Mortgage despoit - too good to be true?

Basic_Samwell

Hi folks, this is my first post.
Other half and I are sitting tight to buy somewhere when we can afford it. We have been saving for a deposit and to be honest dont really know much about mortgages.
We have recently seen a brilliant house for sale and it just so happens that the seller is a good friend of the family.
We have been talking about the the price we can get it for and the seller is very keen to get it sold as they have just divorced etc etc. Obviously we cannot afford the deposit because we don't have 10-11 grand sitting around.
Anyway, the seller has given us a proposal and said that he would pay our 10% deposit, which to me sounds great.
He has suggested that he sells the house to us as the price listed (£119,950) and he funds the 10% deposit from the value of the house, therefore we are getting the house for around £107,000.
Now to me, this sounds like a one in a million opportunity, however, I know nothing of mortgages and how things work so I will remain calm for the meantime!
Has anyone heard of this happening before and more importantly, is it legal?
My only concern is that the lender are going to want to see the 10% in hard cash before they release a mortgage?
Any advice would be grateful! Thanks.

beecher

The property is probably going to be valued at less than £119,950 which will then cause a problem as your LTV will be calculated using the valuation, rather than what you're paying for it.

Sarny

Well if you ignore the lTV issue, which will be a problem, you are stilling paying £120k for the house as you are putting a 10% deposit in.

allan673

its quite common now for sellers to pay the buyers deposits.especially new builds.

Basic_Samwell

Thanks guys. So is this something I should press on with or am I wasting my time? Also, If the seller is paying my 10% out of the value of the house and I am only mortgaging for 107,000 surely thats his loss? I will only ever pay 107,000 for the house. or am I missing something?

morg_monster

in this day and age you are unlikely to get a mortgage for more than 90% of the house. So if the bank values the house at 110,000, then they will only lend you max 90% which is 99,000, thus you have to find an extra 8,000 on top of the 12,000 from the seller to come up with the 119000 the seller wants. Obviously this problem gets worse if the LTV is less than 90%. This idea will only work if the seller accepts the banks valuation of his house or you can find some money to make up the shortfall.

Basic_Samwell

So basically if the bank values the house at the expected value then this is possible? How exactly is the deposit sorted out then? Does the seller pay the bank the deposit after the mortgage is sorted or is there some sort of contract drawn up?

beecher

Are you sure that the expected value is £119,950? You could look at nethouseprices, see what these house went for at the peak, and take away 17-20% and see what figure you have

Conrad

yes the Bank can do it as long as the valuation comes in at £119950

you borrow 90% of that and the seller effectively gives away 10%, but it isd all dependant on the valuer agreeing it really is worth £119950.

If they down value it to say £115000, then you would get 90% of the reduced figure and your seller gets that 90% as his sale price.

Halifax are quite good for this.

Leon_W

Most banks and building societies will not do this.

The mortgage amount is based on the purchase price or valuation (whichever is the lower) and what you are talking about is called a vendor gifted deposit.

Vendor gifted deposits are a no no for most lenders although Halifax will do so up to a maximum of 5%.

pixiepie99

"Obviously we cannot afford the deposit because we don't have 10-11 grand sitting around."

Just one thought - sorry to burst your bubble! However, if you can't save £10-12k for a deposit you may need to seriously think about whether you can afford the mortgage repayments on this house before commiting to buying it.