Genuine Savings and short term lending

[almostthere]

Quick question, I have been saving for a while now for my next IP deposit.. A friend of mine has now asked if he can borrow some money from me.. he will return within a week.. My question is when he returns it, will that deposit count as a genuine saving or not..?

If it won't then I might have to reconsider whether to lend him or not.
Thanks

 

[albanga]

How much money are we talking?
Do you know what your friend plans to do with this money?

 

[Peter_Tersteeg]

If a similar amount of money leaves your account, then returns a week later, I can't see why lenders would have a problem with it. It just needs a reasonable narrative in the loan application to explain the transactions.

My philosophy is that any money lent to friends and family needs to be money you're willing to never see again.

 

[albanga]

If a similar amount of money leaves your account, then returns a week later, I can't see why lenders would have a problem with it. It just needs a reasonable narrative in the loan application to explain the transactions.

My philosophy is that any money lent to friends and family needs to be money you're willing to never see again.

EXACTLY! I love my mates and would do a lot for them but lending them an amount of money that would have me posting this question in a forum I would be telling them to get a personal loan or talk to their parents.

 

[Peter_Tersteeg]

This does raise an interesting question. What does your mate need a substantial amount of money for, that can't wait a week?

I've given money to friends before, but in those cases it was going to take them a few months to get it back to me (which they did).

 

[albanga]

My point exactly Peter and I am sure it is something legitimate or else why would someone post this on a forum.
But a lender may not be so forgiving, a transaction that cannot wait a week is surely going to ring alarm bells. Something in narcotics? A gambling debt that not paid will result in broken legs?

Sorry I'm from the West, my mind immediately starts at dodgey stuff

 

[Terry_w]

My question is when he returns it, will that deposit count as a genuine saving or not..?

I think you mean if?

 

[hugh72]

Why would your friend need a substantial amount of money for only a week?
Raises alarm bells for me and probably should for you
Think carefully whether you should do this, there are lots of ways this could end and only one of them is good for you

 

[albanga]

Why would your friend need a substantial amount of money for only a week?
Raises alarm bells for me and probably should for you
Think carefully whether you should do this, there are lots of ways this could end and only one of them is good for you

What is the good one? His mate pays him back the money a week later and calls him a "good bloke"?
Or perhaps his mate pays him back with some interest, so now he needs to declare this as income.

 

[Peter_Tersteeg]

What is the good one? His mate pays him back the money a week later and calls him a "good bloke"?
Or perhaps his mate pays him back with some interest, so now he needs to declare this as income.

That's a good outcome.

It's the same outcome as the money is used to buy and sell drugs, pays him back with some interest, calls him a "good bloke" for funding drug trafficking.

I'm sure the purpose of the money is legitimate, but my imagination is going into overdrive on this one.

Might be using the money as a house deposit and more cash is being released from a term deposit next week. I can't see why you couldn't negotiate when the deposit is paid. Need it for a car and the cash is coming through next week; take public transport for a week.

 

[Jamie M]

Quick question, I have been saving for a while now for my next IP deposit.. A friend of mine has now asked if he can borrow some money from me.. he will return within a week.. My question is when he returns it, will that deposit count as a genuine saving or not..?

If it won't then I might have to reconsider whether to lend him or not.
Thanks

Hiya

With my mortgage broker hat on - I wouldn't lend it IF you're in a position where genuine savings needs to be demonstrated and the amount you're lending is more than 20% of the required genuine savings amount (5% of the purchase price).

Sure - you could argue with the lender that it's your money and you lent it briefly....but banks don't always follow logic.

Cheers

Jamie

 

[Marty McDonald]

From the lending point of view and doing loads of 90% - 95% loans in my day I would say this will not be OK for genuine savings (to have a big lump sum out and then back in).

That said if you have equity in another property you may not need the savings history at all.

 

[sanj]

Not sure why everyone is so paranoid and I definitely disagree with the assertion that money lent to friends or family is money you have to be prepared not to see again. You just have to ensure its lent to/ from the right kind of people.

I currently have loans out to 2 people and in from 3, it's really not a big deal.

Loans in include 2 people I'm paying around 9% a month in interest on and will declare, loans out one is short term interest free and another has some interest on that once again I'll declare on.

I've got a standing offer out to a few people I know to pay 8% and above on sizeable loans as I can use the money elsewhere

Some people must have rubbish friends and family if it's automatically assumed you'll never see it again

 

[Jamie M]

Not sure why everyone is so paranoid and I definitely disagree with the assertion that money lent to friends or family is money you have to be prepared not to see again. You just have to ensure its lent to/ from the right kind of people.

Yeah I agree - I don't really have much of an issue with it providing it's the right person BUT it could impact on OPs ability to obtain finance if he/she needs to demonstrate gen savings.

 

[Peter_Tersteeg]

Every case where I've lent money to a friend, I've expected to get the money back, and I've had every reason to believe they'd do this (and they have).

I haven't relied on them to pay the money back. If they didn't pay it back, I'd be annoyed, but it's not going to be the end of the world. Were I saving a deposit for my first home, it would need to be a very, very serious event to lend it to someone.

 

[albanga]

Sanj 99% of the time I am sure lending money to friends and family is totally fine but it is that 1% that you must show caution to.

Your examples also seem to be more structured with interest attached to this. They may even be on a loan you have had drawn up legally?

The concerns raised are "Want to lend it to him for 1 week". What is so desperate that cannot wait a single week? Or as Pete said, how can it not be structured a different way.

And to be honest I have seen this go very nasty between a group of friends from my old football club. These were absolute best mates, one asked for a loan from his mates and the rest is history. We are talking best friends for 20 years.

Again i am sure this is all legitimate but to say "rubbish friends and family" is just naive.

 

[Watson1]

Quick question, I have been saving for a while now for my next IP deposit.. A friend of mine has now asked if he can borrow some money from me.. he will return within a week.. My question is when he returns it, will that deposit count as a genuine saving or not..?

If it won't then I might have to reconsider whether to lend him or not.
Thanks

You mentioned you wish to purchase your next investment property, do you currently own a property?

There are other means to avoid having to illustrate 5% genuine savings with some lenders.

 

[Redom]

Lenders often are quite strict on the genuine savings criteria - I don't think this will fly with some lenders. Are you currently renting with a formal real estate agent (a few lenders will take a real estate letter stating your renting). Can do guarantor loans too, use equity/shares as a basis for genuine savings too.

If your going for a 90% lend, you could also avoid the criteria altogether with a major.

I don't personally have a problem lending money to a close group of friends and family in general though - its not too difficult to have a general sense of those who are greater 'credit risks' than others.

Cheers,
Redom

 

[almostthere]

You mentioned you wish to purchase your next investment property, do you currently own a property?

There are other means to avoid having to illustrate 5% genuine savings with some lenders.

Yes, I do have an IP loan. The LVR for which is around 84% based on the latest valuation. Can I show that equity as my savings even if I don't use the equity towards the purchase of my next property ?

 

[Peter_Tersteeg]

With a 85% LVR on another property you can likely avoid the genuine savings requirement.