The 5% gifted deposit

betmunch

Hi Everyone,

I was just wondering if I could get some opinions on the 5% gifted deposit, ideally from someone who has actually recieved it recently, but anyone opinions are valid.

My understanding of this is that (for example) a property is on the market at £100,000. The buyer puts in £5,000 and the vendor agrees to sell for £95,000 for a quick sale, but says that the value of the property is £100,000.

So £5,000 discount from the vendor, plus £5,000 deposit from the buyer equals a 10% deposit and a mortgage is now available.

I understand that when the surveyor goes out to the property he must confirm that the property is indeed worth £100,000. I believe at this point there is potential for problems as if the property was actually worth £100,000 then the Vendor would expect to recieve £100,000. Does this issue ever become reality?

I also understand that most mortgage lenders will not accept this type of deposit, I dont want to get into naming the lenders that do or dont, just want to know about experiences of "5% gifted deposit"

Does anyone have any opinions on the matter?

Richard_Webster

I understand that when the surveyor goes out to the property he must confirm that the property is indeed worth £100,000. I believe at this point there is potential for problems as if the property was actually worth £100,000 then the Vendor would expect to recieve £100,000. Does this issue ever become reality?

That's the point. If the Vendor really though he could get £100K for it he wouldn't be selling it for £95K. If a surveyor thought it would sell to a hypothetical buyer for £100K once the lender hears about the £5K "gift" they will feel that £95K is a more realistic valuation and reduce any mortgage offer accordingly.

betmunch

Richard_Webster wrote: »

That's the point. If the Vendor really though he could get £100K for it he wouldn't be selling it for £95K. If a surveyor thought it would sell to a hypothetical buyer for £100K once the lender hears about the £5K "gift" they will feel that £95K is a more realistic valuation and reduce any mortgage offer accordingly.

So, even if its in the criteria of the lender they will accept the 5% gifted deposit, in reality it is likely to get knocked back.

MrandMrsWoo

betmunch wrote: »

So, even if its in the criteria of the lender they will accept the 5% gifted deposit, in reality it is likely to get knocked back.

Not always the case I think it comes down to individual valuations and circumstances.

We are currently in the process of buying a new build and have been gifted a 5% deposit. The house is a 3 bedroom detached house with a large and wide drive and a decent size garden. The prices was very good for our area and around £15k cheaper than the closest reselling alternative in the open market so decided to take the plunge.

We took the 5% deposit, added 5% of our own and found a mortgage at a decent rate with 10% LTV. The valuation came through spot on and whilst we were on the site had a chat with the bloke the mortgage company sent over and mentioned that he would have probably agreed to an addition £10k on the price although he valued the house for exactly what we paid for it on paper.

We are due to move in over the next few weeks and we're really happy with how things have gone. Strangely enough the rest of the other houses sold on this development but an average £7k more than we paid for it... I knew they heard our conversations with surveyor!

Like I said at the start I believe it is VERY much circumstantial and individual to what a "gifted deposit" actually is.

Richard_Webster

Quote:
Originally Posted by Richard Webster
That's the point. If the Vendor really though he could get £100K for it he wouldn't be selling it for £95K. If a surveyor thought it would sell to a hypothetical buyer for £100K once the lender hears about the £5K "gift" they will feel that £95K is a more realistic valuation and reduce any mortgage offer accordingly.
So, even if its in the criteria of the lender they will accept the 5% gifted deposit, in reality it is likely to get knocked back.

Not necessarily - I was assuming that some people wouldn't bother to find out before hand if their chosen lender would accept a "gifted deposit" situation.

theartfullodger

One way or another there's fraud/fiddling/dishonesty being proposed here..

I thought the British way was to deal openly, upfront & honestly?? What's wrong with that??

Cheers!

Artful

lizzak

Im buying a house at the moment with the gifted deposit. the house im buying is on the market for £84500, the seller agreed to lower the price by 5% and ive had the house valued at exactly £84500 and the seller is still happy to sell me the house for the 5% reduction.
I think the seller does have to agree to this - my vendor is really happy to accept this as she wants her house sold!
I havent had any problems regarding the gifted deposit just yet and i got mine through a broker.

GDB2222

These days, you have to tell the lender about the gifted deposit. If they are still willing to go ahead, that's okay.

FraudBuster

GDB2222 wrote: »

These days, you have to tell the lender about the gifted deposit. If they are still willing to go ahead, that's okay.

CML Disclosure of Incentives Form

http://www.cml.org.uk/cml/handbook/form

betmunch

theartfullodger wrote: »

One way or another there's fraud/fiddling/dishonesty being proposed here..

No there isnt.

The whole point of the surveyor is to confirm the property value, if he confirms it is worth 100K and the bank is aware the vendor is giving away £5k of equity for a quick sale wheres the fraud/fiddling/dishonesty?

Its in some lenders criteria that a deposit can be increased this way so its perfectly normal in theory. The point of this thread was to help me work out if it actually goes through smoothly in practice

silvercar

The point is whether the surveyor would be satisfied that the property's true value is the higher price. It always begs the question, in the surveyor's mind, if its worth more why aren't they selling for more?

This sort of scenario only crops up when the buyer is going for a very high LTV, so the surveyor really has to be prepared to justify the lender lending so much against the property.