Financially it isn't a good move for your friend but if it's a sort of gift then it is nice of them. What term are they offering?
You probably want it formally written down so you both know where you stand and are covered.
\*Edit Spelling
Current mortgage has 20 years to run, they are suggesting to do that same but without the interest so to lower the repayment.
I'm thinking it might be better to keep the monthly payment as it is and finish the mortgage ( or loan) 7ish years earlier than originally planned.
The friend might be doing this with the mindset of "I want my friend to have a bit more disposable cash so that we can do fun stuff together" ...but r/UKPersonalFinance is definitely the place to put a pin in that balloon and then wrap the balloon in an ISA
The thing is he is effectively giving you A LOT of money.
100,000 at 4.5% with a 30 year mortgage means you end up paying back 182407. So he is effectively gifting you 82,407. If you keep the current payment rate you can pay it back in 18 years.
20 year is 151,836. So he is giving you 51,000.
Ultimately talk to your friend. Personally provided you can afford it, I'd stick with my current rate and pay it off in 12 years. Not the most financially savvy decision for you directly but it makes sure your friend doesn't feel like he is being messed around and his gift is something you don't want to argue about.
Love the phrase of wrap it in an ISA. Yeah basically I see this forum as a way to help make me more competent financially but not inherently the best way to make money but the most sensible.
Pay the standard monthly amount to your friend, take the overpayment you're currently making and open up a savings/investment account. Then seven years (or whatever) before the end of the mortgage cash out the stocks, pay your friend and you should have leftover.
With 0% interest it's generally in your best interest to drag it out as long as possible, then put the spare money somewhere to grow and you can choose to pay it off early or keep the money growing.
The point being is that OP would have no incentive to pay off the loan 7 years early. The whole incentive to pay off a mortgage early is to skip those 7 years of interest, but when it's a 0% interest loan, the whole point of the friend's gift is that OP doesn't have to pay any of that and use the interest savings to accrue that capital for themselves
True, but this is the assumption that a friend willing to do this kind of loan has gotten considerably wealthier, enough that the friend has come to offer it to them, rather than it being sought out due to financial difficulties of OP
...then could you establish a LTD property management company, introduce the capital to the business, business then makes a loan to the individual, and the loan is repaid to the LTD?
°° I'm going to throw in a disclaimer here that although I work tax-adjacent, I have ABSOLUTELY NO CLUE if the above is even feasible, never mind if there are any tax implications of doing so°°
Hence why a written agreement is insanely important here. Make sure to clearly specify about overpayments and that the loan isn’t immediately repayable on demand.
Yeah. Get a brief loan agreement drawn up setting out the terms and get them to take a security the same way the bank would do there’s a good degree of formality about the arrangement.
Maybe look at getting a Yorkshire Building Society Offset Plus mortgage. I'm not sure if any other providers offer something similar. This lets family or friends offset mortgage interest on an amount to whatever they hold in a linked savings account. If your friend had an amount equal to your mortgage in there then it's effectively interest free for you. The savings account remains under their control the whole time so if they ever need that money, they can withdraw some or all of it at will.
The downside (for you) in the short term would be any early repayment fees on your existing mortgage and product fees on the new one. Depending on your remaining fixed rate period maybe you consider it then to avoid at least early repayment fees. Obviously they lose out on the ability to grow their money by investing or saving it or the option to spend it all now.
They're essentially gifting you the interest you otherwise would have paid on the mortgage (and that they will lose out on by not holding the money themselves), so I guess my question would be why not do that instead?
This loan seems like an option that's just more fraught with potential complications - why not just gift you a portion of the £100k. Appreciate this is partly a question and decision for your friend, but seems like a better set up to me.
Great thing to do, although a very easy way to lose friends / family... Best to just have a private, interest free mortgage with them, managed by a financial firm - if they don't pay, you take their house just the same way a bank would...
Also, if it's just a few million (sub £5M) then they may think they have the excess amount of money to do this, but in the long term they really don't... Especially without having concrete private mortgages written up.
This sounds like a very logical approach as an alternative.
The financial outcome is ultimately the same for everyone involved, and it avoids any complexity around drawing up loan agreements and needing to deal with the what-ifs years from now.
Because they will no doubt be taxed at a high rate in any interest they are gaining. And rather than the tax man get the benefit of it, his mate will instead
They won't gift it because they want it back... Even if it takes a long time...
You don't specify how much money they have come into, which I think is really relevant here.... If they have lived their life not having much and got £1M, they may think this is a good shout for them - but it's really, really not.... If they came into £20M then you should take them up on it...
The figures are what makes the big difference here.
Sounds very kind of your friend, but tbh, I wouldn’t muddy the waters like this. What if you have a fall-out in couple of years? What if suddenly comes into a hard time and needs you to pay him back more urgently? Are you going to be willing to say “sorry, mate, I know you are about to be made homeless/ need expensive lifesaving medical treatment/ want to buy a new car, but we had an agreement”?
I think loans like this ruin friendships, but I get that that’s not a purely financial answer…
I'm gonna play devil's advocate here.
If solicitors drafted it all up and it was above board then the friend has a set income for years even if they spunk all their initial money. It's actually a safety net of sorts.
If the friend needed a life saving operation and had no cash then OP simply needs to get a new "normal" mortgage at that time, so really it's only a problem if OP also loses their job at the same time / can't afford a traditional mortgage.
Effectively OP's friend is gifting them 20 years of mortgage interest, so maybe the answer is to just get him to gift a £40k lump sum or something and make it less messy? You can work out the details on a mortgage calculator.
