Taking out a loan

Good afternoon,

Just after a quick bit of advice if possible.

I have a resident living in a shared ownership property. Resident is currently in receipt of Pension Credit (Guarantee Credit) and HB/CTR.

Resident is thinking about taking out a loan in her name to help her son buy the tenancy of a pub. Son will be making the repayments on the loan but the parents are taking out the loan in their name

In cases like this, how would the loan be treated for HB & PC purposes - would it be counted as capital for the parents claim as the loan is in their name?

Any advice would be greatly appreciated

Cheers

John

Have to say my immediate reaction is don’t do it- I can see all roads leading to the PS deciding to treat the loan as your client’s capital (and your client having a lengthy dispute on their hands). If they’re going to go down that road I think it would be worth them getting some sort of agreement drawn up, specifying the purpose of the loan and that it is affectively for the son, etc.

Would it not be possible for the son to obtain a loan in his own name with your client as the guarantor instead? In fact, come to that, if your client is receiving PGC is it going to be possible for her to raise a loan anyway?

Thanks for the reply. Have to say, my first thoughts were the same as yours, i.e. don’t do it as it will be treated as the claimants capital.

The son has had financial problems in the past which means he can’t get the loan in his own right.

I think she is able to get a loan because of her property status, because it’s a shared ownership property she does have money invested in the property which I’m guessing she is able to use to guarantee the loan.

Not happy about this as I can just see it causing problems and difficulties for my client, I think potentially she’s going to lose all her benefits if she does this and even if she appeals it’s going to be a lengthy process. If she loses her benefits it’ll cause her problems with the affordability of where she is living. Am hoping when I giver her the information she might reconsider.

It can be done.  If the agreement can be drawn up in such a way that it’s clear that the purpose of the loan is to purchase an equitable interest in the tenancy for the son and is not to be used for any other purpose then she would hold the money on trust for him and it would not belong to her.  If she’s serious she should speak to a solicitor before doing anything because, as has been noted, it can be fraught with difficulty.

Thanks Paul and 1964 for your replies, I’ll pass all the information onto my client.

Thanks again

John

Is the client in an AIP with her GPC?  If they are aged over 75 she may have an indefinite one.  May be worth checking.

Off at a tangent.  But has she considered what will happen if the son doesn’t keep up the payments on the loan?  She (& husband if it is in their joint names) will be liable.  If they can’t pay they could lose their home.  For this reason alone - quite apart from the benefit issue - my advice would be a definite don’t do it.