Q&A - Setting up a private mortgage

Q: My brother and his wife have just come back from South Africa where they have lived for sixteen years. Due to the current financial climate and the fact that they have no credit rating here in the UK, they are finding it impossible to get a mortgage. If I acted as their mortgagee how would I go about setting up the loan to make it legally watertight?

A: Even though your brother is family you are absolutely right to want to formalise the arrangement, because you never know what might happen in the future.  Having clear terms laid out will avoid any misunderstandings and protect your interests in the event that anything untoward should happen. 

The procedure is very straightforward and private mortgages are in fact becoming more commonplace because of the current shortage of commercial loans. It is however advisable for each of you to be represented by a Solicitor.

First you will need to agree the essential terms of the mortgage in respect of the repayments schedule and interest rate. You must decide how long you want your money to be tied up and whether the rate will be fixed for a time. You could for example agree to loan the money for a fixed term with an option for your brother to renew the loan after say two years, fixing the rate for that period, and then setting it at a certain percentage over the Bank of England base rate for the remainder of the period.

Once the terms have been agreed a draft deed would be drawn up by your solicitor who would carry out the normal conveyancing procedure. This would involve checking title to the property and undertaking searches as appropriate to the transaction. When the conveyancing is complete you would then lodge the monies in your solicitor’s client account, ready to be passed to your brother.