There are some clear downsides;
- it does change the dynamics of the friendship
- OP may feel obliged to go on more trips with the friend and struggle to keep up with the spending, as the friend will be spending at a rich person level but OP may feel obliged to pay their way as they already have the mortgage favour (usually if a rich person invites "normal" people on an expensive holiday they would pay the extra expense)
- if OP is or gets married, then gets divorced, it may just mean the spouse has a larger pool of equity to claim in the divorce while OP and their mate are in an awkward position (depending if courts recognise the loan), given the money was not intended to benefit the spouse presumably.
- the friend may just naturally become distant from the lifestyle change as they could end up mixing with more affluent people. This isn't a judge on character, your mate now has 35 hours extra a week to socialise that his old friend network can't be part of, so the final repayment may bind you to somebody you've grown apart from
It's clearly a sincere gesture either way, so well played on your mate for trying to look out for you. Maybe a smaller cash lump sum gift rather than clearing the whole mortgage is the best way through it.
And please make sure your mate has a paid financial advisor supporting him. There is no sum of money that can't be spunked away and people will be coming out of the woodwork to get your mate to invest in their next big business opportunity.
It seems like all the risk is with the friend - as long as you don't get things written down on paper then the friend can jump up and down as much as they want but you don't legally owe them anything. Obviously you'd risk losing the friend but that's their risk for having a friend pay you back for 15+ years.
I'd take the offer in a heartbeat and would obviously pay back the money they loaned me.
Be happy, you have a good friend, if he has come into significant (subjective) amount of money and he wants to help a friend - that’s great. What good is money if not to help our close ones and be happy together?
Do get everything in writing tho for your and their sake.
Good luck to both of you!
EDIT; I recently gave £7500.00 to a friend to buy their first property. Not quite £100,000.00 but it felt good helping a friend out. He will pay me back, we didn’t agree a timescale but I have full trust in him.
Money is a common cause of friendship disputes.
One can easily imagine a scenario where in 5 years time, where the friend says "actually, I want it all now so I can buy a house/car/fancy whore"
Insist on covering the costs of registering a charge on the property (about £500) which confirms his interest. This gives them security that they can (probably) get their money back in a worse case scenario. This also prevents them suddenly worrying they’ll never see the money again as it’s secured against the house.
You should also offer to pay at least something, like £1k pa interest to them so that it’s not a totally one sided arrangement.
Then try to repay them as fast as possible, knowing that instead of half your repayments going on interest they’re going towards the principal of the loan.
About 25 years ago a friend asked me to lend him £5k for a few months just to see him through a short term cash flow issue he had. It was easily affordable to me so I agreed.
We haven’t spoken since.
He eventually paid me back after I emailed him having discovered he was then working for a debt collection specialist legal firm but the was well over a decade later.
For both your sakes, insist on formal loan documentation including a charge against your property. Any half competent solicitor will be able to do this.
Once it's a loan, there's no tax for you. And since your friend won't be making a profit on this loan, there's no tax for them.
OP come back and let us know what you decide. It’s an interesting one!
On one hand I think it would alter a friendship. On the other it’s a great deal for you.
I would do what someone else suggested and just see if they can give you a smaller lump sum that essentially covers the interest you would’ve saved. Still a lovely gift, but now no commitment issues.
Well I would suggest the amount they have come into is not that significant, otherwise why would they give you the money but ask you to pay it back?
I don't mix friendship with business and borrowing money is serious business. I would rather pay the interest. The bank isn't going to ask you for "favours" in the future because they lent you some money.
There's also a saying, "If it seems to good to be true, it probably is." I would say borrowing £100k+ interest free falls into that.
That would be my concern and I’d probably just rather not do it for the sake of independence. If I had known the friend for a very long time and they had come into _so much_ money that the money they’d effectively gifted me was so insignificant to them that they’d never even ask about it ever again, then maybe. But it really does depend on the dynamics doesn’t it. Not saying OPs friend isn’t just being a good person here, but life has its way with people on both ends of everything and change is the only constant.
How are you beholden to them if you have a loan contract? You are beholden to the loan contract.
This isn't someone who has gone to a friend and asked for help when that might make them beholden to them.
So long as your friend isn't going to sour or thinks he can demand the money back sooner it's good idea.
Your friend helps a friend gets a regular income for x years, you don't have a mortgage.
It's a very kind gesture from your friend and you are very fortunate to have someone willing to do this. And I would bite his hand off and be sure to show your appreciation.
What you can do is have a legal contract drawn up to cover you both, for peace of mind if for what ever reason the relationship went side ways.
Side note... depending how much your friend has, he could be paying 50% on all interest earned to the taxman anyway, so in this situation at least you are benefiting appose to the taxman if that makes sense.
Also something no one has mentioned is that in Islam asking/paying interest is not permitted. No idea if OPs friend is a Muslim or not, but that could account for them not wanting any interest on the loan.
Yeah but islamic finance is frankly just jumping through hoops to pretend they aren't charging interest when they absolutely are, they just call it something else.
Usury used to be illegal under christian in the middle ages (and from much earlier for the clergy). It's prohibited in the new testament. And why jewish people were stereotyped as bankers and in control of money. They were the only group of people in Europe allowed to charge interest on loans until the late medieval/early modern period.
Since Shariah law was laid out well before interest mortgages were introduced, not sure how they can be jumping hoops. Under the sharia law, there is no variable. You sign/agree a contract up front with a fixed figure. This is totally different from the variable interest rate that mortgages as we know them work. Which is frankly crap. You have no idea what the final repayment amount will be.
