You should tell your conveyancer and mortgage broker. You will probably be in breach of the mortgage conditions if you do not. It may or may not affect their willingness to lend to you but, as I say, it would probably be a breach which they would be entitled to enforce were they to find out.
If the intent is that the loan is to be clearly defined but simple in structure and will enable either party to sue upon it then it is not essential that you instruct a solicitor. Provided you use a sensible template and the terms are clear, there is a statement that you intend to give legal effect to the terms of the agreement and you both execute it (ie. sign and date it, preferably with two independent witnesses then it will be legally binding upon you both. Have two copies, execute both with each party keeping a counterpart to retain.
If you are both in complete agreement as to the terms then it can be quite straightforward, but if you start to disagree on terms or either of you suspect the other is unclear on the application of the terms then I would advise going and taking it to a solicitor. Their fees would probably be in the region of £150.00-250.00+Vat.
In order for one to sue the other though it is not essential in law that you have a written contract (ie. although as a solicitor I would always advise having one) - people sue on oral contracts all the time if it is obvious from the evidence/circumstances that an agreement was in existence between the two parties.
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