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  • FIRST POST
    • goodallish
    • By goodallish 10th Feb 18, 5:20 PM
    • 54Posts
    • 9Thanks
    goodallish
    Exchange/Completion Deposits with H2B ISA
    • #1
    • 10th Feb 18, 5:20 PM
    Exchange/Completion Deposits with H2B ISA 10th Feb 18 at 5:20 PM
    If anyone can help me understand how the mortgage and deposits work when including a H2B ISA bonus I would be very grateful.

    I am buying a house for £106,500 but it was only valued at £105,000 meaning that the bank will lend me a maximum of £99,750 - assuming a 95% LTV, however I want to take out at least a 90% LTV of what I can borrow, therefore borrowing £94,500.

    As it stands, I currently have £12,000 saved up for a deposit; £10,600 cash savings and £1,400 which I will gain from the H2B ISA bonus.

    Am I right in assuming the following:

    1) When applying for the mortgage I will be putting down a £12,000 deposit on a house at £106,500, therefore looking at a 88.73% LTV,

    OR do I need to apply for a 90% LTV with £10,650 deposit because of the valuation and what I can borrow, and the £1,350 extra I am paying on top ends up being paid as fittings and furnishings?

    2) On exchange I put a 10% deposit on the house, so £10,650, and then the solicitor will send the remaining £1,350 (which will come from the bonus) on completion.

    OR do I have to put the 11.27% deposit down on exchange, meaning that I would most likely have to try and get the exchange and completion to happen on the same day so that I am not out of pocket.

    So confusing!!!

    Thanks in advance.
    Last edited by goodallish; 10-02-2018 at 5:37 PM.
Page 1
    • Tiglet2
    • By Tiglet2 10th Feb 18, 10:35 PM
    • 69 Posts
    • 35 Thanks
    Tiglet2
    • #2
    • 10th Feb 18, 10:35 PM
    • #2
    • 10th Feb 18, 10:35 PM
    You can't use the HTB ISA as part of your deposit. The deposit is required at exchange but you won't receive the bonus until completion. So, a 10% deposit (£10,650) on exchange and the remaining money from the bonus can go towards the conveyancing fees with any left over being returned to you.

    Don't forget you will have up front fees to pay for along the way, i.e. searches, and surveys. Have you budgeted for these expenses?
    • goodallish
    • By goodallish 10th Feb 18, 11:20 PM
    • 54 Posts
    • 9 Thanks
    goodallish
    • #3
    • 10th Feb 18, 11:20 PM
    • #3
    • 10th Feb 18, 11:20 PM
    You can't use the HTB ISA as part of your deposit. The deposit is required at exchange but you won't receive the bonus until completion.
    Originally posted by Tiglet2
    I understand this part of the H2B ISA; I can use the money I saved in the H2B ISA towards the exchange deposit as this is now in my current account since I closed the ISA, I just can't use the bonus that I will get from it as this goes directly through to the solicitor on completion, but also can't be used for solicitor fees. I realise some do allow it, but that's not relevant for what I'm trying to understand.

    So, a 10% deposit (£10,650) on exchange and the remaining money from the bonus can go towards the conveyancing fees with any left over being returned to you.
    This is the part that is confusing me. Assuming the house was valued at £106,500 then it would be simple - £12,000 deposit with 88.73% LTV. But the house was valued at £105,000. Does this affect my LTV % or not? Am I right in thinking that it doesn't, since I am still putting the same deposit down and borrowing the same amount?

    Don't forget you will have up front fees to pay for along the way, i.e. searches, and surveys. Have you budgeted for these expenses?
    Yes
    • alex_163163
    • By alex_163163 11th Feb 18, 12:39 AM
    • 230 Posts
    • 155 Thanks
    alex_163163
    • #4
    • 11th Feb 18, 12:39 AM
    • #4
    • 11th Feb 18, 12:39 AM
    Tiglet - not quite true. You can!!!8217;t use the bonus for EXCHANGE deposit, but the bonus amount can contribute to the MORTGAGE deposit. The OP is putting down more than a 10% deposit, so he is correct that the bonus amount received at point of completion will go towards his £12k total deposit.

    However just make sure you have your numbers correct OP. I!!!8217;m seeing it slightly differently to you, but I!!!8217;m by no means an expert so might be wrong.
    As I see it:
    House has been valued by lender at £105k, not the £106.5k you offered. On your mortgage app to the lender you must have stated that the loan amount you were applying for was £94.5k? And you had £12k deposit.
    As the lender has down valued it, this would suggest they will only offer you a mortgage of £93k. (£105k - £12k your deposit amount)?
    You will need to find the extra £1.5k shortfall if you wish to proceed with the purchase, no?
    • bowlhead99
    • By bowlhead99 11th Feb 18, 8:15 AM
    • 7,290 Posts
    • 13,310 Thanks
    bowlhead99
    • #5
    • 11th Feb 18, 8:15 AM
    • #5
    • 11th Feb 18, 8:15 AM
    You mentioned the lender would give you 95% LTV at the most.

