Cashback on completion - legalities?

peld

My girlfriend and I are hoping to move house this year and we've started to take a look at a few houses. We both have our own flats and this will be our first house together (we live in her flat, I rent mine out but it is up for sale at the moment and the tenant is leaving, we will likely keep and rent out her flat).

Regarding financials, we are looking at houses between £200-250k. We both have very good salaries and shouldnt have trouble getting a mortgage. However our main concern is a deposit, we have about 5% at the moment.

One of the houses we are going to look has an offer of £10k cashback on completion. Whilst I know we cant use this £10k in our deposit, we can borrow this short term from our parents and give it back on completion, which effectively means we could afford this now.

So my first question, how do these deals usually work? I presume there must be a hitch somewhere? Has anyone done this type of deal?

And secondly - what is the legalities of asking other buyers to do this? For example, say a house is advertised at £230k, we think its probably worth £220k. Could we ask the seller to give us £10k cashback if we paid the full asking price? How legal is this? (all subject to valuations of course)

Thanks

ftb-soon

I'd be interested in the outcome of this too

Alexh_3

Is it a new build? and 5% wont get you a mortgage. My partner and I had 10% great salaries and no bad credit and we had to up it to 15% before we got an offer.

peld

Alexh wrote: »

Is it a new build? and 5% wont get you a mortgage. My partner and I had 10% great salaries and no bad credit and we had to up it to 15% before we got an offer.

No not a new build. The cashback would be from the vendor, not a developer (although the one advertised could be from the estate agent/solicitor?)

The whole idea is that we have 5% now. We can borrow the other 5% from our parents for the short term (i.e to complete the sale), but then we'd give them the casback on completion. Essentially its a tweak of the exchange price to facilitate us getting 10% together.

Fire_Fox

How long is it going to take you to sell your flat, won't you have a larger deposit by then? Have you looked at land registry sold prices to value your flat? How long is it going to take you to save up a 10% deposit? Do you have money set aside for estate agents fees, legal fees and removal costs?

£10K back on completion usually means the property is overpriced by £10K, I can't see what benefit there is for the buyer only for the developer who gets to inflate his figures. Lenders often don't like these schemes, and will value the property according to it's true worth, so you may not be able to get a mortgage for 90% of your offer price. Lenders don't like deposits with strings attached, your parents may well need to gift you the money.

What are your plans should your OH fall pregnant unexpectedly/ you get made redundant/ non-paying tenant who needs evicting through the courts/ one of you becomes too ill to work? It sounds to me like you are contemplating own three properties short-term which presumably leaves you mortgaged to the hilt and very exposed to one of the above events taking you under.

Alexh_3

peld wrote: »

The whole idea is that we have 5% now. ....

Sorry misread.

peld

in respomse to Fire Fox....

I think I should be able to sell my flat shortly, ive had one offer so im hopeful of some success soon. However I wont make much money at all (prob £3kish after costs). We will certainly look to have my place sold before we completed on a new place, as you say we dont want 3 mortgages.

We can probably get a 10% together later in the year.

The idea is that the mortgage company doesnt see the strings - i.e. parents have gifted us £10k - the cash back is irrevalent to them. After completion we just give the £10k back to the folks. This system basically allows us to move now if we saw something we liked as a good price.
(and I know it will be subject to valuations etc)

TrickyDicky

I would recommend you have at least 15% built up no only to cover solicitor, moving, survey etc but also cover the shortfall when the mortgage company undervalues (in your eyes) the property you're trying to buy that you really want.

If you're relying on the cashback, you're really limiting the market you will be looking at. Also, when assessing you for a mortgage, if you're on a good salary but only have a 5% deposit, the lender will wonder where all your money has gone.

JQ.

peld wrote: »

The idea is that the mortgage company doesnt see the strings - i.e. parents have gifted us £10k - the cash back is irrevalent to them. After completion we just give the £10k back to the folks. This system basically allows us to move now if we saw something we liked as a good price.
(and I know it will be subject to valuations etc)

The technical name for that is Mortgage Fraud and it's a criminal offence. I would be very carefull indeed if you're planning to go down that route. Banks and BS's used to turn a blind eye to that kind of thing in the good times - that's definately not the case now.

Fire_Fox

peld wrote: »

in respomse to Fire Fox....

I think I should be able to sell my flat shortly, ive had one offer so im hopeful of some success soon. However I wont make much money at all (prob £3kish after costs). We will certainly look to have my place sold before we completed on a new place, as you say we dont want 3 mortgages.

We can probably get a 10% together later in the year.

The idea is that the mortgage company doesnt see the strings - i.e. parents have gifted us £10k - the cash back is irrevalent to them. After completion we just give the £10k back to the folks. This system basically allows us to move now if we saw something we liked as a good price.
(and I know it will be subject to valuations etc)

(a) That sounds distinctly dodgy, tantamount to lying on a mortgage application and (b) if you need to claim benefits a few months after paying your parents back you may be deemed to have deliberately deprived yourself of the capital.

You need more than a 10% deposit, you need money for fees and for covering mortgage payments should your life go t*ts up unexpectedly. What's the rush? Either sell both flats and buy now or wait a year and save up.

peld

JQ. wrote: »

The technical name for that is Mortgage Fraud and it's a criminal offence. I would be very carefull indeed if you're planning to go down that route. Banks and BS's used to turn a blind eye to that kind of thing in the good times - that's definately not the case now.

Thanks, thats all I wanted to know about how feasible this was.

How does it work when they advertise cashback though? Cant be anything fraudulent with that as we arent askign the vendor to do anything?