Advice re: £ allowances from seller seperate from mortgage

sal_strawberry

Hi

We FTB and are nearly at exchange on a house. It was up for £180k and we got it for £157k. We have a 10% deposit and mortgage sorted with C&G.

The survey valued it at £157k and at the same time showed a few issues - nothing major but included some damp. We had a specialist damp survey done on advice from the original surveyor. It needs a new damp course and replastering in a room downstairs. This will cost £2500 + Vat.

Negotiated hard with seller and she is going to pay £2500 (we will pay the VAT). It is being done as an allowance. When the monies tranfer (on move in day) the solicitor will hold back £2500 from the £157k being paid to the seller to pay this damp bill. We were told this was the best way to do this as money off the house directly would only reduce the amount we would get form the lender and leave us without the full cash to pay for the work.

However! our solicitor has said due to the credit crunch/mortgage problems lately all allowances now MUST be disclosed to the lender. Although this £2500 will not go into our pockets, it is for unforseen, essential and genuine work we are worried (as is our broker) that the lender will just lend us £2500 less.

has anyone experienced this lately/in the current climate... Any advice or experience is gratefully received! Thanks

Doozergirl

My brain hurts. You'll have to excuse me for being dim but if the vendor is paying for it, why is £2500 being deducted from the amount you are paying her? It sounds to me like you are paying for it? It's her problem essentially. You'll have to tell her that she has to find the £2500 whether it's loans or credit cards if it's genuinely likely to jeopardise the sale.

My advice to anyone buying a house with 'suspected' damp is to move in and see whether a problem actually exists! Our full structural survey on this house highlighted possible damp. The damp guy (who gets paid for selling damp proof courses) recommended a new DPC. I've lived here for a year now, there's no problem at all. The reading on every old house shows damp levels.

If you bought the house for £2500 less then surely it's fine then?

AlecE

Doozergirl wrote: »

My brain hurts. You'll have to excuse me for being dim but if the vendor is paying for it, why is £2500 being deducted from the amount you are paying her?

Think of it like this...

House price = £157,000

Option 1
Buyer gives seller £157,000
Seller gives damp proof company £2,500

Option 2
Buyer gives seller £154,500 (i.e. £2,500 less than £157,000)
Buyer gives damp proof company £2,500

Either way the buyer has spent £154,500 on buying the house and £2,500 on the damp proofing (forget the VAT for the moment, the buyer was always going to pay that) - i.e. the seller has knocked £2,500 off the price of the house in view of the cost of the necessary damp proofing.

Doozergirl wrote: »

It sounds to me like you are paying for it? It's her problem essentially. You'll have to tell her that she has to find the £2500 whether it's loans or credit cards if it's genuinely likely to jeopardise the sale.

It is the seller's problem, the seller has agreed to pay £2,500 towards the cost (the buyer paying the VAT, so around £375).

Doozergirl wrote: »

My advice to anyone buying a house with 'suspected' damp is to move in and see whether a problem actually exists!

If this buyer did that and then discovered that the damp was real then they would have paid £157,000 AND then have to pay £2,500 for the damp proof work. The house is sold as seen, any work deemed necessary afterwards is the responsibility of the buyer not the seller (unless the work should have been spotted by a survey which was carried out but wasn't spotted, in this case it was spotted).

Doozergirl wrote: »

If you bought the house for £2500 less then surely it's fine then?

That's what is happening here - the house is being bought for £2,500 less but the buyer is then choosing to spend that £2,500 on getting the damp proofing work done.

Alec

Robert_Sterling

The vendor is willing to sell for £154,500
That is the value of the house in its present condition.
The 10% deposit will be £15,450?
.............................................................................

The cost of improving the house will be £2,500 + VAT
Total cost £2,875.
..............................................................................

I am not asserting that I am right so I am just posing a question:-

Might it not be the case that the buyer, the vendor and the buyer's solicitor and the vendor's solicitor are conspiring to obtain, for the buyer, a pecuniary advantage by deception. The pecuniary advantage being that the buyer gets loan of £141,300 for a purchase costing £154,500.