    And you said you want to take out 'at least' a 90% LTV. Presumably though, you are meaning the opposite of that: that you want to take 'at most' a 90% LTV because if you borrow more than 90% the interest rates get higher as the bank is taking more of a risk.

    So you mean that you want to put whatever amount of money into buying the house as is needed from your own savings and HTB bonuses that the amount the bank has to lend will be no more than 90% of the 'value' of the house. Where the 'value' of the house is what the bank's surveyor says it is worth, because they are going to believe the surveyor and they do not care that what you actually choose to pay to the seller is some bigger number.

    So, the bank says the house is worth £105,000 and you have said you only want to borrow from them an amount no more than 90% of what they say it is worth. Which means you can borrow £94,500 from them and they will consider that to be 90% of what it is 'worth'. Their loan to value would then be 94,500 of 105,000.

    However, you have decided you want to pay £106,500 to the seller of the house. When you exchange contracts (the part where you agree and the seller agrees that you will definitely be going to buy the house in x days time, with penalties if either of you pull out), the standard terms of sale assume that 10% of the final purchase price will be paid over as a deposit. That would be £106,500 x 0.10 which is £10,650.

    If you don't have all the money available at the time of exchange, sometimes you can convince the seller that you will be good for it at completion but to let you get away with a lower deposit in the meantime. For example only give them 9% or 8%. It is a risk for them because if you decide to walk away and cancel the transaction you are leaving them with less money on the table than they want. And if they are in a chain of buyers they might be needing the full £10,650 in cash to help them make up their own 10% of the next place they're buying, unless they can in turn convince that seller to take a lower deposit as well. So, many sellers will not want to drop the deposit amounts to a lower percentage.

    So if we assume you agree to give them the full 10% of the £106,500 purchase price as a deposit at the time of exchanging signed contracts, that's £10,650 you need to have available in cold hard cash at the time of exchange, because the solicitor will not be able to get your HTB money to help you with the exchange deposit.

    Later at completion the minimum amount you need to pay to the seller to complete the purchase will be the £106,500 of sales price on the contract less the £10,650 you already paid at exchange, which is £95,850 remaining to pay.

    You will have an agreement that the mortgage company will lend you up to £94,500, and the help to buy bonus you mentioned will be £1400, which in total is £95,900. But the amount the seller is needing at this point is only £95,850 because they already received your 10% at exchange of contracts. You don't want to 'waste' some of the bonus, but the bonus can only be applied towards the purchase price of the property. So if you need to give the seller £95,850 on completion and you have £1,400 of HTB money to use to help do that, you will only need to request £94,450 from your mortgage lender. Which is a little less than planned, because £94,500 would be what they consider to be 90% of 'value' but really you are only borrowing £94,450 of loan on £105,000 of 'value', which is 89.95%.

    From the above it seems that you do not have much of a problem. You are going to pay £10,650 at the time of exchange because the seller only wants 10% of your offered price to arrive in his solicitors bank accounts at the time of exchange. Then later your solicitor will apply to the mortgage company to borrow £104,450 of mortgage funds and will apply to the HTB administrators for the £1400 bonus, giving them a total of £105,850 which is the balance they need to pay to the seller to buy the house from him.

    So you or your solicitor just need to speak to your lender and ensure that after their survey they are still willing to make you a mortgage offer of £94,450, being 89.95% of their assessed value of £105,000 ; while you pay £106,500 for the house and cover the cash difference out of your funds (including HTB bonus funds).

    You mentioned that at the moment you have only saved £10,600 in cash. But you need £10,650 for the 10% exchange deposit on a £106,500 property, and also you will need to give your solicitors some money up front for them to do their searches etc (as well as be able to pay their final bill at completion), and you will also need to put buildings insurance in place from the day you exchange contracts because you really don't want the house to burn down or fall down when you have already signed a contract to say you will be buying it. So, you'll need a bit more money saved up than you mention you currently have.

    Still, it sounds like you are not expecting to exchange contracts tomorrow so you have time to do a bit more saving. If you have not already made your £200 HTB ISA contribution for Feb, you could do that, and for March or April etc too (depending how long until all parties are ready to exchange) then you can get more free government money and require an even lower mortgage, but you'll still need your own cold hard cash to pay for the exchange deposit, legal fees, insurance, moving costs etc.
    Last edited by bowlhead99; 11-02-2018 at 8:40 AM.
    • goodallish
    • By goodallish 11th Feb 18, 10:37 PM
    • 54 Posts
    • 9 Thanks
    goodallish
    • #6
    • 11th Feb 18, 10:37 PM
    • #6
    • 11th Feb 18, 10:37 PM
    Tiglet - not quite true. You can!!!8217;t use the bonus for EXCHANGE deposit, but the bonus amount can contribute to the MORTGAGE deposit. The OP is putting down more than a 10% deposit, so he is correct that the bonus amount received at point of completion will go towards his £12k total deposit.

