Renovation Mortgage - doable or fraud?!

Devon_Sailor

Hi guys,

Been reading these forums for a while now and picking up some invaluable bits of info, and was wondering what people thought of the following scenario with regard to a way forward, or suggestions as how to make it doable??

Married couple, been offered chance to own and convert an old barn on the family farm, turn it into dream family home, never move again, etc, etc....

Couple have savings to cover fees etc but no deposit (coming out of an IVA).

Looking at an Accelerator loan/mortgage from Buildstore or similar type product from other lenders.

For ease of figures, say barn worth £100k (nice area, planning permission to convert already granted).

Could parents gift £20k off asking price in lieu of a deposit (as from reading here I understand they can do on other properties/assets). Couple can then get the 80% purchase price from mortgage company.

Could parents then take the £80k purchase price, and, seperately, gift a further £20k to couple, to help with building costs.

Therefore, the 80% contribution to purchase price and build costs would be met by company, the rest by the couple (effectively)...

Is this a) legal, b) fraud or c) neither but just wouldnt work!

If (c) could any helpful brokers/mortgage advisors help with some thoughts as to how to make things happen??

Kind regards,

D_S

Dave_Ham

The plan has some merit, although a few considerations.

Coming out of an IVA will be the first and biggest hurdle. Assuming this was a full term 5 year IVA, finding a lender that will accept this and the plans to discount purchase price from parents will be challenging.

Is the barn currently owned on separate title deeds, or as part of the farm?

These are the first 2 and biggest hurdles, although there are other considerations but lets check these first.

harvey115

- Buy the barn from the parents on market value
- Get a gifted deposit from parents of 20% - separately from their savings
- Once the money moves in from the solicitor to the parents they can take their money
- After the purchase take more money from the parents

This is not fraud and is doable, but there is one problem in the plan above. You said its a barn and may not be in a condition to live in. So the mortgage application might decline if the barn cannot be occupied in its current state i.e. has running water, electric and gas, working kitchen etc. If the house is fit to live in, then there should not be any issues.

PS - I am no financial advisor and do not have much knowledge on mortgages, other board members will be able to give you better advise.

Devon_Sailor

Dave, Harvey,

Thanks for the first impressions. In answer to your questions:

- The barn is currently part of the farm (no seperate title deeds). Had profiled this in as part of the wider "laying the ground" costs to get a solicitor to extract it from the farm.

- It is currently more or less just a shell (albeit waterproof), so in no way habitable, hence looking at the renovation/build mortgage specialists.

Ref the IVA, yup, granted that was always going to be the biggest hurdle - I have yet to ring Buildstore to see what their stance is yet..... I would have thought that a build mortgage would have the potential to be better off for them than a standard mortgate, as upon completion generally speaking the property would be worth significantly more (probably £100k) than they have risked lending the money out; vice a stancdard one where they are paying "market rate" to start with?

If the worst came to it, we could use the year following completion just to save some more up/get solicitors fees etc sorted before the IVA drops off completely at the 6 year point.

Definitely food for thought and I am encouraged that out of two replies thus far noone is carting me off to the clink! :rotfl:

Regards

D_S

Devon_Sailor

Or, thinking about it, and evolving Harvey's comments, cut out the middle men?

Try and find a mortgage provider willing to stump up the full market price, less a bit of a smaller "gifted deposit", Money gets paid to parents. They keep enough back to cover fees, taxes, etc, but then 'gift' the rest back directly....

eg (and prob nearer to it's true value):

- full market price £150k
- 'Gifted' deposit to allow better/best/ rate; purchase price of £120k

- Cover for fees, taxes, sweetners etc £30k (?! plucking figures out of the air here...?!)

- Gift directly £90k to couple to completely finance renovation without recourse to a building mortgage.....

- Complete renovation, remortgage against higher, completed build price; refund parents!

Or non? :-)

Dave_Ham

Add in a 6 month window to your ambitious plans..

Once it is registered, it is unlikely you will get any finance for 6 months. This on top of the new build or newly converted restrictions and this is a headache all round.

I honestly would be looking at different solutions, or doing all of this in parents names only and then you buy off them later?

Fraught with issues, although I am not familiar with Buildstore they are pretty much the only player of substance in this arena and unsure how they treat IVA clients.

All the best though.

System

Does it fit in with the Local Plan? Will you get change of use and planning permission? Until those questions are answered the rest is just a dream at the moment.

Devon_Sailor

!!!!!! wrote: »

Does it fit in with the Local Plan? Will you get change of use and planning permission? Until those questions are answered the rest is just a dream at the moment.

Hi !!!!!!,

Yes - it has change of use and planning permission already.

Regards,

D_S

harvey115

Devon_Sailor wrote: »

Hi !!!!!!,

Yes - it has change of use and planning permission already.

Regards,

D_S

As Dave Ham mentioned this is not one of the straight forward ones.

I would suggest you go to anexperienced mortgage broker and discuss what options you have.