Family Loan

[Steve Campbell]

Seem loads of templates on line but looking for PH wise words.

Scenario ; My MiL (aged 84) is looking to move into a purchased sheltered accommodation flat sometime soon. She owns her own house which is worth twice the cost of the new place with no mortgage. She has enough cash to cover about 70% of the cost of the new place outright. It’s highly likely she will need to move quickly to secure the ideal flat (ie before her house is sold) as it’s a competitive market in the place she wants to move to and good rooms don’t come up that often …. and one is about to be available. We are in a position to cover the difference until the house is sold and have offered to support with a zero interest loan to be repaid on the final sale of the house when she moves.

What is PH advice in terms of best template to use ? How do we cover the potential that she snuffs it before the loan is repaid (unlikely but a risk at 84 !) ? What other risks should we consider in the simple loan agreement ?

Thx

[anonymous-user]

Probably safest route is to loan and take a charge over the unsold property. This way if they pop their clogs before repayment IHT wont become an issue. Any solicitor will sort easily

[LooneyTunes]

Steve Campbell said:

What is PH advice in terms of best template to use ? How do we cover the potential that she snuffs it before the loan is repaid (unlikely but a risk at 84 !) ? What other risks should we consider in the simple loan agreement ?

If she does die, issue could be other siblings of your wife.

You need to have the ability to push through the liquidation of assets to recover the loan if necessary. Have seen it happen before where someone in the family will block the sale of a property because they claim they’re “giving it away”, preventing others from recovering cash (whether loans or inheritance) so that they can try to wring out their 1/3 share of a couple of grand (whilst enjoying using the house as second home).

[Steve Campbell]

Thanks folks. Other 2 siblings are in agreement in terms of us helping. All stable and living elsewhere in the country so no interest in living in the house or using it. I think a charge on the house as collateral for the loan might be the way. We might get the other siblings to be witnesses to ensure it’s all clear. Does that have an impact on the sale process ?

[AndyAudi]

AnotherUsername said:

Probably safest route is to loan and take a charge over the unsold property. This way if they pop their clogs before repayment IHT wont become an issue. Any solicitor will sort easily

This, I did similar for family member.

I know you don’t plan on doing this for for a while but think of the “what if’s” which solicitors should help with.
MIL becoming incapacitated & unable to instruct return of funds, the house your cash is secure against having a problem pre-sale etc
They will prob suggest an interest rate, I dialled mine back to “base + 1”, also you can agree who picks up all fees - mine would’ve been about £1k counting those at either end of term (time & registering the charge)

[ATG]

You could certainly get a solicitor to draft a note. When I was in exactly the same position a few years ago I wrote a note myself setting out the terms of the loan and my mother in law and I signed it and had it witnessed by someone else. The terms were very simple, just as in your case, and the family members were few and trustworthy. Everything went smoothly. Had she died before selling her house, beyond a delay caused by probate, I don't see there would have been any problem. She had no other debt. The terms of the loan were clear. As with any other liabilities, the executors would have settled the debt before establishing whatever monies could be distributed to the legatees.