1st time buyer needs advice on legality

Dot2Dot

Please help me as I really am clueless in the field of mortgages.

I have a friend who is currently renting out her property, she is now looking at selling it and has offered it to me at a cheaper price.

She would prefer not to put the property through the estate agents and would like us to conduct a private sale.

The property has been valued at £95,000, but she would accept £88,000 from me, however I dont think it is worth either, I think it is worth in the region of £82,000. She said that if the mortgage company put in a 'low' valuation she could contest it, but ultimately she wants them to agree to the £95, 000 as there is a plan she has for us and this is where I get confused.

She stated that the lower a valuation, the fewer the mortgages would be available to me and the more interest I would pay on them.

She then explained things to me in this way:

Assuming I borrow the full 90% of £95,000 = £86,500 I would be left with a defecit of £1,500 owed to her, but in order to complete the sale and assist me in the process, she would be happy to do one of the following:

1. I pay £5.00 per month to her - this would cover 4% interest only, on a loan of the £1,500 which would last 24 months and then I pay the £1,500 in full

2. I pay £5.00 per month to her - this would cover 4% interest only, on a loan of the £1,500. I pay this monthly until the end of your first mortgage term (assuming this is a max term of 2 years from completion) - I then re-mortgage including this debt and repay the £1,500 in full.

3. I pay £67.50 per month to her - this would cover the loan of £1,500 + 4% interest paid per month over 2 years - on receipt of the 24th payment, the debt would be paid in full.

Then she says its worth it because:

I don't need a deposit.

- Because the mortgage company will only be loaning 90%, I will get a far better interest rate and for a longer term which could potentially save me thousands.

- The property was valued at £91,000 when she bought it 4 years ago - buying it now at £88,000 would still leave all the 'extra' equity in it for me

Finally she then says it would be a private sale and I could use a convenyancer rather than a solicitor as they are cheaper. The the bit that really concerned me was that she said, It goes without saying that to mention either my acceptance price, or our private agreement regarding the deposit, would not benefit a mortgage application in any way. If I was to discuss either of these with a prospective mortgage company or broker, they would immediately reduce their valuation and I wouldn't be able to raise enough deposit for the purchase to happen. And she advised that this remain between me and her and no one else.

Now call me paranoid but I really am concerned as to whether this would summount to fraud.

Please advise

tek-monkey

I may be wrong, but I thought all funds had to exist? Surely a bank wont give a mortgage without seeing a deposit?

g_attrill

You would need to lie on the paperwork to make it happen (falsify the true purchase price), so it would amount to fraud. There are probably ways to conceal the lack of a deposit from the mortgage company but would need several people to be in on the scam, and I doubt they would bother unless they were directly involved!

Comyface

Yes, sorry Dot, I agree it's fraudulent to do it the way your friend suggests.

For a start, based on the way house prices have gone recently, your valuation (£82k) is probably more accurate so you'd be overpaying for the property anyway. (That's if you can get the mortgage company's valuer to agree that value).

Then, you'd have to declare the purchase price to your respective solicitors and your mortgage company and lie about it to obtain an inflated valuation. You'd have a mortgage that would then be over the maximum 90% loan-to-value which most (if not all) lenders are insisting on at the moment. You yourself would also be at risk of negative equity if prices continue to fall.

All-in-all a bad idea IMO.

Joe_Bloggs

Dot2Dot Said :-

The property has been valued at £95,000, but she would accept £88,000 from me, however I dont think it is worth either, I think it is worth in the region of £82,000. She said that if the mortgage company put in a 'low' valuation she could contest it, ...

I don't see how contesting an independent valuation would change the valuation. Perhaps an average valuation can be found by using many surveyors.

A record of the sale price of properties in the location is held by the Land Registry. Some web sites let you see what was price was paid for all properties and those around it.

Save up for your own deposit then you can buy any property if it is within your means. I appreciate the difficulty that this involves.
J_B.

zzzLazyDaisy

What is being suggested is fraudulent.

In the previous property crash in the mid/late 80's I knew a couple of solicitors who played along with this sort of stunt. They went to prison.

Don't do it.

maninthestreet

If she thinks her house is worth £95,000, tell her to put it on the open market, and see if she can get any offers near £95,000.

opinions4u

Dot2Dot wrote: »

The property has been valued at £95,000

By who?

but she would accept £88,000 from me, however I dont think it is worth either, I think it is worth in the region of £82,000. She said that if the mortgage company put in a 'low' valuation she could contest it

She can contest it with you. She can refuse to sell at a particular price. But she cannot contest it with the mortgage lender. Anyway, a lower valuation is beneficial to the buyer, surely.

She stated that the lower a valuation, the fewer the mortgages would be available to me and the more interest I would pay on them.

There are a number of different factors that contribute to this. One is the size of any deposit you may have.

Assuming I borrow the full 90% of £95,000 = £86,500

No. £85,500.

I would be left with a defecit of £1,500 owed to her

£2,500, surely?

1. I pay £5.00 per month to her - this would cover 4% interest only, on a loan of the £1,500 which would last 24 months and then I pay the £1,500 in full

2. I pay £5.00 per month to her - this would cover 4% interest only, on a loan of the £1,500. I pay this monthly until the end of your first mortgage term (assuming this is a max term of 2 years from completion) - I then re-mortgage including this debt and repay the £1,500 in full.

What would you do if there is no remortgage available in 2 years?

Because the mortgage company will only be loaning 90%, I will get a far better interest rate and for a longer term which could potentially save me thousands.

90% tends to be the highest available LTV and comes with the highest interest rates on the market.

The property was valued at £91,000 when she bought it 4 years ago - buying it now at £88,000 would still leave all the 'extra' equity in it for me

Except if, as you believe, it's only worth £82,000, you're paying more for a house than it's worth.

Finally she then says it would be a private sale and I could use a convenyancer rather than a solicitor as they are cheaper.

Price up solicitors. They usually cost about the same as a licenced conveyancor. Being a private sale is nothing to do with it.

The the bit that really concerned me was that she said, It goes without saying that to mention either my acceptance price, or our private agreement regarding the deposit, would not benefit a mortgage application in any way. If I was to discuss either of these with a prospective mortgage company or broker, they would immediately reduce their valuation and I wouldn't be able to raise enough deposit for the purchase to happen. And she advised that this remain between me and her and no one else.

Failure to answer questions honestly on the application form would be to attempt to obtain monies by deception. Your activity would be criminal and could potentially leave you in prison.

Now call me paranoid but I really am concerned as to whether this would summount to fraud.

It would.

Please advise

Don't buy from this "friend". Get a property elsewhere.

Cannon_Fodder

What they all said...

getmore4less

Looks to me she is trying to con you into paying more than the place is worth because you have no chance of getting a place without a deposit.

Some of what she has said is nonsense so she is either telling porkies or does not have a clue herself.

If she cuurently has a tenent then selling on the open market is not so easy to avoid rental voids, selling to you avoids this so is worth a big discount.

What state is the place in, any lurking problems or work needed after being a rental, I thing she is probably hoping you will not bother to question/investigate this or get a full survey.

I would steer clear of this one , you are very likely to come unstuck financialy and find out what sort of friend this is.

What about offering to rent the place for a year on a reduced rent so you can build up a deposit to buy later, then you can find out if you realy want the place.

Does this friend have any mortgage on the place and how much is it renting for?

Jonbvn

Sorry OP but your "friend" is not trying to help you. Quite the opposite, she is trying to rip you off by getting you to overpay for her property.

Avoid this deal like the plague!