheritance tax, and I simply consider it to be an early inheritance. If she really wants to show her appreciation she can pay me the odd dividend, preferably as a gift.

The only snag is that if you make this deal for one of your children, you'd better be willing to give it to them all. They talk about stuff like this, a lot.

DaveE101
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Re: Borrowing to lend

#26304

Postby DaveE101 » January 26th, 2017, 11:20 am

Hi CK

Thank you for the explanation of your decision though I am obviously disappointed at the lack of helpful response, especially as the fact it is an RTB is irrelevant to the query and could have been omitted.

Sometimes being honest and telling the whole truth is a disadvantage! :(

Dave

pompeygazza
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Re: Borrowing to lend

#26334

Postby pompeygazza » January 26th, 2017, 1:56 pm

I'm pretty sure that the rtb is dependant upon her buying and not you, thus you won't be able to get a mortgage for it, it'll have to be in her name.

Plus this may scupper your plans "Family members may be eligible to join in the Right to Buy with you. However, if they are not named on the tenancy agreement, they will need to have lived in the property for the past 12 months. There is nothing in law that specifies how a Right to Buy purchase should be financed. A family member (or someone else) could provide the funding for the purchase. However legal ownership of the property can only be in the names of the eligible tenant/s and other eligible applicants."

amh4
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Re: Borrowing to lend

#26347

Postby amh4 » January 26th, 2017, 3:16 pm

Hi Dave,

I tried to help a relative once to buy her own house. After she had been in the house for some months, her circumstances
changed dramatically, leaving her totally unable to pay any money at all, leaving me to pick up the pieces.

With hindsight, I was trying to help her beyond her capacity - she needed my help to enable her, and it was not a good decision
on my part.

Hope that is useful

Anne-Marie

blazeboy
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Re: Borrowing to lend

#39153

Postby blazeboy » March 16th, 2017, 5:23 pm

A bit late to reply but it might help.

You can as a relative give money to assist in the purchase of a property. Most lenders will want this to be a 'close' relative. A 'gifted' letter has to be submitted to the lender. It states that the donor has no financial interest in the property and that the gift is non-refundable.
The fact that it is a RTB is irrelevant as far as the gift is concerned. I think that Natwest will allow certain options as far as the gift is concerned which would be outside the criteria of other lenders.
How you raise the gift is not a problem as long as it complies with money laundering regulations. Some lenders will ask for proof of how the money was raised.

Dod1010
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Re: Borrowing to lend

#39166

Postby Dod1010 » March 16th, 2017, 7:13 pm

Personally I go along with CK. I think the whole concept is disgusting and an abuse of the spirit if not the letter of the law. Why on earth should the good citizens of the London borough concerned subsidise the partner because that in effect is what is happening

In principle borrowing to lend is no problem I would have thought, but in this situation? Bah humbug.

Dod


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