Tenant getting a mortgage - dodgey??

Pimpslider

Afternoon people. I’m after a little bit of Financial Advice please, regarding selling a property which I am currently renting out. It’s more to do with the process of how my tenant is obtaining the Mortgage and its legality (all figures mentioned are approximate).

My tenants Financial Advisor wants me to say to our Solicitors that I am selling it for £300,000, but in reality I only want £250,000 (it’s true value). I believe this is to over-value the property so my tenant can get a suitable mortgage to cover the £250,000 I want for the house. I’m not entirely sure how the difference (£50,000) is being covered.

The Financial Advisor says, prior to the sale/completion, I sign an ‘Agreement’ with them in that when the £300,000 is passed between our Solicitors we agree to pay them (Financial Advisors Company) back £50,000 in costs/building work etc. Therefore I get the £250,000 I wanted and the tenants get a Mortgage. :undecided

The Completion Statement from my Solicitor will state Sale Price of £300,000, minus disbursements/costs (inc. the £50,000) and leave a Net of £250,000(ish), which I will pay Capital Gains on.

It seems doable…but something just doesn’t sit right with it. I’ve served the tenants their Section 21 and everything is above board my end. They’ve been great tenants for years but sadly I need to sell due to personal reasons.

Hopefully a helpful advisor can advise me!

PasturesNew

Legally .... it's fraud.

I also don't see how any reasonable valuer could possibly agree that it's worth £300k either.

Pimpslider

PasturesNew wrote: »

Legally .... it's fraud. I also don't see how any reasonable valuer could possibly agree that it's worth £250k either.

Cheers Pasture! I assume you meant how could they value it at £300k (£50k above value). I asked their FA same question. She said "we may get lucky".

Pixie5740

That sounds like a ridiculous idea, I would tell your T to poke it. If the property is worth £250,000 I don't see the mortgage lender valuing it £300,000. Not to mention that the T opens themselves up to £9,000 SDLT rather than £2,500.

I doubt any FA has told your T to do this and I'm even more doubful that any solicitor will play along with this charade.

Let's hope your T moves out when the section 21 expires and then you can sell to a proper buyer.

Pimpslider

Pixie5740 wrote: »

I doubt any FA has told your T to do this and I'm even more doubtful that any solicitor will play along with this charade.

Cheers Pix :beer:. I have actually been in direct contact with the T's FA. She has told/explained it directly to me. I have spoken to her a few times just to try and get my head round the 'idea'.

The only time I've spoken directly to the T about this was to say it didn't seem right, thinking the FA was taking them for a ride. They replied it seemed the only way possible for them to buy the property!

dominoman

I don't understand the reason they would want to overvalue it?

What does the buyer gain?

If it smells fishy stay away. This sounds properly dodgy to me. Sell to someone normal and don't get involved in something that you might come to regret later.

somethingcorporate

I agree with the other post above - how does this benefit the T?

Can you explain what benefit there is the to T to have the house valued at £300k?

If they cannot afford to buy a £250k house valuing it at £300k doesn't make more financial sense...Unless they intend to use some of the additional borrowing as their deposit but this wouldn't get by a solicitor anyway.

Sounds dodgy, I'd stay well away.

MartynK

This seems very weird and dodgy,
I'd expect them asking you to undervalue it to secure a mortgage not over value,

Lets face it, if you've valued it at 250k, then the bank probably will around that mark anyway, so what's the point of playing this game.

Sounds like someone wants 50k for something, and its not like they've offered you something for the trouble of this.

S21, Get the tenant out, clean up the place and sell properly on the market

dgtazzman

the 50k would be 20%, sounds about right for a deposit to me, wouldn't be accepted by the mortgage lender or a non-dodge solicitor, tell them to get a new IFA or kindly move out when their notice expires, so you can sell to buyers that are not trying to commit fraud.

G_M

Advise tenant you are selling for £250K and so that is what the paperwork will say.

Ask T if that's a problem, or they still want to buy.

If they don't, serve S21, evict, and advertise the property for £265K.

ed110220

Well surely the idea is that the lender is falsely given the impression that the LTV is higher than it is and therefore will offer a better rate or a mortgage when otherwise they would not?

Say the buyer has a real deposit of £20 000. They apply for a mortgage (£230 000) to cover the real cost of the house at £250 000, giving a LTV of 92%. That's pretty unfavourable.

You go along with the deception/fraud/creative accounting and it's presented as needing £230 000 to buy a £300 000 house and they've got a 77% LTV, which is much more favourable.