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Loan to family member (kind of)

A family member is putting down a deposit on a house. He is lacking by 50k.

A family member is putting down a deposit on a house.  He is short by 50k. A friend has loaned him the amount (with a full loan agreement in place).  However the bank has said they will only accept the loan from a close family member and not a friend.

He is asking me if he can transfer the amount to me, and then I loan it back to him, which would be acceptable to the bank as I am family.  Is there a way of doing this?  It smells a bit to me?

Many thanks,

L.

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30th Oct 2017 21:57

Ah the heady whiff of mortgage fraud.

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By mrme89
30th Oct 2017 22:00

This is a legal question, and you’re on an accounting forum.

That said, my initial though was that if your relative defaults on the loan, you are stuck with a £50k debt.

The mortgage terms may also have provisions that prohibit this arrangement. Otherwise it would be too easy to circumvent.

You must take legal advice. Preferably at the expense of the person that is wanting £50k.

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to mrme89
31st Oct 2017 07:12

And the legal advice should include the cost of taking out a charge on the property. You'd be in second place behind the main mortgage provider and would need their permission, but you should get some form of security.

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By Ruddles
30th Oct 2017 22:23

A lends to B

B gives the money away to C. C is very grateful but B still owes A.

C lends back to B.

So B, having originally borrowed £50k, now owes £100k - £50k to A and £50k to C.

What a marvellous idea

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30th Oct 2017 22:34

Pretty simple. Run it by the bank.

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31st Oct 2017 07:29

You know what ? Everything will be fine until someone doesn't repay the money to someone else on time.

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31st Oct 2017 09:18

There is a reason the bank won't allow this and it's because a loan from a third party with a loan agreement in place impedes the borrower's ability to repay the mortgage.

The bank will be happy if the borrower has no other borrowings they are obliged to repay on a schedule which means your protection for not getting stuck with a £50K debt goes out the window.

When they say they're happy for him to get a loan from a family member they mean get a 'loan' from a family member.

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31st Oct 2017 10:25

Are you sure the bank are happy to accept the payment as a loan - even from a family member?
I gave my son £7k to help towards his house purchase (a bargain cost to get rid of him).
It was documented as a gift, not a loan - not that I ever expected to get repaid.....

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to memyself-eye
31st Oct 2017 11:08

Exactly what I was getting at, the bank require the borrower to get an informal 'loan' rather than a loan. If a legally binding agreement was entered into for repayment of the loan this would impede the ability of the borrower to repay the bank and therefore block the mortgage application.

Who the agreement is with is irrelevant, the reason they've said to get it from a family member is that this typically means no legally binding agreement.

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to Duggimon
31st Oct 2017 11:49

It is good to see the popular "loans that are not really loans" branching out now their time as disguised earnings seem to be at an end. :-)

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to stepurhan
31st Oct 2017 11:57

It's a whole new career.

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