Bit of a complicated 'gift deposit' question. HELP Please

thriftychap_2

My parents own a 2nd house that they rent to my sister and her partner. They want rid of the house and my sister wishes to buy it. They bought it a few yeras ago for £155k with a 10% (15k deposit). They are willing to let them have the house for what they paid for it (it might be worth 5k more but its about right)

My sister and her other half are trying hard to save for the deposit but this might take a year. My parents want rid of the house asap. IMy sister has about 5k and needs another 10k plus a bit for fee's.

I have suggested they 'gift' her the 10k as a deposit. This wont be in the form of cash but as part of the transaction.
They will then make arrangements to pay it back once the sale has completed.

E.g. they agree a sale price of 155k but 10k of the deposit is taken during completion out of the equity. The other 5.5k is paid by my sister. This way they can get a mortgage for 140k (90% ltv) and get the house they want and my parents get rid of it.

My parents will have to sign a waiver to any stake in the property and describe the 10k as a gift. Iknow this arrangement of a gift is possible when its a straight cash gift but is it possible during the course of the sale transaction as i have described?

Any help appreciated.

Thankyou.

Thrugelmir

If they are struggling to save. Can your sister afford the mortgage?

The property will require a proper valuation. Primarily for the mortgage but also to avoid issues with the HMRC. At 90% there's little margin for error.

Can your sister obtain a mortgage of £140k?

somethingcorporate

What the house is really worth will determine whether any of the above will be possible.

Get some valuations done first before assuming the house is worth about what was paid for it.

Burridge60

You need to have a word with a Solicitor too as the arrangement is quite complicated with regard to any Stamp Duty, Gifted Deposit and below market value sale rules. The "value" must be spot on to avoid not paying the due level of Stamp Duty Land Tax. The Solicitor may be happy with the Lenders valuation if they are prepared to release it to them.

Although you indicate that there is no below market value sale it is important to be able to prove this as the professionals involved will be alert to its potential. With such a small percentage deposit there is a high risk of a small change in property values putting your sister into negative equity.

The deposit must be an outright Gift and not a loan or this must be disclosed to the mortgage provider and they will deduct an actual or assumed repayment amount from their affordability calculations. Most lenders will require a letter from them stating this and a copy to the Solicitor might also be necessary as they will be tasked to account for the source of the deposit.

"Selling" the property in this way of course saves on EA fees. Separate legal advice would be preferable too unless all parties agree that you are aware of the dangers of not having independent legal advice.

Talk to a Solicitor early on and choose a lender carefully.

thriftychap_2

Thanks for the replies, they can easily afford a 140k mortgage and they could save the 10% deposit in a year but they are fed up with paying rent and ma parents are desperate to rid themselves of the burden. Its not a below market valur sale so that eases things and the gift would be a gift not a loan as far as any mortgage was concerned.

So the answer to my question is YES, this arrangement is possible.

They are 1st time buyers so no stamp duty.

He is working nights to save the money, Can earn 5k a month during that time (he is an engineer) he worked 300 hours last month!!

Thrugelmir

thriftychap wrote: »

He is working nights to save the money, Can earn 5k a month during that time (he is an engineer) he worked 300 hours last month!!

Which suggests that if its going to take them a year to save £10k. Then they've other committments or outgoings.

thriftychap_2

Yes they do - the rent they pay my parents!

Janie1975

HI Thrifty,

I am just going through a similar thing but with cash. My Mum is giving me a cash gift to fund my deposit for a new house of £25K. The mortgage company, Halifax in this case, just needed proof that the funds were available (ie. her bank details on that account) and also had to give proof to the solicitor but had no problems. As others have mentioned, the house HAS to be valued at £155K otherwise the mortgage company will only lend up to the surveyors value of the house.

If your parents can state in writing that they are going to 'give' your sister the £10K for the deposit from the equity of the house I cannot see this being a problem. My Mum did have to state though that it was a 'no pay back gift' which is true, but I guess it is how trusting your parents are!!

HTH.

thriftychap_2

Thanks, it looks like this should be achievable then. Thankyou all.