buying house significantly under value, do we need a deposit?

glassrainbow

We have an amazing opportunity to buy a house from relatives at about £80k under market value. Off to talk about mortgages on Friday, but it occurred to me last night - does the difference between value and mortgage required mean we won't need to put down a deposit?

GMS

What relation are they to you?

kingstreet

Some lenders will allow you to use a reduction in the price on a concessionary purchase from a relative as your deposit. The lender's surveyor has to agree the property is worth that headline figure.

amnblog

They need to be a close relative, not your auntie's cousin's neighbour's milkman.

Mortgage_Mark_2

Generally most lenders will lend on the lower of the value or purchase price. You could in theory buy it for the full value and then your relative 'gift' you the equity as deposit, which would in turn lead to a decent rate, however you'd have potential stamp duty to pay on the overall value.

It would be trying to have the cake and eat it too using the overall value but only paying the lower figure. You'd in effect be getting a 100% mortgage.

Best place to start would be a broker to see if you can approach a lender to consider a concessionary purchase as Kingstreet suggests. Not one for you to try and sort direct, I'd fancy.

kingstreet

Stamp duty is based on the consideration, the actual amount paid, not the headline value.

The headline value is used for CGT calculation, if it was a second property for example.

Mortgage_Mark_2

kingstreet wrote: »

Stamp duty is based on the consideration, the actual amount paid, not the headline value.

The headline value is used for CGT calculation, if it was a second property for example.

Absolutely, but you can't Pay £40k for a property worth £200k and use the remaining £160k as equity, and only pay SDLT on the £40k as the whole contract value, which is what the SDLT is paid on, is still £200k...

kingstreet

I think you can.

kingstreet

Another recent discussion on the difference between value and consideration;-

https://forums.moneysavingexpert.com/discussion/5056619

Mortgage_Mark_2

We're at crossed wires - my comment was that, of course, you can buy it at whatever discounted price you want, and pay SDLT on that purchase, but you can't get the lender to use the higher market value if that isn't the contract price, and effectively get a 100% mortgage at a 60% LTV (just as an example) rate...

kingstreet

The mortgage, deposit and stamp duty are unrelated issues.

The consideration is whatever money actually changes hands. That determines the stamp duty.

What a lender will allow as deposit is a different matter.

Sorry if we're at cross-purposes.