Gifted Equity - Help!

hazza74

Hi, I am buying a house from a family member who wants to sell it me for £60.000 - The House is worth £100.000.
So £40.000 is gifted equity. Im aware that the mortgage lenders would require a letter of proof confirming the gift.
How do you go about this? Is it a case of the family member writing a letter or does a solicitor and/or witnesses have to be present?

Please advise me!

Regards.

ACG

Usually a letter signed by the vendor is fine. Solicitor and/or lender will want to see a copy but that should be it.

Be careful though, it usually has to be from a close family member - ie a 3rd cousin on your uncles side once removed wouldnt be able to give the gift and the purchase price would be adjusted downwards.

kingstreet

The "donor" is moving out at completion?

hazza74

Thank you for the replies.

kingstreet wrote: »

The "donor" is moving out at completion?

No, it's our grandmother who will still live here...

ACG

Thats not a "gift" then.
Its a gift but there are strings attached (so to speak).

Lenders will either be reluctant or more likely will decline to accept this as a gift.

kingstreet

"Family purchase at undervalue" is based on the donor moving out, so you are going to have to find an alternative plan, unless you can find a lender willing to accept her continued residence.

You may have "deprivation of assets" issues if she later needs care and there may be an insolvency indemnity insurance requirement.

hazza74

She has care now which we care for her, we have already talked to a lender and they said its ok is she is still living here.

kingstreet

I was referring to council-funded care.

I could think of one which might do it, so I suspect they are one and the same.

Good luck. I hope it works out.

holly_hobby

If nanna will not be party to the new mortgage in any format, please ensure that the lender you have spoken to fully understands the situation, and that they are aware that as Nanna will continue to reside post completion, they are prevented from obtaining vacant possession on completion (which is generally pre-requisite on any purchase).

This is essentially all to do with future possessionary orders, and that the continued residence of the vendor post completion, can negatively affect any application to the courts.

What we don't want is for it to come to completion, and the mge offer be withdrawn at the last minute, on the basis that the solicitor can not verify and complete vacant possession requirements.

So as I say, if you have had this arrangement confirmed as ok, by the lenders legal dept & underwriters, thats grand, if just some bod on the end of the helpline, I woudn't put much stock by it, giving they probably don't understand the legal issues with regards to vacant possession requirements.

Hope this helps

Holly

hazza74

Thanks, we dont really know much about mortgages as we are first time buyers.

What is indemnity insurance?

kingstreet

Insurance taken out by a lender to cover its legal costs in the event of a creditor discovering your grandmother divested herself of assets in an attempt to avoid repaying debts.

In this situation, the creditor can reverse the sales transaction.