Applying for Mortgage - Full Deposit not quite saved

leccyblue

Hi All,

We are purchasing a property from my wife's parents. We had originally agreed with them to start the purchase process in December 2013, once we have finished saving our £20,000 deposit. Currently, we have £16k saved and are saving at a rate of £1700 per month. So on 23rd Oct we'll have £17,700, 23rd Nov £19,400 and 23rd Dec £21,100. However, her parents have seen another property they like and want to put an offer in on - but they can't do this at this stage, until we have a final mortgage offer - to prove they have the funds to go ahead with the purchase.

Trying to assist them, I spoke to a mortgage advisor at L&C (recommended by this website) who told us that mortgage applications and solicitors take time, and recommended that we get the ball rolling now. He said that we only require 10% to exchange, and as long as we have the balance of the deposit saved ready for completion (which we would set as end of December) we would be absolutely fine.

He found us a mortgage, however we found one that better suited our needs, with First Direct. We've started the application process, filled out all the forms - just waiting to meet the solicitor to have our authorised ID copies produced - then the application forms can go back. However, clearly the solicitor has asked for proof of deposit - which isn't a problem (except it only shows £16k at present); however I'm now worried that the lender may also ask to see this and then won't issue the final offer until we have the full £20k saved - even if we can demostrate our savings pattern. I'm already a bit tetchy about First Direct and their tight vetting (see previous post) and don't want to risk a decline if this is going to be a problem for them. I did explain to the FD advisor when doing the fact-find call that we only have £16k at the moment and she didn't say anything one way or another.

Any thoughts from you guys in relation to your own experiences?

We really want to try and speed the original plan up to help out the in-laws - who have been extremely kind to us in relation to the terms of this purchase - but don't want to risk it being an issue for our mortage offer/solicitors.

Thanks - this forum has been absolutely invaluable to us so far! So much useful information here that has helped us to be a lot wiser with our mortgage search.

kingstreet

Are you paying full market value?

If not, why aren't you using the price reduction as a gift of equity, what's known as a concessionary purchase or purchase at undervalue from a family member?

If you are paying full value, ignore me!

ACG

Solicitors should be, just explain it and not a problem.

With regards to the lender FD do not deal with brokers so i cant answer with any confidence however - did you not ask them before applying? I suspect it will be fine but you should really be checking any issues upfront.

leccyblue

Hi Kingstreet,

No, we are buying undervalue. £125k purchase price, recent EA valuation of £160-£170k. Once the in-laws found this new house, this was our original plan - to borrow against the full value of the house and use the gift of equity as a superficial increased deposit, alongside our current £16k. We found that Abbey and Nationwide were happy with this but many other lenders not (willing only to lend against purchase price). Once the in-laws had spoken to their accountant with regard to their tax liability (capital gains) he advised not to do this and to purchase, and borrow against, the £125k only. We have no understanding of the tax side of things; but of course want to proceed in a way they are comfortable with.

This left us in a tricky situation - as ideally we need to borrow against the full value to get us in a lower LTV. We found that after many enquiries, First Direct are the only lender who will allow us to initially go in on their tracker product (no tie-in) borrowing against the purchase price (which suits the in-laws and their accountant) and then immediately switch when mortgage is in place to a fixed rate product, against the full value. They have said they will allow this but we'd have to pay for a second valuation (£190).

leccyblue

ACG wrote: »

Solicitors should be, just explain it and not a problem.

With regards to the lender FD do not deal with brokers so i cant answer with any confidence however - did you not ask them before applying? I suspect it will be fine but you should really be checking any issues upfront.

Thanks ACG. Yes, I did mentioned this to FD - but advisor didn't say it would be a problem (but she didn't say it wouldn't!).

It's only having read the solicitors welcome pack (two weeks after the FD call) and seeing the exact requirements for proof of deposit that its made me question it...

kingstreet

If this is not their main residence, nor has it been so in the last three years, any gain is assessable to CGT and if they do sell it to you at a discount, they will be assessed on the full value, not on the discounted price.

leccyblue

kingstreet wrote: »

If this is not their main residence, nor has it been so in the last three years, any gain is assessable to CGT and if they do sell it to you at a discount, they will be assessed on the full value, not on the discounted price.

Thanks - I understand this. But their accountant has advised it will be 'cleaner' to do it this way - apparently he has some way of offsetting the capital gains against tax credits or something. We've not looked into this side of things - they are doing that. We're just moving forward in a way that they are comfortable with.

leccyblue

Have phoned First Direct and asked them outright. They said it will be fine, as long as the funds are there for completion. They only want to know the source of deposit - not proof of.

In hindsight I should have just called them but in honesty was worried what they might say. Hopefully this will help someone else with the same question in the future.

Thanks to all for your replies

JimmyTheWig

I believe that the proof of deposit that the solicitor wants to see is proof that it is legitimate. If you've got £20k in used banknotes stashed under your matress from selling stolen goods the solicitor won't be impressed. If you've got £16k that's been building up in your savings account and ready to hit £20k by completion then I believe you'll be fine.