Mortgage approval vs loan

Hello,

I am planning to buy a house and have a mortgage approval for 150,000 which was taken 2 months before. My relative would like to offer me 20,000 as interest free loan. He does not want to give as a gift, and interest free loan is the only possible option from his side. He lives in UK. I don't have any specific time line to return this loan and can give him when I have saved enough to return him back. I have few questions-

a) Does he need to pay any tax in UK if he is giving interest free loan to me in Ireland
b) Do I need to pay any tax in Ireland if I take this interest free loan?
c) Can I go to bank and mention that I had initial approval of 150,000, but now will be taking 20,000 from my relative as an interest free loan? Will it have any affect on drawing down my mortgage?
Please advise
David

I don't know the answer to a & b but c is going to raise questions with the bank. They are probably going to be concerned about repayments, they probably would want to factor in monthly repayments to your repayment capacity. I know you say you only have to pay it back whenever you can, bank might be uneasy with this vague arrangement. I think if it was me I would draw down the 150k and pay back 20k from the relative then, assuming you have a variable rate loan, you wouldn't be able to do that on a fixed. That gets around any questions from the bank.

Thanks Monbretia.

It would be mad to tell the bank about the 20k...

Thanks Gordon.

will it be a variable rate mortgage?
can you draw down the full 150k from the bank, then accept the 20k from your relative at a later date and pay it towards the mortgage as a lump-sum?

Thanks John.
It's gonna be variable rate mortgage.I might give it later on to the bank

There are no tax consequences for you if it's a genuine loan. You can receive a gift for €3,000 a year from him free of gift tax. Notional interest of 4% on €20,000 would be €800 a year, so well within the threshold. I doubt if there are any consequences for him in the UK.

JohnJay's solution is excellent. But make sure that borrowing €20,000 less now would not bring you into a lower Loan to Value category with a lower interest rate. If it would, it would make sense to borrow that money now. I don't see why the bank would have a problem lending you only €130,000 instead of €150,000.

But why do you want the €20,000? Is it to help towards buying the house or is it to reduce the mortgage? If it's to help you to buy a bigger house, the bank might have a problem with it as your overall borrowing and subsequent repayments might be too high.

david mahon said:

I don't have any specific time line to return this loan and can give him when I have saved enough to return him back.

Click to expand...

Is there any likelihood that he will need the money at short notice? If you have paid down your mortgage, you might not be able to give it to him.

Thanks Brendan for your clear explanation.I would like to reduce my premium by taking 20000 loan and giving to Bank.My friend will never request back the money. Just to get more clarification regarding 3000 worth gift. I am taking 20000 loan does it mean I might need to pay 4% notional pay loan on 17000 as 3000 is tax free. Does he need to give me as a gift or loan to get this 3000 allowance.
Thanks
David