Gift letter yes or no

badaz52

Hi,

We are currently purchasing a new home, I currently live with my parents in a paid for house that is being part exchanged for a new one with TW.

TW have offered my parents £140k, which they have accepted.

The new home is £200k and I have asked to mortgage £70k instead of £60k in order to cover additional expenses on completion. The money from my parents house is going into the new property and will remain their money on the emphasis if the house is sold they can recoup their money this will act as the deposit.

We will all be living in the property but I will be the only one paying the mortgage.

In order for me to be classed as a first time buyer the mortgage and ownership of the property must go in my name solely although my parents will live with me and will want a trust deed drawn up with regards to their money that is in the property. I have spoken to a financial advisor and this was his suggestion as the best method that would suit all parties, he contacted the mortgage lender and it was preliminarily accepted on this basis.

I have now sent all my identifications across in order to finalise the mortgage offer and the lender keeps asking for a gift letter from my parents, the financial advisor is insisting that due to our circumstances we do not need one as they are not gifting the money to me at all its their money they are using as a deposit on our house but on paper I will be the only owner.

They do not want to hand everything over to me and rightly so this is their life savings that is coming from the house they are PXing.

Has anyone had any experience of this? surely the lender should be happy to lend 70k on this basis? it's only a 3rd of the properties value and there is a huge deposit of £140k although its not my funds.

Like I said this was the financial advisors solution that my parents cash is the deposit, they live with me but their money is in trust so they can get it back if everything goes pair shaped and I simply mortgage the difference.

hcb42

hmm, not got experience, although my friends did this.

Are you buying with them and will eventually inherit the whole house? is the property being put into your name as FTB purely to avoid SD? What if they do want their money back in the future, and you cannot simply mortgage the difference ( I assume you earn enough for that and would have sufficient funds for a deposit if it were to come to that)

how has your advisor suggested you respond then, if he thinks you dont need a letter?

scottishblondie

The issue the lender will be having is that they want their money back no matter what happens to you personally - and so they do not want anyone other than the mortgage holder to have an interest in the property.

As an example, the property loses £20k in value, so is now only worth £180k. You have say £65k mortgage remaining, giving you £115k of equity. So if you had to sell the mortgage has to be paid off first, leaving you with only £115k of your parent's £140k. The lender does not want a legal document in existence which says that your parents are entitled to a fixed amount on the sale of the property, as that could put their money at risk.

Most lenders are going to want a reassurance that any money going into the property from a source other than your own savings is gift, and not a loan. And TBH it doesn't matter what the financial advisor "insists" - he isn't the one lending you the money. What matters is what the mortgage provider needs to give you the mortgage. I would seek advice from a solicitor rather than a financial advisor.

badaz52

The property being in my name is to avoid SD. If they want their money back in the future the house will be sold.

I'm waiting for the advisor to get back to me but he says I don't need one and I'm hoping something is lost in translation and they are treating me as a FTB for a 200k house and are wondering where the rest is coming from.

I can understand if they want a letter from my parents saying that they are putting the rest in but not a "gift" letter as such because they would be handing it over and they don't want to do this.

With regards to a legal document, it would not be for a fixed amount back but rather a percentage so its like 33.3 percent each.

sonastin

Officially, both to the lender and HMRC, you are the sole owner of this property. The money your parents are providing is one of two things: either a loan or a gift. If it is a loan, the mortgage lender won't want to lend as they don't want the extra complication. So you need to reassure them that it is a gift. Even if its a gift that you intend to return at some point.

What if you can't keep up mortgage repayments and the bank had to repossess? What would happen to your parents interest then? If you're all in it together and they share in the loss of the home because between you, you're all struggling then I'd still say it was a gift. If they sue your a$$ for losing their life savings, its definitely a loan and that's where the bank wants to steer clear. I'm guessing by the fact that you can live happily with them, its more like the former than the latter!

Similarly, if there is a reduction in value and they're willing to take the loss out of their share until you're in a position to pay them back(if ever), it doesn't affect the banks position so could still be regarded as a gift.

badaz52

If my parents agree to gift me their money and I create a legal document saying I want to pay them 2 3rds back if the house is sold. What happens with regards to them creating wills? would this need to be factored into the legal document? plus would this even be acceptable to a lender?