parental gift plus parental loan

kidmugsy

A family member seems to be considering helping her son buy a house as follows. She'll gift him enough so that, added to his substantial savings, he would have a 20% deposit. She will then lend him enough extra, interest free, so that he'll have a 40% deposit. She believes that that would mean that he could get a better interest rate on his mortgage.

She would like the loan secured by a second charge on the property. She would be prepared to agree not to ask for the loan to be repaid for some decent interval - perhaps five years.

Is such a scheme easily put into effect? Is it difficult to find a mortgage company that would accept it? (I take it that her lawyer would advise her on legal clauses to cover the death or incapacity of either party.)

shop-to-drop

If the loan is secured against the property he won't have 40% deposit. Doesn't sound like a good plan. Would make it harder not easier for him to get a mortgage.

poppy10_2

The mortgage company will ask what the source of the deposit is. If it is a loan they are unlikely to accept it.

holly_hobby

Hi ... just popped in as requested Kidsy.

To answer the query ....

Gifted deposits are fine (parental/family), if they are completely unconditional and made without reservation - ie made without the requirement of repayment, in exchange for any consideration or benefical interest in the property.

If you require the monies repaid at ANY stage - the donaton is obviously not a non-conditional gift.

If you require a 2nd charge on the property to protect the "donation" - the donaton is obviously not a non-conditional gift.

The mge application will usually ask the source of deposit, even if it doesn't it is the conveyencer's duty to do so (with usually the requirement of the lender for the donor to sign a disclaimer form, stating the gift is made without any conditions or repayment) - so at some point it WILL fall out of bed the minute the lender is alerted to the true basis of the "gift".

(even if it does manage to get by the lender, the request for a 2nd change registration, which as 1st chargee (if with title retriction), the lender must agree to, will blow your cover and at best the charge request will be refused, at worst the lender could cite the application as fraudulent and treat accordingly .... so not adviseable even if, as I say, this manages to somehow slide by them).

The actual reason for refusing "loaned" deposits is if the monies are not an outright gift, they afford the Donor beneficial rights of the property, which in essence may prevent the lender from sucessfully petitioning for of a possession order (order for sale) from the courts.

Hope this helps explain ...

Holly x