Gift/Loan Pickle

ruskydog

Hi there,

Any advice appreciated please. Had a mortgage agreed in principal a couple of weeks ago, I need to borrow £40k from bank - with the other £112k of house value being a deposit, which I did mention my dad was lending me. The mortgage advisor asked no further questions about this, but did say that I'd need to get a statement of the savings account from my dad, as proof he has the money.

Two weeks later, offer accepted on house, went to bank to finalise mortgage. £40k to be repaid over 10 years. Passed them the proof that my dad has the money, but they then asked for a simple letter from my dad stating the £112k is a gift, no interest to be be paid, my dad has no interest in the property whatsoever. I should have clarified at this point that it is not a gift, I will be paying my dad back starting from when he retires (in 3 or 4 years time). But I said I would get the letter signed... because the conveyancing process had already begun and I didn't think it was a particularly big deal at the time.

I have no doubts about being able to keep up with mortgage payments - should actually be repaid in 7 years - however if I tell them now that it is not a gift, my mortgage I assume will be reviewed and probably declined (due to my circumstances - based on sole income as girlfriend is on temp contract for now). Obviously the issue is that if my dad signs the letter, we are both committing mortgage fraud? Also - would the bank pass the info of the gift on to Inland Revenue for gift tax purposes? I assume probably not - just for their records.

Committing fraud is not something I would particularly like to do, even if we are likely to get away with it (and the bank will certainly get their £40k back). Not a proper fraud where someone actually loses out, but fraud nonetheless. What are the actual chances of us being caught out?

Thanks! This is just the sort of pickle that only I could get in to.

GMS

ruskydog wrote: »

Committing fraud is not something I would particularly like to do, even if we are likely to get away with it (and the bank will certainly get their £40k back). Not a proper fraud where someone actually loses out, but fraud nonetheless. What are the actual chances of us being caught out?

By failing to declare a material fact and knowingly providing inaccurate information you are committing fraud so either way you will be doing it, whether you say it is a gift when it isn't or if you fail to declare it.

ruskydog

GMS wrote: »

By failing to declare a material fact and knowingly providing inaccurate information you are committing fraud so either way you will be doing it, whether you say it is a gift when it isn't or if you fail to declare it.

Thanks. Yes I do appreciate that. Well this sucks, what a fool I am.

ethank

Unfortunately there is no way to take your dad's loan without him being a party to the mortgage and the property. He has an interest in the property as he wants his money back.

ruskydog

ethank wrote: »

Unfortunately there is no way to take your dad's loan without him being a party to the mortgage and the property. He has an interest in the property as he wants his money back.

Cheers. Rather than the gift letter provided, if we drew up a letter saying that my dad would not require any repayment until after 10 years (when he hits 67, and the mortgage repayment term is up), and that any payment made to him before then would be voluntary and secondary to the bank's mortgage payments... would the bank be likely to go for that?

cte1111

There is no gift tax in the UK. If your Dad dies within 7 years, then in some cases, the estate may have to pay inheritance tax on the gift. (only if his total estate is over £325,000, also depends on whether he has a wife and various other factors)

ruskydog

cte1111 wrote: »

There is no gift tax in the UK. If your Dad dies within 7 years, then in some cases, the estate may have to pay inheritance tax on the gift. (only if his total estate is over £325,000, also depends on whether he has a wife and various other factors)

Ok thanks for clarifying that. But the money is not a gift - he is expecting repayment when he retires - and we don't want to commit fraud by stating it is a gift.

ethank

I don't think so. Lenders will not allow the source of deposit to be borrowed.