The Loan to Value ratio is 91.45% and the pretence is that it is a 90% LTV.

sloughflint

Robert_Sterling wrote: »

Might it not be the case that the buyer, the vendor and the buyer's solicitor and the vendor's solicitor are conspiring to obtain, for the buyer, a pecuniary advantage by deception. The pecuniary advantage being that the buyer gets loan of £141,300 for a purchase costing £154,500.

The Loan to Value ratio is 91.45% and the pretence is that it is a 90% LTV.

Deception seems a bit of a strong word to me.
The survey valued the property at 157k and I presume the mortgage offer was based on this?

sal_strawberry wrote: »

it is for unforseen, essential and genuine work we are worried (as is our broker) that the lender will just lend us £2500 less.

The fact is that the work needs to be done and Op hasn't the spare cash to do it. Rather than abort the transaction, all parties are trying to find a working solution:

sal_strawberry wrote: »

we are worried (as is our broker) that the lender will just lend us £2500 less.

What has been suggested just seems to me to be the most logical and simple way to go about things.
I'm not sure about the answer but I can't imagine the lender being that fussed in view of the survey. After all, a more convoluted agreement could have been that the work be done prior to the sale at the vendor's expense and inconvenience or even completion only takes place if the solicitor receives a cheque of £2500 from the vendor.
Why doesn't the broker call the lender and give you a definitive answer?

Sammy85_2

Or, complete the sale as originally planned, and then the seller gives £2500 back for the damp work either direct or via the solicitor. (Im assuming there will be spare cash from the sale as they were planning to hold back £2500 anyway)

That way the house is purchased for the amount the mortgage company were told and the seller is still paying for the work. There can be no confusion over whether it is deception or not then??

devon007

As a residential conveyancer I can tell you this is quite normal. Allowances for repairs are often written in to the contract. Technically the price is still £157,000 on the contracts that you will exchange BUT an extra special condition is added to the contract which would state something like "At completion the Seller will make an allowance to the Buyer in the sum of £2,500 as a contribution towards damp proofing works at the Property".
So on paper the price paid is £157,000 but the money that changes hands on the day of completion is actually £154,500 and the Buyer has the money for the damp proofing (regardless of whether they actually use it for that or not!).
Yes, the Lenders have tightened up on procedures and most lawyers will now want to declare any such monetary dealings such as this (unless they are fairly minor and the mortgage monies pro rata house price are fairly negligble). Your solicitor knows all the facts of your particular case - be guided by them!

sal_strawberry

Thanks for your input. We negotiated after receiving the survey and getting a specialist damp survey done after that, as the dampo work was more than expected and we felt it was not something we were prepared to pay for, given what we were paying for the house.
Yes Sammy85 the damp money £2500 is going to be held by the solicitor on completion, but not to give to us, to pay the damp company direct.
Yes Devon007 you are correct, it was going to be written into the contract.
My main query is if anyone has actually experienced this lately. Our solicitor said that these allowances never used to have to be declared, but due to the messed up economic and mortgage system it is a new ruling that mortgasge companies want to know. I am fine with this as we are not trying to make any money from it!

We just need the £2500 in cash rather than off the sale price as we need to pay for the unforseen and worse work that needs doing. (Yes it definately needs doing, that is not in question here!). So has anyone got any recent experience with this, if so i'd love to hear your thoughts. Thanks

sloughflint

sal_strawberry wrote: »

So has anyone got any recent experience with this, if so i'd love to hear your thoughts. Thanks

Not sure quite what more you are hoping to gain from an internet forum.

Devon's post is probably the best you are going to get.

I suggest you get the people you are paying good money to put your mind at rest.

sal_strawberry

I would like what i stated...if possible...anyone with actual experience of it. Thanks!

devilot

We're doing this with our buyers, giving them a £1500 allowance on completion (plus we're paying their vat, because we're nice like that!;))

It doesn't seem to have raised any problems or eyebrows anywhere along the line.