Family Gifted Deposits

EGGP1878

Hi,

Me and my partner are first time buyers looking to buy my partners parents home (there emigrating). The property isn't in an ideal area but we're seeing it as a step onto the property ladder, without having to wait years saving a deposit

The house has been valued at £89,000, however they know that its unlikely they would get that for it in the current market, so we are going to offer around £80,000. My partners parents have agreed to gift us a 10% deposit to buy the house. I'm just looking for some information on how this works, is it as simple as just basically knocking 10% off the sold price and using it as a deposit?

Because the mortgage would be relatively small, our plan is to save up for a deposit for a house in an area we actually want to live in, whilst living in the house we buy off her parents. Then once we have the deposit for our second home, rent out her parents old home and buy another house to live in.

Generally speaking, the mortgage will cost around £370 a month and similar houses are getting around £540 a month rent in the area. So its an investment.

Is it this simple or are we missing something?

Thanks.

PS. just some brief information about us, I'm 22, my partners 20. I currently earn £31,000 PA rising to £38,000 in a few months and my partners earns around £11,000 PA. We have an AIP.

kingstreet

Who valued the property at £89,000?

If that was an estate agency marketing appraisal, the actual value when a surveyor inspects it could be more like £75k to £80k.

If they are going to do this as a family purchase at undervalue, they must be prepared to accept the net price, which would be 10% less than the surveyor's value.

How would they react to a surveyor valuation of £75,000 and a net sale price to them of £67,500?

holly_hobby

Yes, this is classed as a family discounted purchase, and as such the difference between the agreed sale price (subject to it valuing up) and the mge reqd acts as the deposit (essentially just means that you don't physically have to give your conveyencer the 10% for they to trsf to your parents/parents in law).

For benefit of other readers this arrangement is only permitted in connection with a family sale and purchase.

So if the pch price is 80k, you need a mge of 72k (90% ltv) the balance of 8k being the effected gifted deposit (albeit no money actual exchanges hands between the 2 parties).

There is no SDLT as you are under nil rate threshold of 125k.

Hope this helps

Holly

EGGP1878

Thanks for the quick replies. It was valued by an estate agent, however I don't think it's worth that. It's a really nice house, needs literally nothing doing to it, however, it's in a pretty bad area, not an area which if we had better options, we would choose to live.

If we decided to rent the house out once we have the deposit for another house, would we need to change our mortgage to reflect this, I.e to a buy to let mortgage?

Thanks

holly_hobby

If you intend to rent the property from outset - you will need a buy to let mortgage.

If you intend to reside in it from outset - you will need a residential mge, and then if you later decide to pch another property, could either apply for consent to let from your mge lender (usually given for an annually reviewable 3 yr period) OR at that point switch to a Buy To Let mortgage.

You may find the lender under CTL, may choose to add a loading to your mge payrate, and there will typically also be an admin fee to pay. The loading is due to the lending change from residential to (temporary) semi-commercial.

BTL rates, are semi- commercial so they and their fees are accordingly higher than residential rates to reflect the risk exposure.

Hope this helps

Holly x