Selling our home - what is vendor assisted deposit?

iandv

Hi

We have our house on the market at £120k and we have had a 'TYPE' of offer today from 1st time buyers.

Our estate agent called and said that they like our house but would we be willing to offer a 5% vendor assisted deposit to enable the 1st time buyers to purchase our home as they dont have the full 10% deposit.

What is a vendor assisted deposit? and is it legal?

Why doesnt the 1st time buyers just put in an offer of 5% off our asking price, which is the same thing?

Please help...

TIA

G_M

I think they are referring to the amount of deposit (cash) handed over by the buyers to the seller's solicitor at Exchange of Contracts. This is usually 10% of the purchase price, but could, by agreement, be 5%. (the buyers will receive nothing from their mortgage lender till Completion, so have to find this cash themselves).

The balance (ie 90% or 95%) is paid at Completion. So it does not affect the price you receive, just when it is handed over.

However I may be totally wrong in the above guess! Ask the estate agent to explain!

Mr.Brown_4

The buyer can't scrape the deposit together. So you need to help them. It's a way round the requirement for buyers to be able save properly before they buy a house. Just borrow, borrow, borrow.

So anyway, you offer them a sweetener.

silvercar

It is legal IF it is declared to the mortgage company and the buyer's solicitor.

Say your buyer can only get a mortgage with maximum loan to value of 90%. So the vendor gives a 5% gifted deposit, the buyer has a 5% deposit and the lender gives a mortgage for 90%. 90+5+5=100%. If you accepted an offer 5% below the asking price, this would mean the buyer would need a 95% mortgage, which they can't get. This only works if the valuer accepts the valuation that includes your vendor gifted deposit, otherwise it doesn't work out, so there is a risk in accepting this kind of offer.

Worked example.
Property value 120k.
vendor gifted deposit 5% = 6k,
buyer's deposit= 6k,
mortgage 90% = 108k.
total = 6+6+108= 120k.
In reality, you are gifting 6k, so you get 108+6=114k.

Now say you had accepted an offer of 114k.
the mortgage lender will only give 90%, so that is £102,600,
the buyer only has 6k
leaving a gap of 114-6-102.6= 5.4k that the buyer can't find.

So by saying a "vendore gifted deposit", the buyer gets a bigger mortgage and you get 114k for the property.

This only works if the valuer will value the property at 120k. If the valuer only thinks it is worth £114k, the whole deal falls apart and you won't know the valuation until the lender has commissioned the survey.

Richard_Webster

I think they are referring to the amount of deposit (cash) handed over by the buyers to the seller's solicitor at Exchange of Contracts. This is usually 10% of the purchase price, but could, by agreement, be 5%. (the buyers will receive nothing from their mortgage lender till Completion, so have to find this cash themselves).

The balance (ie 90% or 95%) is paid at Completion. So it does not affect the price you receive, just when it is handed over.

I don't think this is likely. In the days when 95% mortgages were common nobody referred to the 5% deposits paid in that way.

Much more likely it is a mortgage fraud which the estate agents ought to know just won't wash. Seller and buyer agree "price" - say £120K. Buyer obtains mortgage for 90% of that - £114K, but seller doesn't ask for £6K of the £12K difference. Seller only gets £114K in total.

The buyer's solicitors have a duty to tell the lender about the "gifted deposit" and lender's likely reaction is to consider the real sale price to be £114K and reduce their offer form £108K to £102.6K (90% of £114K).

It is only if the lender is stupid enough to go ahead in full knowledge of the facts that it will work - a couple of years ago lenders were accepting this kind of thing - and look where it has got us!

eanick

This is a scheme that Countrywide have been running for 18 month or so - not well known as very low take up. They set up the scheme in conjunction with the Halifax and a couple of other lenders to "help" first time buyers - low take up would indicate they didn't want that type of help!

I would imagine that it is fullt compliant with the biggest EA and the biggest lender behind it. Lots of people couldn't get their head round it so don't worry if you don't - just get your agent to explain it again!!

jenny_13

eanick wrote: »

This is a scheme that Countrywide have been running for 18 month or so - not well known as very low take up. They set up the scheme in conjunction with the Halifax and a couple of other lenders to "help" first time buyers - low take up would indicate they didn't want that type of help!

When I was looking Halifax tried to offer us the gifted deposit. I didn't like the sound of it as I imagined not many mortgage companies would accept and also I had a good deposit so wanted the money straight off the asking price.

iandv

The agent told me they FTB's were looking at halifax as they had mortgage advice with his company who were countrywide associate

I suppose I need to speak to my agent to confirm exactly how much deposit they have and to explain how it works in detail?

Is vendor assisted purchase something that is straightforward and legal or should we wait for a buyer who has the correct deposit?

What do we need to do as vendors to ensure everything is done above board and legal with this type of sale?

Richard_Webster

This is a scheme that Countrywide have been running for 18 month or so - not well known as very low take up. They set up the scheme in conjunction with the Halifax and a couple of other lenders to "help" first time buyers - low take up would indicate they didn't want that type of help!

I would imagine that it is fullt compliant with the biggest EA and the biggest lender behind it. Lots of people couldn't get their head round it so don't worry if you don't - just get your agent to explain it again!!

If Halifax are doing this then the government should intervene. I rather resent a partially nationalised institution going back to such imprudent lending and risking other people's money on this type of thing.

silvercar

I knew that Halifax used to accept upto 5% vendor gifted deposits, I wasn't aware that they still do.

Is vendor assisted purchase something that is straightforward and legal or should we wait for a buyer who has the correct deposit?

It is legal if declared on the mortgage application. Its not straightforward and it relies on the valuation coming in at the higher figure. Unless you are confident of the property being overvalued I would think it preferable to find a better buyer.

What do we need to do as vendors to ensure everything is done above board and legal with this type of sale?

Tell your solicitor that the buyers are proposing a vendor gifted deposit. He will make sure that it is declared appropriately.