Buying house from parents 4 months after paying off all debts

kirks21

Hi

My partner and I are trying to buy a house from my folks for the asking price of 150k. My folks are willing to either "gift" 11k off the value of the house, or if we buy for the full 150k then they will give us the 11k in cash once the sale is complete.

We also have up to a further 20k for extra towards the required 20% deposit, which is being given to us by my mum and my step dad.

I finished paying a debt management plan on 8th dec 2012 so I understand that this is going to affect our mortgage application (i never defaulted on the DMP) neither me nor my partner now have any outstanding debt, which I thought would help us. As a couple we earn 37k combined per year.

I have applied for a mortgage for the 120k through a broker, who stated that Kensington Finance would be likely to lend to us, but we would need a 30k (20%) deposit of the 150k asking price. Not a problem as I could get further funds from my mum and stepdad until the purchase of the house was completed, then my dad can release the 11k cash for us also.

Everything was looking good, until the broker told me today that Kensington want evidence that my partner and I have saved 5% of the 20% deposit ourselves, which obviously we haven't. On this basis, they are not willing to lend to us, even with a 30k deposit which can be arranged ASAP.

Kensington then stated that if I was not buying the house from my dad then they WOULD lend us the 120k mortgage amount. This is the part that I really don't understand!! Why Does it matter that we are buying the house from my dad, even with a 20% deposit?

Can anyone shed any light on this, or any advice please!?

Many thanks!

Thrugelmir

Transactions with related parties can often be contrived. With the outright intention of defrauding the bank.

How was the £150k selling price arrived at?

kirks21

Hi thanks for the reply
The house is currently for sale and is listed as "offers over £150,000"

We are buying for this price as my dad wants a quick sale and we want to buy it!

Yorkie1

Have you looked at recent sold prices for similar nearby properties?

If it is being properly marketed as OIEO £150K, you'd need to be sure that £150K is actually the right market value, as opposed to the inflated value that the EA told your Dad in order to get the instructions to market the property ... and with the likelihood of later advising him to accept a reduced offer.

If the real value is less, you'll possibly have difficulties with the valuation / lender.

Also, is part of the 'deposit' money effectively a gift which you will repay after the mortgage goes through? If that is the case, it is not a gifted deposit, and to declare otherwise is potentially fraudulent.

holly_hobby

kirks21 wrote: »

My partner and I are trying to buy a house from my folks for the asking price of 150k. My folks are willing to either "gift" 11k off the value of the house

Thats fine, its a family discounted sale - the difference between pch price and true market value (which will be verified by a valuation of the lender) effectively acts as the deposit.

kirks21 wrote: »

or if we buy for the full 150k then they will give us the 11k in cash once the sale is complete.

This IS NOT permissible - as its effectively a cashback mortgage.

kirks21 wrote: »

We also have up to a further 20k for extra towards the required 20% deposit, which is being given to us by my mum and my step dad.

So, no deposit funds at all have come from your own savings ? Essentially meaning that you would not lose any of your own capital, should the property become the subject of a possession order (ie you default on the mge payments).

Whilst ordinarilly this may not cause an issue (in the case of discounted family pch and family monetary gifted deposit arrangements), the fact that you have adverse credit history (resulting in a DMP, with only KMC as a taker), means that you've somewhat blotted your copy book, and appear to have had issues with servicing debts.

Which is why, although the deposit is healthy, they also want evidence that you have some personal involvement (and essentially something of your own to lose) should the mge go belly up - meaning that they will consider you more akin to ensure you service (pay) the mge without issue, even when finances are a little tight.

Although it won't change what they want, hope this helps may explain why they have asked for this.

Hope this helps

Holly

kirks21

Hi

Thanks again for all the responses!


The house was sold in 2008 for £175,000, however the sale fell through at the last minute. Its in a really good area so I would definately agree that the house is worth £150,000.

My partner and I have £3000 (2% of the £150,000)that we have saved towards the overall deposit of £20,000.The rest will be loaned to us from my mum and stepdad, and we will have to repay them over 5 years.

From reading the comments on the thread, it appears that this isn't something that lenders like, however there is no other way of us raising that kind of money, and I would have thought that borrowing money from a bank to pay a deposit would be a no-no??

The mortgage advisor that we used suggested that we sell our car, and then borrow money from elsewhere (i.e our parents) to live off for three months, so that we can save the extra we need (we were told that we need a minimum of £7500 of our own savings by the lender) This is clearly not an option as we need our car, and also, we have to live and feed our child, so we can't not spend any money at all for three months!!

I'm now going to get some advice from elsewhere as the guy we used didn't seem to be particularly honest, or living in the real world!

I just get the feeling that even if we did jump through all these hoops that keep appearing, then I'll just be told that other things are affecting our application!!

holly_hobby

No, lenders don't like borrowed deposits either (although will a poor financial record that wouldn't be an option for you).

The issues the lender has ( I believe) is to do with the level of personal financial commitment forming the deposit, coupled with your adverse credit history - they just want to see more commitment from you, as discussed above.

With adverse history (I assume that you debts under the DMP were defaulted as a result of reduced payment arrangements), you may well be fishing in a very small pond as it is ... but I wish you well with your new adviser.

Holly

shop-to-drop

How much is your car worth? If it would bring in enough to make the difference why not sell it? Borrow a family members car for a month or buy a banger, then when your dad gives you the £11K you can buy a better car again.

kirks21

Hi Holly

Thanks for the reply again!

It does appear that we aren't going to get anywhere with a mortgage so we may have to shelve the idea for a while. Some lenders,including my bank, have said they need at least a year before they will offer us a mortgage, yet some say its 6 years?!

Any ideas how i can try and repair my credit rating in the meantime?
I took a mobile out on contract back in October 2012 and have paid my bill on time every month, but is there anything else I can do?

Thanks

holly_hobby

Adverse data remains on your credit file for a period of 6 yrs from registration.

If you only had 1 small default, after a yr or 2 there may be a home - but if you have several, then you're probably looking at having to ride the 6 yrs out.

In the meantime you want to build some positive history, which will give you a better score when your adverse falls off, and you apply for credit - so a credit builder credit card (such as Vanquis), use for small purchases and pay it off in full every month, will also help.

Hope this helps

Holly