An Insurance Question

An investor has offered to buy my house. His proposal is to pay about three quarters of the purchase price now, on completion, and the balance in five years time. In the meanwhile, he will pay me interest on the outstanding balance and I will have a second charge on the property.

I would be much happier about this scheme if there was some form of insurance against the purchaser not paying the interest or the lump sum at the end for any reason. I have made a considerable effort to find this insurance, but with success so far.

Does anyone know if such a thing exists?

TIA,

Regards,

Reply to
David Uri
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Is the charge on the property not insurance enough?

tim

Reply to
tim (moved to sweden)

In message , "tim (moved to sweden)" writes

No. Second charges are worth far less than the apparent equity in the property. In fact many banks value a second charge as (£Property Value*2/3) - £1stCharge

This is because in a forced sale situation it is likely that the debt to the first mortgagee will be higher than at the outset due to unpaid interest and default & collection charges, the debt to the second mortgage will also be in arrears and a 'forced' sale situation in these circs often brings in a lower sale price.

Reply to
john boyle

Not necessarily. It depends on how much of the three quarters the buyer is borrowing from the first charge holder. If he defaults on the mortgage, the lender will repossess, sell at auction at below market value (which itself might have plummeted), and there would most likely be an equity shortfall even to satisfy the first charge, never mind any second.

Reply to
Ronald Raygun

In message , David Uri writes

Yes, they dont.

How is he going to get the dosh to repay you in 5 years time? If he cant get a 100% mortgage now, then I assume it is because he hasnt got the income. If he cant afford a loan over 25 years (say) they he certainly cant afford one over 5 years

Dont do this deal unless the interest he is prepared to pay is huge, i.e. 15% ish, you can also get a charge over other property he owns as well, and you have conducted a thorough credit assessment on him. Also make him take out some life assurance and have it assigned to you. If he is going to rent the property out, it is highly unlikely that the rent received will be sufficient to cover a 100% loan.

Reply to
john boyle

Yes, that is the problem, and the charge wont protect me if he pays the mortgage and not me.

Regards,

Reply to
David Uri

Thanks for your answer. Rest assured, I will not be doing this deal unless I can find some insurance, but you say that it does not exist.

Regards,

Reply to
David Uri

Thank you to both of you.

I had asked as a genuine question so that somebody could explain to both of us, but I must say that I hadn't expected such a catagorical 'no'.

tim

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Reply to
tim (moved to sweden)

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