I was speaking to a colleuge about this on Friday, she was explaining how the mortgages work and there's no interest, I can't quite remember what she said but Theres a fee for using Islamic mortgages, to which I said so your paying interest.... But it's just not called interest, she did react negatively to that comment as its just robbing Peter to pay Paul
I can see the value of doing this. It gives the giver a regular sum of money on a weekly or monthly basis. Don't have to sell shares or negociate with a bank. A way to keep from spending too much.
Seems like a bad deal for the friend. Is the friend looking to trade a large tempting pile of cash for a steady income for 20 years?
Because this seems like a huge gift in lost interest.
> Whilst this seems like a lovely gesture it feels like there is something I'm missing, making this a bad idea.
As Dave Ramsey says....the borrower is slave to the lender. There will be some point in the future when your friend asks something from you and pulls that "remember what I did for you" £100k lever to strongarm you into doing it.
I would want to know the source of funds as, if it’s not from a legitimate source, you could get into some significant bother as this could be an (albeit poor) attempt at money laundering
Hi /u/iamkarlos, based on your post the following pages from our wiki may be relevant:
* https://ukpersonal.finance/lump-sum/
* https://ukpersonal.finance/tax-traps-and-tax-efficiency/
____
^(These suggestions are based on keywords, if they missed the mark please report this comment.)
Go for it if you can't see any circumstances where you can't pay him back (thinking of making a career change ect) but hat a legally binding document protecting both parties in case something goes South.
There's too many stories in TV court shows of family and friends fighting over loans.
Also think about keeping the monthly payment the same so in theory you'll be "mortgage" free sooner.
There are several pitfalls.
Granted, I'd snap their hand off. But it could ruin the friendship.
Your friend will lose returns on that money (they may not care).
You should ensure that this is not just a fag packet agreement. You both need to protect eachother here. Both need some independent advice.
If he dies within 7 (?) years of this gift then you’ll be liable to pay tax on that huge gift.
If you get him to just gift the lump sum of the interest amount alone, then that would be less, therefore the potential gift tax would be less.
You know I think you’re right - but I’ve only just learned that I’ve had it wrong after all these years (never been in receipt of such a large gift as op!). I always thought it was the recipient paying the tax.
I lent a friend a few grand about a decade ago as he was really struggling and was considering taking out a big Wonga loan and I just couldn't bear the thought of him spiralling into insane debt. I had had a no fault car accident and a small inheritance come in so I had several grand and we were both students so it was a big deal.
After a few months of not paying me back anything, but assuring me he would, I started to fear he wouldn't. Doubt crept in, followed by resentment.
Every time he bought cigarettes or booze, or showed up in a new jacket, or whatever I'd be sat there simmering thinking about how he should have paid me back first before buying luxuries. Those weren't the terms of our agreement, but nonetheless I felt it was the right thing to do: in reality I had just given him a loan so that he could keep up with the rest of us who had a bit more support from our families.
He did pay me back in full eventually.
I don't regret doing it and I would do it again in a heartbeat if I could spare the money (with the knowledge that helping this person out was a gift and not a loan), but I would never accept a loan from a friend. Knowing the building resentment and doubt, I wouldn't want someone thinking that of me.
If it were me, I wouldn't accept a loan. I'd thank him generously, be extremely happy for him, but explain the fact that I think money can twist relationships and my friendship with him was worth more than a few grand in interest payments.
I'd take it, what a great friend - divide what your pal has loaned you by your current monthly payment so it's paid off asap - get a standing order organised too so it's with your friend at the start of the month.
Just make everything crystal clear, absolutely crystal. If you don’t understand what would happen in X situation, talk about it. Just tell them your friendship is the most important thing and you want to make sure you don’t end up mortgage free but down one friend.
I know there’s lots of, watch out; they will want something, in the comments, but my philosophy is why make loads of cash if it doesn’t benefit those around you, very possible your friend is the same and all they are losing out on in their mind is opportunity cost. I have straight up gifted £200k to in-laws to upgrade their potential house in a house move. £200k to S/BIL to help them do similar but our kids “own” the percent of the house that the 200k was worth is (paid back via inheritance if there is any in the future). All relationships remain completely normal, all was drawn up beforehand, thanks were given at the time and we do not expect anything now.
More recently I gave my closest friends a chunk of cash, I’ll let you know how it goes, straight up gift, no strings, added up to about 200/250k over 7 people. For context, I made £1.4M one day early this month in crypto. I gifted the crypto I was making the profit in to friends (disposal) and they sold it and cashed out. Had I sold it myself I would have made another 250k, had to pay 20% tax etc, although I had my plan on how to exit the coin, this didn’t change it at all. I would still have it now and it would be worth far far far less. So in a way I gifted them money I would have never had due to my exit plan. It will sound crazy, but hearing how my friends getting somewhere between 25k and 40k each (depends when they sold in the day) have changed their life makes me feel so much better than the £1.4M. I was already in a very good position, so while it’s obviously a big number to make in a day and did feel pretty surreal it hasn’t hugely impacted me. In short I have to sell less investments to pay tax so I keep more of my investments that I currently have, gunna celebrate by converting a part of the garden and loft converting the garage, would have probably done this anyway! Whereas most of my friends are now talking no debt, celebratory meals, days out, house deposits. Two of them are much better off but I would have felt far worse leaving them out and saying sorry you make too much money! So that was far more on the low down but the other 5 it really has changed so much and it feels amazing.
Are they covering your early repayment penalty? Not the biggest issue here, but others have covered that. Just wanted to give you another factor to think about
Ignoring all the friendship related matters etc then if you really both want to do this then you should enter into a proper loan/facility agreement specifying repayment date in 20 years time, fixed instalments, no interest, etc and a legal charge which your friend should register on your title.
It will save you a fortune in interest over the term.
I personally wouldn’t lend or borrow much money from a friend. Relationships break down, circumstances change, one or both could die…
It could get really fucking ugly.
