Buying from a friend - deposit arrangement

chrish2114

Hi everyone, just looking for some advice really.

I'm considering buying a house off a friend who wants £90,000. Ideally I'd like a 90% mortgage to get the improved interest rate.

Thing is... I don't have a deposit.

The house has already been valued at 100,000 so I was thinking of borrowing the 10k off my parents temporarily, then getting the 90k mortgage, getting the 10k back off my friend and giving it back to parents. I would then essentially have a 100% mortgage at 90% mortgage rates.

I have several questions:

A) is this legal
is this a common practice
C) if this is common practice is there any way to safeguard the 10k to ensure I get it back

Thanks in advance for any advice!

kingstreet

It's rather dubious and there's no way of guaranteeing your friend would repay the money.

Is this property in Scotland and on a HomeReport? If it is in Scotland, the HomeReport may need to be refreshed and the value falls when it is done.

If not, there's every chance the lender's surveyor may not agree with the valuation and his own ideas about what the property is worth.

holly_hobby

No, its not legal - as essentially this is actually a Vendor gifted deposit, which are not permitted.

You also have in the mix the fact that your parents are temporarily to loan you the money to act as the deposit, for appearance and the Solicitors and lenders benefit. If the lender asks for the source of your deposit, and evidence of an audit trail, you will have to disclose its origins, and the fact that it won't be a unconditional gift from them, will stop this exercise in its tracks (never mind the jiggery pokery in the Vendor planning to return it to you).

Its not legal, because in applying for a 90% LTV mge, you are fraudulently stating that you are injecting 10% of the pch price from your own funds (ie you have a 10% deposit) - and this is the basis and exposure that the lender will be making their decision to lend on - which clearly will not be the true facts of your purchase and ownership.

Of course, there will the school of thought that is of who's to know, and even if your parents are happy to sign the its an unconditional gift disclaimer, if the lender discovers that the deposit provided to the Vendor was returned to you, this results in a fraudulent mge application - with all the ramifications that come with it.

Plus the fact that your friend, as already stated, may subsequently chose not to return your deposit at all ....

All in all this is not a good idea at all .....

Hope this helps

Holly

chrish2114

Ok so the advice is to stay well clear then!

Thanks for the replies! :money: