Deposit Schemes for Mortgages?

mitzie_x

Hi

Long time anonymous browser of the forums, I would like to see what people think of this scheme I have recently been introduced to.

My husband and I have sold our house, and can only get a mortgage at 85% LTV. We have a 10% deposit and so are going to rent a friends house for a year whilst we save the difference.

I had an estate agent call me and advise that there was a scheme where we can receive help towards our deposit. Being intrigued I spoke to the person from this deposit scheme company.

Basically, this company lends the deposit we require, whether it be the full or partial amount of what we need, to our parents. Interest Free. For 10 years.

The parents then gift it to us as part of our mortgage offer.

I asked whether credit checks would be done on either ourselves or our parents and were told no?

Then I asked how they make their money - they said they don't need their cash now and for them it is a long term savings plan. That coupled with the fact that you don't actually have much choice in which house you buy - they have "pre-approved" houses where they have already agreed with the sellers to over-inflate the sales charges with the estate agents, as much as an additional £5,000 - that is where the company makes their money (in cahoots with the estate agent I presume).

To me, someone who isn't too keyed up on the subject, sounds like mortgage fraud - is it?

We have just signed a rental agreement as I didn't like the sound of the scheme, nor the fact that I would have to involve my parents. I also had visions of being late with a payment (not that I ever am but these things can happen) and waking up with a horse's head next to me.

Would love to hear people's views on what sounds to me like a very dodgy scheme!

kingstreet

Don't touch it with a bargepole.

Anything which involves inflating house prices is fraudulent.

mitzie_x

I thought as much. Both husband and myself thought it sounded extremely iffy!

lfc321

I wouldn't touch it with a bargepole, but even so I don't really understand their business model from the info in your post.

You seem to be suggesting that they get a £5000 'backhander' from the seller. But even if they do that seems like a pretty slim profit margin given that the loan itself is interest free over 10 years. Say they lent you a £15,000 deposit over 10 years, they'd only be making the equivalent of 3% interest on their money - OK maybe not terrible, but it hardly sounds like a gold-plated get rick quick scheme. So how do they make their money?

Can you tell us who the company involved is?

mitzie_x

The advisor said that they make their money from "over-exaggerated" seller's fees.

Then used the example of an additional £5,000 as opposed to the £2,000 fees that the estate agent would expect to receive on properties in our area. Therefore £7,000 fees instead of £2,000, with the balance being paid to them.

I said I had to speak to my husband regarding it then ring him back, which I never did (and surprisngly I haven't been hounded by him either) as I thought it sounded wrong.

I don't really want to post the company name on here, you never know who scours these boards! The website however has very vague details on it too, with the FAQ section having no questions, asking you to email them.

lfc321

OK, I get it - so it's the EA fees that are over-inflated, not the actual house price. And loaning to parents who then gift it to you is supposed to avoid the problem of you having a borrowed deposit, which the mortgage lender wouldn't like. I don't know if technically any of that is fraudulent - would be interesting to know - but it sounds dubious.

I think they must be getting more than £5000, though. And the sellers must be very desperate...

mitzie_x

Yes thats the scheme as I understand it.

I would assume that solicitors / lenders will want to see proof of the source of the deposit. And if they don't already, maybe this will start to happen in future if these schemes become more common, which will in effect stop them (such as looking at parents bank statements etc).

I'd rather save the deposit myself, instead of getting involved in something like that. Especially as you have to involve parents too.