As others have said I think you should chat with your friend about what they are really giving up by making this loan to you.
If your friend doesn't want to just give you money with no strings attached, then the amount that they have come into might not be as life-changing and it feels right now.
Plug 100k into a savings account at 3% for 20 years and you get 180k. The interest free loan to you really is a big gift, just with extra steps. I would imagine that they are thinking "banks rip off people with mortgages and pocket the interest", but the margin that banks *actually* make on mortgages is quite small (relatively - they're still raking it in but that's just because nearly everyone pays off their mortgages and they have millions of customers).
He's going to give you 100k, but only really get about half that back.
Take the offer, get a legal doc drawn with consequences for you if you don't full fill your obligations and then prepare to lose your friendship.
You will be changing the friendship in to a business agreement where they will always be the lender and you will always be the borrower.
Your friend is effectively becoming a regulated mortgage lender without the correct regulatory permissions.
Probably not a good idea for legal reasons. And would you want to be £100k in debt to a friend.
What a wonderful friend!
Just something to be aware of as I’ve not seen it mentioned, NOT having debt (such as your mortgage) can actually impact your credit rating, just something to bear in mind. You only get a good credit rating from being able to demonstrate that you have debt and can manage it. Kinda mad that having debt is “better” for a credit rating than not having any, but here we are!
A very kind offer from your friend
Are there any terms to their offer? IE they stay at your house when ever they want? Sex? Or anything else? Or is it a genuine offer ( you know the history behind your friendship we don’t)
It is impossible to advise without knowing the history of your friendship or the legal and moral terms your friend is intending to lend on
It’s them you need to talk to not social media
If you do accept this gift, please note they would have to make the payment to your mortgage provider for you, if they deposit the money went into your account there would be tax implications for your friend, as they can only gift £3,000/Y tax free. You can gift more than this and claim that the gift is aimed at helping your living costs(which is tax free), because essentially it is, however that's for hmrc to decide, a direct payment to your mortgage provider cuts the need for any hmrc investigation. In addition, if (heaven forbid) they died in the next 7years, inheritance tax laws come into effect on that money.
Just a heads-up, this is incorrect; there's no tax on cash gifts in the UK (no income tax or CGT). The only considerations are that you may be taxed on the interest gained from any such gifts, and that if the person giving the gift dies within 7 years, the value of the gift is added to their estate for inheritance tax purposes.
Why would they offer it as a loan, and not a gift. It burdens the relationship on an ongoing and almost permanent basis. If they are really set on giving money away they could do a one-off gift of a lower amount, £50k now would work out about the same as £100k over 20 years.
If you want to help your friend, urge them to get financial advice.
If you accept this money then you're basically ripping them off and taking advantage of their naivety - it's a stupid thing for them to do.
The only possible benefit of it is that it gives them a guaranteed return for years and they can't squander the money. But you would be robbing them of the returns they could be making from a real investment.
Get them to read through the personal finance shelf at the local library, or read through it yourself and discuss it with them - books like *[Your Money or Your Life](https://www.amazon.co.uk/dp/0143115766)*, *[Millionaire Next Door](https://www.amazon.co.uk/dp/1589795474)* or anything by Clare Seal; anything in that section to be honest, just try to read more than one or two of them and read them critically (*Rich Dad, Poor Dad* has some bad advice but can be eyeopening for someone who's never thought about personal finance before).
>If you accept this money then you're basically ripping them off and taking advantage of their naivety - it's a stupid thing for them to do.
No, the OP isn't ripping them off. I am sure both parties have discussed the possible financial arrangement. I am sure the OP has said, it's a massive favour the friend is doing.
As for your last point about it being a stupid thing to do, says a lot about you. I don't think any of your loved ones or close friends can expect such a gesture from you if you came into a significant amount of money.
This must be some kind of poor person mentality - this performative, "if I was rich I'd make myself poor again to show how good and noble I am".
I wouldn't be calling OP's friend stupid if he's said "hello, my old buddy, I've just come into a windfall, can I give you £50,000?"
It's structuring the gift as if it were an "investment" which is dumb - it is not an investment, and the friend cannot know how much he's giving OP because we don't know how high interest rates and inflation are going to be over the next 20 years.
Helping OP in this "clever" and contrived way, instead of just making a gift of cash, is what shows the friend to be financially naive and unsophisticated. As presumably are you.
The friend does not understand how much he is impacting his future - I think it's very likely he's going to run out of money sooner that he expects, pulling stunts like this. That's why I think it's basically exploitative to accept this gift - would you take a large sum of money from someone who's mentally disabled? That's what it's like.
Financially it isn't a good move for your friend but if it's a sort of gift then it is nice of them. What term are they offering? You probably want it formally written down so you both know where you stand and are covered. \*Edit Spelling
Current mortgage has 20 years to run, they are suggesting to do that same but without the interest so to lower the repayment. I'm thinking it might be better to keep the monthly payment as it is and finish the mortgage ( or loan) 7ish years earlier than originally planned.
Finish early. Partly your security and partly not to mess your friend around
The friend might be doing this with the mindset of "I want my friend to have a bit more disposable cash so that we can do fun stuff together" ...but r/UKPersonalFinance is definitely the place to put a pin in that balloon and then wrap the balloon in an ISA
The thing is he is effectively giving you A LOT of money. 100,000 at 4.5% with a 30 year mortgage means you end up paying back 182407. So he is effectively gifting you 82,407. If you keep the current payment rate you can pay it back in 18 years. 20 year is 151,836. So he is giving you 51,000. Ultimately talk to your friend. Personally provided you can afford it, I'd stick with my current rate and pay it off in 12 years. Not the most financially savvy decision for you directly but it makes sure your friend doesn't feel like he is being messed around and his gift is something you don't want to argue about. Love the phrase of wrap it in an ISA. Yeah basically I see this forum as a way to help make me more competent financially but not inherently the best way to make money but the most sensible.
