Parents loaning deposit

BournemouthHan

Hi everyone, sorry if I'm posting this in the wrong part of the forum...not sure if it's mortgages or buying houses!

My parents are lending my and my fianc! £25,000 for a housing deposit. We already have £12,000 saved for ourselves so have a fairly good sum to put down.

However, with the new mortgage assessments, how much will it affect what we can be offered by the banks, seeing as we will be paying back my parents simultaneously to the mortgage?

We're only going to be paying back £140 per month - so nothing major! We have been offered a Mortgage in principle of £180,000 but we only want to borrow £165,000. I know MIPs are not a guarantee of anything.

The whole thing is getting me really worried that we'll be offered a lot less or rejected! Both of us have excellent credit ratings, pay our credit cards off every month and pay every bill on time. We both have a little left over cash each month - although not much as all the bills/food/rent/travel come out of a joint account that we pay a lump sum into every month, so we are a bit frivolous with our left over money on clothes/dinners out/day trips etc.

Also, do we need to have a letter from my parents at the mortgage interview saying they are lending us the money??

Sorry, just seems to be no clarity anywhere on the whole 'family loaning deposits' topic.

Thanks in advance x

Manchee

The banks don't like loaned deposits, they would only look at the amount you saved as a deposit, so your 12k. You could still get a mortgage with that amount as a deposit (ie a 5% desposit mortgage), you just wouldn't get as good a rate (obviously this would all depend on your credit history)

Bluebonnie

Unfortunately, I don't think you are likely to get anywhere if the bank/BS knows it is a loan from parents - the mortgagees won't accept an additional loan.

You'd have to get parents to declare in writing that the money is an unconditional gift - which you don't have to pay back - and the mortgagee will probably accept that.

Also they may not be impressed with the fact that your own savings amount to only about 5 or 6% of the purchase price.

BournemouthHan

The trouble is, it is not a gift. I am just grateful that they have offered to loan us anything!

How have people got mortgages before with family loaned deposits?

I thought it was an incredibly common thing to be loaned your deposit by parents but would reduce the amount the bank would lend you?!

They lent my brother £25,000 too and he got a mortgage comfortably - but this was before the new mortgage reviews/interviews came into play.

Is it not allowed any more then? I'm now more confused than ever!

Carl31

Could you not receive it as a gift?


I'm sure in a few years your parents would need a similar gift in return

BournemouthHan

£25,000 is a really big sum of money to ask for as a gift - I already feel incredibly lucky to have it as loan.

Didn't realise it would cause so much hassle...

Modgepodge

I think Carl was indicating what you might tell the bank!

Everyone I know who has borrowed money off parents, has had a letter saying it was given to them. They then pay back and the bank is none the wiser. Only downside is, your parents stand to lose a lot if you fall out with them as legally it was a gift.

Not sure about the bank "not being impressed" that you've only saved 5% of the cost of the house yourself. We saved precisely none of our deposit ourselves, my OH inherited the lot. Extremely lucky, we didn't think we'd be in a position to buy for years. Can we afford the mortgage? Yes, so the bank didn't seem bothered about our inability to save.

Elfbert

Admittedly this is before the new rules, but the HSBC mortgage advisor flat out told me I was getting a gift. I said it was a loan, and he said 'no, for the purposes of this, it's gift, or we won't be able to lend you nearly as much'... so it was indeed a gift. Which I then felt morally obliged to pay back, even though it was definitely intended as a gift, as I found myself with this money in my account every month that I just couldn't think of anything better to do with than give to my Dad!...

kingstreet

There are lenders who will accept a loan for the deposit.

They like them to be free of monthly repayments and the loan repayable from the eventual sale proceeds.

BournemouthHan

Thanks for your help guys - I'll probably borrow a less from my parents and go for a 10% deposit in total - so only borrowing £8000 from my parents. Sure they'll happily gift me that amount for repayment in a few years time - I was thinking of using my savings account to put money aside every month then pay my parents back in a lump sum instead of a regular payment to them! Could this be a way around it?

gazter

BournemouthHan wrote: »

Thanks for your help guys - I'll probably borrow a less from my parents and go for a 10% deposit in total - so only borrowing £8000 from my parents. Sure they'll happily gift me that amount for repayment in a few years time - I was thinking of using my savings account to put money aside every month then pay my parents back in a lump sum instead of a regular payment to them! Could this be a way around it?

How you intend to return the gift is entirely up to you. The bank doesn't overly care. It cares if it is a loan though. As part of the conveyancing the solicitor will ask you to show that the money you are getting is a gift, and the person giving it confirms that they have no interest in the property.