Selling house to ex - Deposit question

HouseFlipper

Hi, I have a complicated situation, where my ex-partner would like to take over the mortgage on the house we have lived in for a few years (the mortgage and title deeds are currently only in my name).

He would basically like to buy the house from me and I would move out/buy another property, which is ideal for me too.

He can get a mortgage for the house based on his wage etc, but does not have any monies for a deposit.

I have asked my current mortgage lender if they could transfer the mortgage to him, but they said no, that it would have to be done via a sale (with deposit). I asked if I sold the house to him, if they could give him a mortgage with a gifted vendor deposit (from me) but they said they only do this for builders.

My question is: is it legal for me to lend my ex-partner the money for the deposit (25%), so that he can get a 75% LTV mortgage to purchase my house. The deposit money would, through the sale, go back into my bank account. So I would not loose out.

There are other financial matters of course, which we would then have written down in a separation agreement with the solicitors and possibly also "register an interest" for me on the title deeds which would be in his name after the sale.

Does that sound doable? We are not sure if it is possible and he does not want to talk to other banks and not know what to say about where the deposit money will come from.

Many thanks for the advice.

kingstreet

You need to do a transaction at undervalue, which is only allowed in sales to close family members. It may only work if you're married. It's a variation on the vendor gifted deposit theme but is still accepted by some lenders.

I assume he's entitled to some of the equity in the property? If he is, that may be used as his deposit.

For example, property value £100k, £80k mortgage with £20k equity of which 50% belongs to each of you.

He buys the property for £100k at an undervalue of £90k with the £10k difference becoming his deposit. You get your £90k, the solicitor pays off the £80k mortgage and you have your £10k equity for your deposit.

I suggest you get proper advice from a whole market or independent broker.

Thrugelmir

HouseFlipper wrote: »

There are other financial matters of course, which we would then have written down in a separation agreement with the solicitors and possibly also "register an interest" for me on the title deeds which would be in his name after the sale.

Would require the approval of the mortgage lender for you to register a charge on the property.

HouseFlipper

Thank you for both replies, both very useful information.

I am not sure how we are going to move forward as he does not have much equity in the house, most of the original deposit was mine and I have paid more mortgage off lately having lived alone in the house. OF course, we were going to calculate exactly how much we had each paid off of the mortgage, but it would not give him enough to do a transaction at undervalue as explained by kingstreet.

I guess it it then illegal for me to lend him the deposit money/cash for him to purchase the property from me using a normal mortgage?

Many thanks.

Thrugelmir

If he is unable to afford the property in his own right. Then why risk your own money?

HouseFlipper

I know he is able to pay for the mortgage, he would never miss a payment. He just does not have savings. I trust him, that is not the issue, I am just worried it is illegal to lend him money as a deposit for him to buy my house, and I have not really found any clear answer on this matter.

Thank you.

Thrugelmir

HouseFlipper wrote: »

I know he is able to pay for the mortgage, he would never miss a payment.

Its not merely a question. Personal financial circumstances can rapidly change.

There's nothing to stop you gifting the deposit and being repaid informally. Once the situation then the situation is formalised. Then that changes the situation. As your ex not only is committing to a mortgage but also to a loan repayment. Something underwriters will take exception to. Hence my original comment about affording the transaction in his own right.

star4876

It sounds like you are in a catch 22

From my understanding about 'gifts' in a deposit, you would be required to put something in writing to the effect that the money you are giving him is a gift, you have no interest in the property or repayment of said gift, thus rendering it his money to do whatever he wants with. In doing that you have made a legal declaration that you're not interested in him repaying you - which to the bank means its not a loan, and its his cash.

I can't see how it would be illegal to do that, but thats what you would have to do, and he would be holding the cards 100%. He wouldn't owe you a penny as far as the law is concerned, this is what the others are saying - if you agree with him off the record that he's going to repay you informally, and he suddenly decides to buy a new car or go travelling round the world, you've got absolutely no way of getting the money back off him.

The other avenue as mentioned above is to give him the deposit but state that you want it back over a period of 'X ' years at 0% interest. This does however mean your ex will have a huge loan on his record and the lender / underwriters won't like that, so he might not get the mortgage to begin with.

Tread carefully, people can be unpredictable.................... if my ex gave me several thousand I'm not sure I'd be so quick to give it back lol

laurel7172

If he can't afford the property in his own right...and if he hasn't got a deposit, he can't...then the best thing to do is to sell up, give him his share of the equity and move on with your own life. You really do not want to get involved in elaborate schemes and ongoing financial ties with a former partner.

HouseFlipper

Thank you star4876 for the explanations and answer to my question, I perfectly understood what you meant and I think it gives me a definitive answer. It is not illegal but it is risky for me.

Thank you laurel7172, I appreciate the advice and I know it would be best in a way, but I want to help him, I hope I am right.

star4876

I can only foresee one complication;

Your ex will need proof of desposit (i.e in his bank account) before the lender will give him the mortgage to physically complete on/buy the house.

When I bought my first home we got our mortgage approval in principle which allows you to start making offers, but once the offer is accepted and things start moving, you need to take actual proof of your deposit to your Solicitor who will check it to make sure its legitimate before the bank will release the rest of the money so you can actually buy and exchange contracts.

If you are relying on the sale of your house to release the money, how are you going to give it to him in advance so that he can fulfil the above to finalise the mortgage in the first place? It is rather complicated!

Here is an idea to throw into the mix. What if you remortgage the property yourself onto a buy to let? Then you could get a formal tenancy agreement drawn up and rent the house to him, thereby allowing yourself to get another mortgage for a second property. If that frees up some money for you, assuming your house has increased in value, then you could have an amount to put towards another deposit for yourself, and an amount of money to gift to your ex? He would have to continue saving in the mean time for the rest of it, but at least he would be living in the house with some rights to it and you could move on. If he demonstrates he's trustworthy and he can afford to pay the rent then you can offer to sell to him, by which time your mortgage will be lower because he will have made a years worth of payments, hopefully he will have saved some more cash of his own, and everyones a winner?