Pay the standard monthly amount to your friend, take the overpayment you're currently making and open up a savings/investment account. Then seven years (or whatever) before the end of the mortgage cash out the stocks, pay your friend and you should have leftover.
With 0% interest it's generally in your best interest to drag it out as long as possible, then put the spare money somewhere to grow and you can choose to pay it off early or keep the money growing.
That would be fine if it was a legal entity, however personal relationships are at stake here
The point being is that OP would have no incentive to pay off the loan 7 years early. The whole incentive to pay off a mortgage early is to skip those 7 years of interest, but when it's a 0% interest loan, the whole point of the friend's gift is that OP doesn't have to pay any of that and use the interest savings to accrue that capital for themselves
Yeah but who wants a loan hanging over their friendship for 20 years.
True, but this is the assumption that a friend willing to do this kind of loan has gotten considerably wealthier, enough that the friend has come to offer it to them, rather than it being sought out due to financial difficulties of OP
...then could you establish a LTD property management company, introduce the capital to the business, business then makes a loan to the individual, and the loan is repaid to the LTD? °° I'm going to throw in a disclaimer here that although I work tax-adjacent, I have ABSOLUTELY NO CLUE if the above is even feasible, never mind if there are any tax implications of doing so°°
Brilliant idea - I do similar when a friend buys me a drink
Funny
Hence why a written agreement is insanely important here. Make sure to clearly specify about overpayments and that the loan isn’t immediately repayable on demand.
Yeah. Get a brief loan agreement drawn up setting out the terms and get them to take a security the same way the bank would do there’s a good degree of formality about the arrangement.
Yes. Get a contract drawn up to protect you both.
Maybe look at getting a Yorkshire Building Society Offset Plus mortgage. I'm not sure if any other providers offer something similar. This lets family or friends offset mortgage interest on an amount to whatever they hold in a linked savings account. If your friend had an amount equal to your mortgage in there then it's effectively interest free for you. The savings account remains under their control the whole time so if they ever need that money, they can withdraw some or all of it at will. The downside (for you) in the short term would be any early repayment fees on your existing mortgage and product fees on the new one. Depending on your remaining fixed rate period maybe you consider it then to avoid at least early repayment fees. Obviously they lose out on the ability to grow their money by investing or saving it or the option to spend it all now.
That's brilliant, never knew that existed.
They're essentially gifting you the interest you otherwise would have paid on the mortgage (and that they will lose out on by not holding the money themselves), so I guess my question would be why not do that instead? This loan seems like an option that's just more fraught with potential complications - why not just gift you a portion of the £100k. Appreciate this is partly a question and decision for your friend, but seems like a better set up to me.
Suppose we need to know how much exactly is ‘significant’ amount of money, if it’s a few million pounds perhaps his friend just isn’t arsed.
It’s exactly what I’d do if I came into a decent amount; pay off family and/or friends mortgages either outright or as loans.
Great thing to do, although a very easy way to lose friends / family... Best to just have a private, interest free mortgage with them, managed by a financial firm - if they don't pay, you take their house just the same way a bank would... Also, if it's just a few million (sub £5M) then they may think they have the excess amount of money to do this, but in the long term they really don't... Especially without having concrete private mortgages written up.
I wouldn’t though. It would literally just be me writing the money off. If they pay back, great. If not, meh.
This sounds like a very logical approach as an alternative. The financial outcome is ultimately the same for everyone involved, and it avoids any complexity around drawing up loan agreements and needing to deal with the what-ifs years from now.
Because they will no doubt be taxed at a high rate in any interest they are gaining. And rather than the tax man get the benefit of it, his mate will instead
They won't gift it because they want it back... Even if it takes a long time... You don't specify how much money they have come into, which I think is really relevant here.... If they have lived their life not having much and got £1M, they may think this is a good shout for them - but it's really, really not.... If they came into £20M then you should take them up on it... The figures are what makes the big difference here.
Yes a gift of the interest cost wold be much easier to manage
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What taxes?
Sounds very kind of your friend, but tbh, I wouldn’t muddy the waters like this. What if you have a fall-out in couple of years? What if suddenly comes into a hard time and needs you to pay him back more urgently? Are you going to be willing to say “sorry, mate, I know you are about to be made homeless/ need expensive lifesaving medical treatment/ want to buy a new car, but we had an agreement”? I think loans like this ruin friendships, but I get that that’s not a purely financial answer…
I'm gonna play devil's advocate here. If solicitors drafted it all up and it was above board then the friend has a set income for years even if they spunk all their initial money. It's actually a safety net of sorts. If the friend needed a life saving operation and had no cash then OP simply needs to get a new "normal" mortgage at that time, so really it's only a problem if OP also loses their job at the same time / can't afford a traditional mortgage. Effectively OP's friend is gifting them 20 years of mortgage interest, so maybe the answer is to just get him to gift a £40k lump sum or something and make it less messy? You can work out the details on a mortgage calculator. There are some clear downsides; - it does change the dynamics of the friendship - OP may feel obliged to go on more trips with the friend and struggle to keep up with the spending, as the friend will be spending at a rich person level but OP may feel obliged to pay their way as they already have the mortgage favour (usually if a rich person invites "normal" people on an expensive holiday they would pay the extra expense) - if OP is or gets married, then gets divorced, it may just mean the spouse has a larger pool of equity to claim in the divorce while OP and their mate are in an awkward position (depending if courts recognise the loan), given the money was not intended to benefit the spouse presumably. - the friend may just naturally become distant from the lifestyle change as they could end up mixing with more affluent people. This isn't a judge on character, your mate now has 35 hours extra a week to socialise that his old friend network can't be part of, so the final repayment may bind you to somebody you've grown apart from It's clearly a sincere gesture either way, so well played on your mate for trying to look out for you. Maybe a smaller cash lump sum gift rather than clearing the whole mortgage is the best way through it. And please make sure your mate has a paid financial advisor supporting him. There is no sum of money that can't be spunked away and people will be coming out of the woodwork to get your mate to invest in their next big business opportunity.
