Purchasing a property for 70% of its real value - Deposit question!

Faz

Hi everyone,

I have perhaps an unusual question here!

I am looking to purchase a house from my father. The value of the house is £100,000 and it has £70,000 outstanding on a mortgage. We both want me to become the owner of the house, without me having to pay any (or little) deposit from my own funds. Is there any way we can make this work? I'm thinking a couple of scenarios:

1. I buy the house for its real value of £100,000. But I use the surplus money above (£30,000) as the deposit. However, this money will only be 'available' to me once my mortgage lender has released the payment to my father, who it turn gives it to me for the deposit.

2 . I buy the house for £70,000 and use the difference between real property value minus loan required as a deposit of £30,000?


Any advice or pointers most appreciated!

Thrugelmir

To purchase the property your fathers mortgage will need to be discharged, something you appear to have overlooked.

Wh05apk

This can be done, will your father want his equity back when you sell the property?

I have just done a similar case for a client, purchasing a property from his father, the deposit by way of the equity being "lent" from the father, who will place a second charge over the property, most lenders will not accept this, RBS will.

Faz

Wh05apk wrote: »

This can be done, will your father want his equity back when you sell the property?

I have just done a similar case for a client, purchasing a property from his father, the deposit by way of the equity being "lent" from the father, who will place a second charge over the property, most lenders will not accept this, RBS will.

Thanks for the response.

My father will not want the equity back.

I'm not 100% clear on the method you have outlined, but are you saying that option 1 i outlined above can work? If so, can you tell me what lenders would accept this please?

Rallyspit_2

Nationwide will also entertain a second charge in favour of your father for the deposit - and their rates and standard of service are both reasonable at present - and no, I don't work for them!

Hope this helps.

Euphoria1z

what if you borrow 30k, pay that as a deposit, buy if from your dad for 100k with a 70k mortgage. your dad pays of the mortgage and has 30k left, he pays that towards the loan you took thus your back in the same position, but you own the house and now have a 70k mortgage? isnt it easier just to do a transfer of name from your dad to you?

andyhart44r

I process these applications on a daily basis for a certain well-known bank. Basically because it is so difficult to get into the housing market these days parents seem to be gifting money for their children.

You say that your father is willing to gift you the £30k deposit and does not want it back. This is what we call an undervalue sale. It is similar to a gift of deposit only the vendor is a relation.

You apply for a mortgage for £70k with whomever will give you one. The purchase price will be set at 100k until you advise the bank of the circumstances in the sale.

Now my bank would then reduce the purchase price in the offer to £70k, but base the mortgage offer on the valuation in present condition therefore still giving you 70% LTV.

your father gets the 70k on completion and pays off his mortgage, leaving you with a 70k mortgage.

Faz

Rallyspit wrote: »

Nationwide will also entertain a second charge in favour of your father for the deposit - and their rates and standard of service are both reasonable at present - and no, I don't work for them!

Hope this helps.

andyhart44r wrote: »

I process these applications on a daily basis for a certain well-known bank. Basically because it is so difficult to get into the housing market these days parents seem to be gifting money for their children.

You say that your father is willing to gift you the £30k deposit and does not want it back. This is what we call an undervalue sale. It is similar to a gift of deposit only the vendor is a relation.

You apply for a mortgage for £70k with whomever will give you one. The purchase price will be set at 100k until you advise the bank of the circumstances in the sale.

Now my bank would then reduce the purchase price in the offer to £70k, but base the mortgage offer on the valuation in present condition therefore still giving you 70% LTV.

your father gets the 70k on completion and pays off his mortgage, leaving you with a 70k mortgage.

Thanks for the advice on this guys :beer:
So far I've got 2 lenders that will allow this 'gift' type of mortgage; Nationwide and RBS.

What other lenders will do this? Once I know who else will do this, I can try and compare the rates and find the most competitive deal

Thanks :-)