Vendor Gifted Deposits - Pros and Cons

Chubba

Hello

We recently put forward an offer for a house and we have a 10% deposit. The estate agent's in-house mortgage adviser provided information on a 5% vendor gifted deposit which brings the total deposit up to 15% and obviously the interest rates would be much more favourable.

Now, I understand (or at least I think I understand) the concept but I cannot work out the pitfalls - surely this concept is too good to be true for the buyer? For example, I wouldn't have thought the vendor would agree to this as they would, I assume, pay the higher commission to the estate agent due to the increased official purchase price even though the actual money exchanging hands is no different than if the vendor gifted deposit was not offered? Or does this show that they are desparate to sell by offering such an incentive?

Any advice would be greatly appreciated.

PS. This is not a new build property as I'm also aware that this practice was very popular from new build developers.

Many thanks

brit1234

Banks stopped doing this deal because it was dodgy and allowed the house to be overvalued. It also fraudulently rigged the local land registry prices.

If every thing is legit they should be able to knock the deposit off the actual price. After all it is you who will have the problem when it comes to remortgaging with no equity and far higher interest rate/lower house prices.

Refuse the gift deposit and ask for a lower price instead. Also speak to an independent mortgage broker rather than a possible doddgy inhouse one. After all the EA has the sellers side not yours so why use the EAs mortgage broker?

BARGAINMAD101

We have offered a gifted deposit of 5% on the sale of our house which is now SSTC. The surveyor doing the valuation on our has been told by the mortgage advisor to value the property on the price figure being paid and not including the gifted deposit. Not many banks will go along with gifted deposits Halifax is one that will and it does give first time buyers a better interest rate with their mortgage.
I would have been willing to drop the price if not either way it makes no difference to me and my estate agents fees are fixed no matter what it sold for.

MrMichael

Don't forget the 5% is added to the overall mortgage borrowing, so you will pay interest on that 5% over the life if the mortgage.

poppysarah

No pros it's just a Con

kingstreet

Traditional method;-

Asking price £100,000
Reduction £5,000
Vendor gets £95,000
Deposit £9,500
Mortgage £85,500 LTV 90%

Vendor gifted method;-

Purchase price £100,000
Gifted deposit £5,000
Vendor gets £95,000
Deposit £10,000
Mortgage £85,000 LTV 85%

If the vendor, purchaser, two solicitors, mortgage lender and surveyor are happy the figures stack, up the transaction proceeds.

sonastin

The pro is seemingly you can get a better interest rate on your mortgage. But not many mortgage lenders will entertain a vendor gifted deposit - Halifax seems to and maybe one or two others but certainly not universal. So before you know if that is a benefit, you'd have to compare the best 90%LTV mortgage you could get without the assistance with the best rate you can get at 85% from the restricted panel that permits vendor gifted deposits. If the mortgage deal is better, then it is a pro but if not there is nothing in it for either of you. Vendor might as well reduce the purchase price by 5%.

Cons - restricted lenders, harder to renegotiate if the survey throws up any problems, some people will accuse you of fraud (because you are party to a scheme which appears to inflate property prices in the area) - if you don't tell you mortgage lender, it will be fraud but if you are open with all parties involved it is down to your conscience whether you think you are damaging society as a whole!

simonhworks

Hi Chubba, vendor gifted deposits are a good deal for the buyer. And yes the reason they are offered is because the vendor wants shot of their property. If you do the maths you can see that the risk to the buyer's lender is the same with or without a 5% gifted deposit. The gifted deposit scheme therefore gives lenders more flexibility in selling thier products to first time buyers.

I find property for people and help them negotiate with vendors and agents. Vendor gifted deposits are a really useful tool for buyers lenders and vendors.

A few of the respondents on this subject seem desperate to label vendor gifted deposits as a "con". If you get a property valued by an independant RICS valuer and all parties conform to the Council of Mortgage Lenders rules on disclosure its not a con.

regards Simon

simonhworks

Hi, You post a lot, perhaps you could explain why you hold this opinion with a few facts or arguments? Or is it just you want it to be so.

Thanks in anticipation, Simon

brit1234

Gift deposits are a con, I wouldn't touch with a barge pole anyone selling with a gifted deposit. I would rather they simply knock it off the price.

Gift deposits were use during the housing bubble to commit land registry fraud, they should be banned. If you can't save up enough deposit to buy keep saving.