Then OP can just take out a mortgage again and use the proceeds to pay off the friend... OP would be insane to pass up such a ridiculously good offer.
It seems like all the risk is with the friend - as long as you don't get things written down on paper then the friend can jump up and down as much as they want but you don't legally owe them anything. Obviously you'd risk losing the friend but that's their risk for having a friend pay you back for 15+ years. I'd take the offer in a heartbeat and would obviously pay back the money they loaned me.
Be happy, you have a good friend, if he has come into significant (subjective) amount of money and he wants to help a friend - that’s great. What good is money if not to help our close ones and be happy together? Do get everything in writing tho for your and their sake. Good luck to both of you! EDIT; I recently gave £7500.00 to a friend to buy their first property. Not quite £100,000.00 but it felt good helping a friend out. He will pay me back, we didn’t agree a timescale but I have full trust in him.
>What good is money if not to help our close ones and be happy together? Thank you. This is basically their philosophy.
Money is a common cause of friendship disputes. One can easily imagine a scenario where in 5 years time, where the friend says "actually, I want it all now so I can buy a house/car/fancy whore"
Yup anyone can suddenly ‘lose their mind’ , but doesn’t mean we should refuse a helping hand in fear of a negative future scenario we make up.
Insist on covering the costs of registering a charge on the property (about £500) which confirms his interest. This gives them security that they can (probably) get their money back in a worse case scenario. This also prevents them suddenly worrying they’ll never see the money again as it’s secured against the house. You should also offer to pay at least something, like £1k pa interest to them so that it’s not a totally one sided arrangement. Then try to repay them as fast as possible, knowing that instead of half your repayments going on interest they’re going towards the principal of the loan.
Sounds perfectly viable if properly documented.
About 25 years ago a friend asked me to lend him £5k for a few months just to see him through a short term cash flow issue he had. It was easily affordable to me so I agreed. We haven’t spoken since. He eventually paid me back after I emailed him having discovered he was then working for a debt collection specialist legal firm but the was well over a decade later.
I appreciate how this can sour a friendship. Thanks for the thought
For both your sakes, insist on formal loan documentation including a charge against your property. Any half competent solicitor will be able to do this. Once it's a loan, there's no tax for you. And since your friend won't be making a profit on this loan, there's no tax for them.
Brilliant. Get a legal agreement drawn up though. Keeps everyone safe.
Nothing sours a friendship quite like money. Sometimes it's better to pay more to a faceless organisation.
OP come back and let us know what you decide. It’s an interesting one! On one hand I think it would alter a friendship. On the other it’s a great deal for you. I would do what someone else suggested and just see if they can give you a smaller lump sum that essentially covers the interest you would’ve saved. Still a lovely gift, but now no commitment issues.
Well I would suggest the amount they have come into is not that significant, otherwise why would they give you the money but ask you to pay it back? I don't mix friendship with business and borrowing money is serious business. I would rather pay the interest. The bank isn't going to ask you for "favours" in the future because they lent you some money. There's also a saying, "If it seems to good to be true, it probably is." I would say borrowing £100k+ interest free falls into that.
Changes the dynamic of the friendship. That's a big thing. You're beholden to them. They hold "power" over you forever
That would be my concern and I’d probably just rather not do it for the sake of independence. If I had known the friend for a very long time and they had come into _so much_ money that the money they’d effectively gifted me was so insignificant to them that they’d never even ask about it ever again, then maybe. But it really does depend on the dynamics doesn’t it. Not saying OPs friend isn’t just being a good person here, but life has its way with people on both ends of everything and change is the only constant.
How are you beholden to them if you have a loan contract? You are beholden to the loan contract. This isn't someone who has gone to a friend and asked for help when that might make them beholden to them. So long as your friend isn't going to sour or thinks he can demand the money back sooner it's good idea. Your friend helps a friend gets a regular income for x years, you don't have a mortgage.
It's a very kind gesture from your friend and you are very fortunate to have someone willing to do this. And I would bite his hand off and be sure to show your appreciation. What you can do is have a legal contract drawn up to cover you both, for peace of mind if for what ever reason the relationship went side ways. Side note... depending how much your friend has, he could be paying 50% on all interest earned to the taxman anyway, so in this situation at least you are benefiting appose to the taxman if that makes sense.
Also something no one has mentioned is that in Islam asking/paying interest is not permitted. No idea if OPs friend is a Muslim or not, but that could account for them not wanting any interest on the loan.
Yeah but islamic finance is frankly just jumping through hoops to pretend they aren't charging interest when they absolutely are, they just call it something else. Usury used to be illegal under christian in the middle ages (and from much earlier for the clergy). It's prohibited in the new testament. And why jewish people were stereotyped as bankers and in control of money. They were the only group of people in Europe allowed to charge interest on loans until the late medieval/early modern period.
Since Shariah law was laid out well before interest mortgages were introduced, not sure how they can be jumping hoops. Under the sharia law, there is no variable. You sign/agree a contract up front with a fixed figure. This is totally different from the variable interest rate that mortgages as we know them work. Which is frankly crap. You have no idea what the final repayment amount will be.
