Private Mortgage
Discussion
Hey Guys - Long story short - we are currently in a rented house, we have a close relationship with the landlord (family friend) and have proposed that we purchase the house. (house was his mums, to much land and to much work for him, he wants to go travelling)
we have had valuations by independent estate agents, and agreed a price between us, that we are both happy with.
the likleyhood of us attaining a mortgage is going to be difficult due to being recently self employed (3years) and the house value at 350k+
he has agreed to a private mortgage, and we will be drawing up contracts to protect both of us, both in payment schedules, backing out, death, value of house going up as we do remedial work, but sticking to agreed value etc..
just wondering if anyone had ever had any experience of purchasing a house this way, or if there should be anything i make sure is in the contract.
excuse my bland and vague description, im not a regular poster on here, but should anyone want more detail, im happy to divulge.
TIA
we have had valuations by independent estate agents, and agreed a price between us, that we are both happy with.
the likleyhood of us attaining a mortgage is going to be difficult due to being recently self employed (3years) and the house value at 350k+
he has agreed to a private mortgage, and we will be drawing up contracts to protect both of us, both in payment schedules, backing out, death, value of house going up as we do remedial work, but sticking to agreed value etc..
just wondering if anyone had ever had any experience of purchasing a house this way, or if there should be anything i make sure is in the contract.
excuse my bland and vague description, im not a regular poster on here, but should anyone want more detail, im happy to divulge.
TIA
Disclaimer. I have never purchased a house in this way.
But, In my view there should be absolutely nothing that references the value of the house and its potential to fluctuate, in this agreement save for the protection to repay to the lender principal plus interest.
You borrow the principal, you are responsible for paying back the principal plus interest over the life of the loan. The lender (landlord) has a first charge for the remaining net principal (and interest per terms) at any point of default.
Else, you are starting to go down a route of unclear owed amounts if the market booms or crashes, or if you want to sell having spent money on the place etc. I know you say that you are sticking to agreed values, therefore I don't even know why this is mentioned.
I don't think this is a bad idea, it just needs to be drafted per commercial terms/principles which allows the fairest deal for both parties.
The lender should also take advice re their tax/legal responsibilities. You may also have to.
ETA: Don't know how old the landlord is, or the length of the mortgage, but I would also look to be clear as to whether this forms part of their estate were they to require full time care etc. I don't know if this means that an estate or council, for example, could call the loan early to pay for care or the repayment of other debts.
But, In my view there should be absolutely nothing that references the value of the house and its potential to fluctuate, in this agreement save for the protection to repay to the lender principal plus interest.
You borrow the principal, you are responsible for paying back the principal plus interest over the life of the loan. The lender (landlord) has a first charge for the remaining net principal (and interest per terms) at any point of default.
Else, you are starting to go down a route of unclear owed amounts if the market booms or crashes, or if you want to sell having spent money on the place etc. I know you say that you are sticking to agreed values, therefore I don't even know why this is mentioned.
I don't think this is a bad idea, it just needs to be drafted per commercial terms/principles which allows the fairest deal for both parties.
The lender should also take advice re their tax/legal responsibilities. You may also have to.
ETA: Don't know how old the landlord is, or the length of the mortgage, but I would also look to be clear as to whether this forms part of their estate were they to require full time care etc. I don't know if this means that an estate or council, for example, could call the loan early to pay for care or the repayment of other debts.
Edited by 01WE01 on Friday 15th January 23:17
01WE01 said:
Disclaimer. I have never purchased a house in this way.
But, In my view there should be absolutely nothing that references the value of the house and its potential to fluctuate, in this agreement save for the protection to repay to the lender principal plus interest.
You borrow the principal, you are responsible for paying back the principal plus interest over the life of the loan. The lender (landlord) has a first charge for the remaining net principal (and interest per terms) at any point of default.
Else, you are starting to go down a route of unclear owed amounts if the market booms or crashes, or if you want to sell having spent money on the place etc. I know you say that you are sticking to agreed values, therefore I don't even know why this is mentioned.
I don't think this is a bad idea, it just needs to be drafted per commercial terms/principles which allows the fairest deal for both parties.
The lender should also take advice re their tax/legal responsibilities. You may also have to.
ETA: Don't know how old the landlord is, or the length of the mortgage, but I would also look to be clear as to whether this forms part of their estate were they to require full time care etc. I don't know if this means that an estate or council, for example, could call the loan early to pay for care or the repayment of other debts.
Ace - as i say, im open, thats just my initial thoughts. essentially then, i guess i need to look at it from a loan standpoint rather than a house standpoint.But, In my view there should be absolutely nothing that references the value of the house and its potential to fluctuate, in this agreement save for the protection to repay to the lender principal plus interest.
You borrow the principal, you are responsible for paying back the principal plus interest over the life of the loan. The lender (landlord) has a first charge for the remaining net principal (and interest per terms) at any point of default.
Else, you are starting to go down a route of unclear owed amounts if the market booms or crashes, or if you want to sell having spent money on the place etc. I know you say that you are sticking to agreed values, therefore I don't even know why this is mentioned.
I don't think this is a bad idea, it just needs to be drafted per commercial terms/principles which allows the fairest deal for both parties.
The lender should also take advice re their tax/legal responsibilities. You may also have to.
ETA: Don't know how old the landlord is, or the length of the mortgage, but I would also look to be clear as to whether this forms part of their estate were they to require full time care etc. I don't know if this means that an estate or council, for example, could call the loan early to pay for care or the repayment of other debts.
Edited by 01WE01 on Friday 15th January 23:17
this is also my first house buy i may add!
the length of the mortgage isnt long at all,and we are thinking about adding an option to review after say 5 years, as we will be in a better position to get a 'proper' mortgage with the equity we have in the house, better financial standpoint, etc
in terms of care. ill take a look into it, however i cant see that coming into it, but will check.
thank you for the advice
Misterrd said:
the length of the mortgage isnt long at all,and we are thinking about adding an option to review after say 5 years, as we will be in a better position to get a 'proper' mortgage with the equity we have in the house, better financial standpoint, etc
Again, wouldn't put anything bespoke in it re an option to review the loan after five years. I would just have a standard term that allows you to repay it at any point, then you are free to remortgage - though I am not sure how willing a standard lender would be when their funds are used to pay off a non-regulated loan. Again, something to get advice on. You should try to speak to Sarnie, a forum favourite mortgage broker, on here as you may be surprised at the ability to get a mortgage.
Most lenders want 2 years accounts and work from the salary and dividend you have paid yourself.
If you haven’t drawn all the profits, lenders like Barclays and Coventry will work off your directors salary and net profits of each tax year.
Barclays are capped at 4.49 times income at the moment but Coventry are doing 5x more often these days.
With self employed at the moment, a lot will want 3 months bank statements to show you are still trading and may compare the bank statements with Jan Feb Mar of 2020 to see pre Covid trading.
If you haven’t drawn all the profits, lenders like Barclays and Coventry will work off your directors salary and net profits of each tax year.
Barclays are capped at 4.49 times income at the moment but Coventry are doing 5x more often these days.
With self employed at the moment, a lot will want 3 months bank statements to show you are still trading and may compare the bank statements with Jan Feb Mar of 2020 to see pre Covid trading.
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