Friend has offered to lend me the money for a house
My friend has offered to loan me a large sum of money to buy a property. He has proposed that I would put in my savings (£30K) and he would give me the rest of the cash to buy the property (so for a £375k house, say, he'd lend me £345,000). The house would be purchased in my name and the debt would be structured as a private loan secured against the property. The loan would be linked to CPI and accrue interest. He would also get 20% of any increase in value when it came time to sell. Repayment of the loan would be flexible, I could pay him in instalments or pay him back in a lump sum when the house is sold. Money I spent on improving the property would be taken into account before we divide up any profits from increased value. This seems like a very good deal to me, but I am very ignorant of financial matters and would really appreciate any feedback from people who understand these things. I am in my 30s, rent, never owned a property and salary about £37k.
What are the implications of accepting his offer and are there any downsides either of us may have overlooked?
How much better is this deal than getting a mortgage from a bank?
What types of clauses should we include in the agreement (things like a set period of time before he can ask for his money back? or a notice period - so I don't find myself instantly homeless if he calls in the debt)?
How would we go about getting this turned into a 'formal' agreement, who do I speak to next?
Here is a simple example he proposed:
House bought:
- £375k
House sold 10 years later:
- £500k
Increase in value:
- £125k
Under the proposed structure:
- He receives the inflation-adjusted repayment of the original loan
- plus 20% of the increase in value
In this example:
- He would receive approximately £466k total
- I would receive approximately £34k
That means:
- I roughly preserve my original deposit
- while also having had 10 years living in the house
Sorry if these are very simple questions or concerns I'm just trying to figure out the pros and cons. Please let me know what questions I should be asking or if I'm missing anything.
Thank you in advance!