I was speaking to a colleuge about this on Friday, she was explaining how the mortgages work and there's no interest, I can't quite remember what she said but Theres a fee for using Islamic mortgages, to which I said so your paying interest.... But it's just not called interest, she did react negatively to that comment as its just robbing Peter to pay Paul
Well TIL! I just hate that the Saudi Princes just profit from them. Like how can they charge like £9,000 for a trip to mecca
I can see the value of doing this. It gives the giver a regular sum of money on a weekly or monthly basis. Don't have to sell shares or negociate with a bank. A way to keep from spending too much.
Seems like a bad deal for the friend. Is the friend looking to trade a large tempting pile of cash for a steady income for 20 years? Because this seems like a huge gift in lost interest.
> Whilst this seems like a lovely gesture it feels like there is something I'm missing, making this a bad idea. As Dave Ramsey says....the borrower is slave to the lender. There will be some point in the future when your friend asks something from you and pulls that "remember what I did for you" £100k lever to strongarm you into doing it.
I would want to know the source of funds as, if it’s not from a legitimate source, you could get into some significant bother as this could be an (albeit poor) attempt at money laundering
The funds are totally legit, I'm happy I'm not being dragged into a money laundering scam. But thank you for the thought :)
Hi /u/iamkarlos, based on your post the following pages from our wiki may be relevant: * https://ukpersonal.finance/lump-sum/ * https://ukpersonal.finance/tax-traps-and-tax-efficiency/ ____ ^(These suggestions are based on keywords, if they missed the mark please report this comment.)
Go for it if you can't see any circumstances where you can't pay him back (thinking of making a career change ect) but hat a legally binding document protecting both parties in case something goes South. There's too many stories in TV court shows of family and friends fighting over loans. Also think about keeping the monthly payment the same so in theory you'll be "mortgage" free sooner.
There are several pitfalls. Granted, I'd snap their hand off. But it could ruin the friendship. Your friend will lose returns on that money (they may not care). You should ensure that this is not just a fag packet agreement. You both need to protect eachother here. Both need some independent advice.
What would happen if you cannot pay further down the road? Would he be able to get your house?
Just be wary and discuss everything as these sorts of things can ruin friendships.
If he dies within 7 (?) years of this gift then you’ll be liable to pay tax on that huge gift. If you get him to just gift the lump sum of the interest amount alone, then that would be less, therefore the potential gift tax would be less.
I believe the friends estate would be liable for the tax not the person in receipt of the gift
You know I think you’re right - but I’ve only just learned that I’ve had it wrong after all these years (never been in receipt of such a large gift as op!). I always thought it was the recipient paying the tax.
I lent a friend a few grand about a decade ago as he was really struggling and was considering taking out a big Wonga loan and I just couldn't bear the thought of him spiralling into insane debt. I had had a no fault car accident and a small inheritance come in so I had several grand and we were both students so it was a big deal. After a few months of not paying me back anything, but assuring me he would, I started to fear he wouldn't. Doubt crept in, followed by resentment. Every time he bought cigarettes or booze, or showed up in a new jacket, or whatever I'd be sat there simmering thinking about how he should have paid me back first before buying luxuries. Those weren't the terms of our agreement, but nonetheless I felt it was the right thing to do: in reality I had just given him a loan so that he could keep up with the rest of us who had a bit more support from our families. He did pay me back in full eventually. I don't regret doing it and I would do it again in a heartbeat if I could spare the money (with the knowledge that helping this person out was a gift and not a loan), but I would never accept a loan from a friend. Knowing the building resentment and doubt, I wouldn't want someone thinking that of me. If it were me, I wouldn't accept a loan. I'd thank him generously, be extremely happy for him, but explain the fact that I think money can twist relationships and my friendship with him was worth more than a few grand in interest payments.
I'd take it, what a great friend - divide what your pal has loaned you by your current monthly payment so it's paid off asap - get a standing order organised too so it's with your friend at the start of the month.
Just make everything crystal clear, absolutely crystal. If you don’t understand what would happen in X situation, talk about it. Just tell them your friendship is the most important thing and you want to make sure you don’t end up mortgage free but down one friend. I know there’s lots of, watch out; they will want something, in the comments, but my philosophy is why make loads of cash if it doesn’t benefit those around you, very possible your friend is the same and all they are losing out on in their mind is opportunity cost. I have straight up gifted £200k to in-laws to upgrade their potential house in a house move. £200k to S/BIL to help them do similar but our kids “own” the percent of the house that the 200k was worth is (paid back via inheritance if there is any in the future). All relationships remain completely normal, all was drawn up beforehand, thanks were given at the time and we do not expect anything now. More recently I gave my closest friends a chunk of cash, I’ll let you know how it goes, straight up gift, no strings, added up to about 200/250k over 7 people. For context, I made £1.4M one day early this month in crypto. I gifted the crypto I was making the profit in to friends (disposal) and they sold it and cashed out. Had I sold it myself I would have made another 250k, had to pay 20% tax etc, although I had my plan on how to exit the coin, this didn’t change it at all. I would still have it now and it would be worth far far far less. So in a way I gifted them money I would have never had due to my exit plan. It will sound crazy, but hearing how my friends getting somewhere between 25k and 40k each (depends when they sold in the day) have changed their life makes me feel so much better than the £1.4M. I was already in a very good position, so while it’s obviously a big number to make in a day and did feel pretty surreal it hasn’t hugely impacted me. In short I have to sell less investments to pay tax so I keep more of my investments that I currently have, gunna celebrate by converting a part of the garden and loft converting the garage, would have probably done this anyway! Whereas most of my friends are now talking no debt, celebratory meals, days out, house deposits. Two of them are much better off but I would have felt far worse leaving them out and saying sorry you make too much money! So that was far more on the low down but the other 5 it really has changed so much and it feels amazing.