    However just make sure you have your numbers correct OP. I!!!8217;m seeing it slightly differently to you, but I!!!8217;m by no means an expert so might be wrong.
    As I see it:
    House has been valued by lender at £105k, not the £106.5k you offered. On your mortgage app to the lender you must have stated that the loan amount you were applying for was £94.5k? And you had £12k deposit.
    As the lender has down valued it, this would suggest they will only offer you a mortgage of £93k. (£105k - £12k your deposit amount)?
    You will need to find the extra £1.5k shortfall if you wish to proceed with the purchase, no?
    Originally posted by alex_163163
    It's so confusing. On the app I put that the house value was £106,500 and I'm putting down £12,000 (I also cleared this up in an email reply to my original revised mortgage offer which was sent with the valuation to my email) - but didn't know whether that was how it works. Or whether they only see the application as a 90% LTV because of the valuation being £105,000.

    You mentioned the lender would give you 95% LTV at the most.

    And you said you want to take out 'at least' a 90% LTV. Presumably though, you are meaning the opposite of that: that you want to take 'at most' a 90% LTV because if you borrow more than 90% the interest rates get higher as the bank is taking more of a risk.
    Originally posted by bowlhead99
    Correct, I don't want to go over 90% LTV.

    So, the bank says the house is worth £105,000 and you have said you only want to borrow from them an amount no more than 90% of what they say it is worth. Which means you can borrow £94,500 from them and they will consider that to be 90% of what it is 'worth'. Their loan to value would then be 94,500 of 105,000.
    So I am actually getting a 90% LTV even though I am paying more than the valuation price? This is what was confusing me. So a £12,00 deposit on £106,500 is irrelevant? And really, they will just look at the £10,500 deposit on the £105,00 valuation, and the shortfall for the other £1,500 is made up elsewhere? Sorry if I'm being blonde here, FTB problems

    However, you have decided you want to pay £106,500 to the seller of the house. When you exchange contracts (the part where you agree and the seller agrees that you will definitely be going to buy the house in x days time, with penalties if either of you pull out), the standard terms of sale assume that 10% of the final purchase price will be paid over as a deposit. That would be £106,500 x 0.10 which is £10,650.

    So if we assume you agree to give them the full 10% of the £106,500 purchase price as a deposit at the time of exchanging signed contracts, that's £10,650 you need to have available in cold hard cash at the time of exchange, because the solicitor will not be able to get your HTB money to help you with the exchange deposit.
    This part is all fine, I understand it and I'm glad it will go ahead like that, as I have enough for the 10% deposit up front and then the H2B bonus will be used towards the rest of the initial £12,000 that I want to put down.

    You will have an agreement that the mortgage company will lend you up to £94,500, and the help to buy bonus you mentioned will be £1400, which in total is £95,900. But the amount the seller is needing at this point is only £95,850 because they already received your 10% at exchange of contracts. You don't want to 'waste' some of the bonus, but the bonus can only be applied towards the purchase price of the property. So if you need to give the seller £95,850 on completion and you have £1,400 of HTB money to use to help do that, you will only need to request £94,450 from your mortgage lender. Which is a little less than planned, because £94,500 would be what they consider to be 90% of 'value' but really you are only borrowing £94,450 of loan on £105,000 of 'value', which is 89.95%.
    My H2B bonus is £1,405 so will only actually need to lend £94,445 - I was under the impression that the over-payment would be paid back to me via bank transfer, or could be used to pay off some of the solicitor fees, but now you have brought to my attention that it could actually work in my favour by meaning I'm borrowing less I will look in to this and get a new revision on my mortgage application before I give it the go ahead. Thank you!

    You mentioned that at the moment you have only saved £10,600 in cash. But you need £10,650 for the 10% exchange deposit on a £106,500 property, and also you will need to give your solicitors some money up front for them to do their searches etc (as well as be able to pay their final bill at completion), and you will also need to put buildings insurance in place from the day you exchange contracts because you really don't want the house to burn down or fall down when you have already signed a contract to say you will be buying it. So, you'll need a bit more money saved up than you mention you currently have.

    Still, it sounds like you are not expecting to exchange contracts tomorrow so you have time to do a bit more saving. If you have not already made your £200 HTB ISA contribution for Feb, you could do that, and for March or April etc too (depending how long until all parties are ready to exchange) then you can get more free government money and require an even lower mortgage, but you'll still need your own cold hard cash to pay for the exchange deposit, legal fees, insurance, moving costs etc.
    I've got more than I mentioned saved up, but have already taken into account solicitor fees and savings for insurance, utilities, etc. I've kept that money separate so that I don't get confused with how much I've saved up towards just the deposit. I put my extra £200 into my ISA for this month and then closed the account last week so that I could get the closing statement sorted ready for the solicitor. The seller wants a quick sale, so I'm not going to slow anything down, if I can help it. Thank you so much for taking time with your reply, it's helped a lot and made it all a little less stressful trying to understand it all.
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