Cashback on completion - legalities?

Fire_Fox

Cashback often doesn't work, but it does get viewers in the door. By the time the naive FTB realises that cashback is a con they have had an offer accepted, paid for a survey, paid the mortgage arrangement fee and wasted several months. As I said before:

"£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."

JQ.

peld wrote: »

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

What the vendor/EA is hoping is that you lie to your Bank. The bank thinks you're paying £200k, they tell the valuer, the valuer values at £200k and the bank lends you £170,000 (85%) with you only putting in £20,000 (10%) and the cashback covering the rest (5%). The bank thinks they have an LTV of 85% but in reality it's 90% because you lied to them because the house is only actually worth £190k.

I suspect you would also have to persuade your solicitor to lie to the Bank as well, they tend to not like doing that.

Chances are the valuer will come in at £185 to £190k to it's all pointless anyway. Save for a deposit - that's the best way.

Thrugelmir

Does you G/f have equity in her property? If so why not sell it and therefore get a mortgage deal with a lower LTV.

DVardysShadow

Buyer: See this house for £250,000, can I have it with cash back
Seller: Certainly Sir, how much would you like
Buyer: I would like £X
Seller: That's no problem Sir. As it is you and I like your chubby face, I will only charge you £250,000+X
Buyer: Thank you. That is most kind of you. If it were not for you, I would not have £X

Richard_Webster

What the vendor/EA is hoping is that you lie to your Bank. The bank thinks you're paying £200k, they tell the valuer, the valuer values at £200k and the bank lends you £170,000 (85%) with you only putting in £20,000 (10%) and the cashback covering the rest (5%). The bank thinks they have an LTV of 85% but in reality it's 90% because you lied to them because the house is only actually worth £190k.

I suspect you would also have to persuade your solicitor to lie to the Bank as well, they tend to not like doing that.

A solicitor has a positive duty to tell the lender and the builders have to complete a cash incentives form prescribed by the Council of Mortgage Lenders so it is commonly the case now that the lender down values the property accordingly and offers you its maximum LTV ratio of the lower amount so you are no better off. (A few years ago builders were doing this all the time and lenders were so anxious to lend that they were stupidly accepting the inflated prices - hence the problems we have had over the past year or two.)

Also you don't actually need to borrow the money from parents - if,as is unlikely, the scheme gets past the lender, the builder's solicitors will simply ask for that much less on completion - they won't mess around taking the money and literally giving it to you back!