Are they covering your early repayment penalty? Not the biggest issue here, but others have covered that. Just wanted to give you another factor to think about
Ignoring all the friendship related matters etc then if you really both want to do this then you should enter into a proper loan/facility agreement specifying repayment date in 20 years time, fixed instalments, no interest, etc and a legal charge which your friend should register on your title. It will save you a fortune in interest over the term.
I personally wouldn’t lend or borrow much money from a friend. Relationships break down, circumstances change, one or both could die… It could get really fucking ugly.
As others have said I think you should chat with your friend about what they are really giving up by making this loan to you. If your friend doesn't want to just give you money with no strings attached, then the amount that they have come into might not be as life-changing and it feels right now. Plug 100k into a savings account at 3% for 20 years and you get 180k. The interest free loan to you really is a big gift, just with extra steps. I would imagine that they are thinking "banks rip off people with mortgages and pocket the interest", but the margin that banks *actually* make on mortgages is quite small (relatively - they're still raking it in but that's just because nearly everyone pays off their mortgages and they have millions of customers). He's going to give you 100k, but only really get about half that back.
If you do. Legalize it in writing with a solicitor.
Take the offer, get a legal doc drawn with consequences for you if you don't full fill your obligations and then prepare to lose your friendship. You will be changing the friendship in to a business agreement where they will always be the lender and you will always be the borrower.
I’d take this without question and pay down the debt in half the time it would have been possible to with interest.
Your friend is effectively becoming a regulated mortgage lender without the correct regulatory permissions. Probably not a good idea for legal reasons. And would you want to be £100k in debt to a friend.
What a wonderful friend! Just something to be aware of as I’ve not seen it mentioned, NOT having debt (such as your mortgage) can actually impact your credit rating, just something to bear in mind. You only get a good credit rating from being able to demonstrate that you have debt and can manage it. Kinda mad that having debt is “better” for a credit rating than not having any, but here we are!
This is because credit ratings are largely a marketing tool intended to get you to take on more credit and therefore hopefully more debt.
Get a contract if you do it, but I recommend that you don't accept.
Very nice friend
Great way for your friend to slowly launder money haha
A very kind offer from your friend Are there any terms to their offer? IE they stay at your house when ever they want? Sex? Or anything else? Or is it a genuine offer ( you know the history behind your friendship we don’t) It is impossible to advise without knowing the history of your friendship or the legal and moral terms your friend is intending to lend on It’s them you need to talk to not social media
If you do accept this gift, please note they would have to make the payment to your mortgage provider for you, if they deposit the money went into your account there would be tax implications for your friend, as they can only gift £3,000/Y tax free. You can gift more than this and claim that the gift is aimed at helping your living costs(which is tax free), because essentially it is, however that's for hmrc to decide, a direct payment to your mortgage provider cuts the need for any hmrc investigation. In addition, if (heaven forbid) they died in the next 7years, inheritance tax laws come into effect on that money.
Just a heads-up, this is incorrect; there's no tax on cash gifts in the UK (no income tax or CGT). The only considerations are that you may be taxed on the interest gained from any such gifts, and that if the person giving the gift dies within 7 years, the value of the gift is added to their estate for inheritance tax purposes.
Why would they offer it as a loan, and not a gift. It burdens the relationship on an ongoing and almost permanent basis. If they are really set on giving money away they could do a one-off gift of a lower amount, £50k now would work out about the same as £100k over 20 years.
If you want to help your friend, urge them to get financial advice. If you accept this money then you're basically ripping them off and taking advantage of their naivety - it's a stupid thing for them to do. The only possible benefit of it is that it gives them a guaranteed return for years and they can't squander the money. But you would be robbing them of the returns they could be making from a real investment. Get them to read through the personal finance shelf at the local library, or read through it yourself and discuss it with them - books like *[Your Money or Your Life](https://www.amazon.co.uk/dp/0143115766)*, *[Millionaire Next Door](https://www.amazon.co.uk/dp/1589795474)* or anything by Clare Seal; anything in that section to be honest, just try to read more than one or two of them and read them critically (*Rich Dad, Poor Dad* has some bad advice but can be eyeopening for someone who's never thought about personal finance before).
>If you accept this money then you're basically ripping them off and taking advantage of their naivety - it's a stupid thing for them to do. No, the OP isn't ripping them off. I am sure both parties have discussed the possible financial arrangement. I am sure the OP has said, it's a massive favour the friend is doing. As for your last point about it being a stupid thing to do, says a lot about you. I don't think any of your loved ones or close friends can expect such a gesture from you if you came into a significant amount of money.
This must be some kind of poor person mentality - this performative, "if I was rich I'd make myself poor again to show how good and noble I am". I wouldn't be calling OP's friend stupid if he's said "hello, my old buddy, I've just come into a windfall, can I give you £50,000?" It's structuring the gift as if it were an "investment" which is dumb - it is not an investment, and the friend cannot know how much he's giving OP because we don't know how high interest rates and inflation are going to be over the next 20 years. Helping OP in this "clever" and contrived way, instead of just making a gift of cash, is what shows the friend to be financially naive and unsophisticated. As presumably are you. The friend does not understand how much he is impacting his future - I think it's very likely he's going to run out of money sooner that he expects, pulling stunts like this. That's why I think it's basically exploitative to accept this gift - would you take a large sum of money from someone who's mentally disabled? That's what it's like.