Mortgage refusal

sweepea_2

My husband was trying to help my daughter buy her first flat. He was going to stump about 65% of the price as cash with my daughter trying to get a mortgage for 45%. He would not be on the deeds but he would have a Deed of Interest in the property as an investment as he cannot afford to just give her the money as a gift. My daughter has a full time job with a regular income. They put in an offer on a flat which was accepted and she had an agreement in principle with Nationwide but when she went in to sign the papers on Thursday they suddenly withdrew without any reason. The broker has tried other lenders but nobody is willing to lend her the money. Can anybody give us a clue why this has happened so suddenly and is there anything we can do about it?

Senior_Paper_Monitor

Not with the information you have given - starting point will be her credit reports and I would assume that is what your broker is doing already (as well as trying to lever at least some clue from Nationwide as to what its about).

mclaren32

What is the reason that the other lenders arent able to help?

The deep of trust showing your husbands interest in the property probably wont help things as mortgage providers dont want any complications in the event of a reposesion.

Leon_W

If she is being refused you have to presume there is something wrong with her credit file or there is something she is not telling you. Quite a few lenders will have an issue with the Deed of Interest as they usually require a letter stating the deposit as a non returnable gift.Get a copy of the credit report to find out if that is the problem. Probably it is the returnable deposit. They will take this as a commitment which probably in turn makes the mortgage unaffordable.

If it is not possible to proceed as things stand then it is perfectly possible for your husband to buy the property on a Buy To Let basis, this will also safeguard the deposit he is putting down.

The Buy to Let will be a regulated BTL as opposed to unregulated (by the FSA) because it is a family member but that is the only difference.

holly_hobby

There may certainly be status issues with the Ds full status checks - but suspect that the gift with reservation may be the issue.

With regards to this, I suspect that Dad wishing to avoid being on the deeds/mge (despite 65% investment) is actually more driven by exposure to CGT liability, than not trusting his daughter with the capital investment.

So, if that assumption is correct, the option of Dad purchasing as a BTL instead, will still leave him liable to CGT on disposal and not address the issue. (unless of course the property becomes his main residence for a period during the term of ownership)

Of course if the capital gift was noted as being given without reservation than that would solve the issue, but Dad doesn't want to do this as it appears the capital is actually a loan (payable on disposal) rather than a gift - every lender will have an issue with this.

The only other way I can think round this without him becoming party to the mortgage, would be to apply for a 2nd charge post completion - HOWEVER the registration of this is by explicit agreement of the lender holding 1st charge, which of course they may refuse.

Unfortunately there is no easy solution to the requirements of the OP - and flexability to their requirements is required.

Either Dad truely gifts the monies (maybe with an informal agreement with his daughter to "protect" his capital - Obv this is open to its own issues, which is for the family to discuss)
or
Becomes party to the mge to retain claim of his investment (notwithstanding the fact that his investment may be eroded if the housing market falls and there will be CGT exposure)

A prickly problem ...

Holly

WaxiesDargle

i know this might sound blatently obvious but can't you just ask nationwide why they withdrew their offer?

dimbo61

the other option is to look at a offset mortgage ! Now YBS do a thing called Family and friends !!!
The young lady has to be able to afford the mortgage in her own right and then dad puts his money into an offset account in his name and this saves interest on the mortgage payments.
Just an idea and YBS has rather tough lending policy

holly_hobby

Thats a good alternative solution to the problem .....

The Daughter has to take an offset mortgage (if she can service the reqd mge & meets lender status checks) which is linked to savings account with Dads capital. There is still the issue of a deposit as max lending is 90% - hopefully Dad will be happy to gift the 10% without reservation.

Certainly worth a consideration, if his main consideration is to remain off the radar re the actual property purchase.

Further similar arrangements avail in England & Wales are from 2 lenders (that I am currently aware of)

Family offset deal is available from Marsden Building Society available up to 100% LTV, which was launched in July.

To qualify for this deal, the borrower must have a family member willing to put up at least 20% of the property’s value in a ‘charged savings account’ with the society, to which there is no access.
Link for ref - http://www.themarsden.co.uk/

Also Tipton & Coseley Building Society offer a "family assisted" discount rate mortgage available up to 100% LTV.

It is only available for properties within the Midlands counties (mentioned as unaware of OPs location) with a collateral charge taken against a family member’s property.

The collateral charge can be removed once the LTV falls below 75% and the borrower’s income can cover the full loan amount.
Link for ref - http://www.thetipton.co.uk/home/mortgages/parental-assisted-discount

Hope this helps

Holly

sweepea_2

Thanks so much for your replies. I don't think it is my daughter's credit record as she is not a kid and has always been good with money. The broker said Nationwide refused to say why they were turning her down but did eventually apologise to the broker. When my husband asked if there was any way that it could go ahead they said only if he gifted the whole amount and wrote a letter saying this is what he is doing. As much as he would like to he cannot afford to do this is he has to think of his old age and needs some return from the money. They seem to flatly refuse any other arrangement. He cannot take out a joint mortgage with her because he is too old and cannot repay the amount back before he retires. I cant understand it because the property will be worth so much more than the mortgage. If anybody else has any suggestions we are willing to try it as we can only stall the seller for a few more days..

Senior_Paper_Monitor

I have two client cases on my desk this week that despite their belief that they have excellent credit (and deserve to have it) have clear 'risk elements' in their reports that will probably cause rejections with most lenders.

Such problems need addressing anyway.

Once identified they can usually be presented for manaul assessment to selected lenders.

Frankly your broker should be on these issues like a rash at the moment.

DVardysShadow

Hmm. You need to get to the bottom of whether there is a problem with daughter's credit record before pressing on with other lenders.

I would suggest after this that you consider making the same purchase as a Buy To Let - but go to a fresh lender, rather than be lumbered with unexplained history. Ownership would need to be tenants in common I think. It does carry the risk of CGT, but presumably husband is content not to make capital gains, so if there are gains CGT should not be an issue?

Of course you cannot rent to relatives as a condition of a BTL, so it has to be rented on the open market. If the rent you ask is too high, you could be in the grossly unfortunate position of not being able to let it. Whereupon about your only recourse would be for daughter to live there and pay the mortgage from the money she saves by not renting herself.