House buying- allowance for repairs

cpat1

Hi guys,
We are buying a house, we had the homebuyers report which flagged up problems with a sagging roof and rising damp. estimates for work came to just over £2000.

Our solicitor suggested an 'allowance' which involves us paying the full asking price but the vendor paying for some or all of the repair costs on completion. Has anyone had any experience of this or can offer any advice please?

Thanks so much
Cbpat

davidmcn

Any idea why this was suggested rather than just discounting the price?

Hoploz

Maybe because a discounted buying price would involve the lender producing a new mortgage offer and potential problems if the product chosen has a LTV % near the minimum required.
?

davidmcn

Hoploz wrote: »

Maybe because a discounted buying price would involve the lender producing a new mortgage offer and potential problems if the product chosen has a LTV % near the minimum required.
?

But any "cashback" deal would also have to be approved by the lender (and they may well just regard it as being a discount, so amounting to the same thing).

jacko74

£2000 For rectifying a sagging roof and installing a DPC sounds rather optimistic to me!

cpat1

I have spoken with our lender, who said that they don't need to be informed. Particularly as we have settled for half of the amount at £1000, I found this definition of an allowance online which seems rather useful
Allowance
Sometimes an amount will be held back from the purchase price by the buyer to pay for, amongst other things, some repair work that is required to the property, as an alternative to having the seller carry out the work. This has the same effect in terms of what is actually paid as reducing the price would have, however reducing the price would affect the amount of stamp duty paid, and could be seen as an attempt at tax fraud, whereas an allowance would not. Another reason for agreeing an allowance as opposed to a price reduction is that if the purchaser is buying with a mortgage then price changes will usually need to be reported to the lender, which takes time, however allowances sometimes do not. Unless some statement is made in the mortgage offer on the subject then as a rule of thumb I would say that allowances of less than £1,000 do not need to be reported but this is subject to CML instructions which should be consulted.Allowances do have to be justified and realistic. If a seller at the last minute decides to give the buyer an allowance of £10,000 for cosmetic redecoration for example, then you would have two concerns. Firstly, are the seller and buyer conspiring to deceive the mortgage lender as to the true value of the property, so as to encourage the lender to lend more than it otherwise would against the property, and secondly is the £10,000 being paid in some other way, like with illicit goods. If you are unsure as to whether the allowance is a fair reflection of the cost of whatever it is being given for then you should asks to see quotes for works etc.

I am surprised that people haven't heard of it before. Both my solicitor and the estate agent suggested this message, as reducing the purchase price of the property would involve me going I am surprised that people haven't heard of it before. Both my solicitor and the estate agent suggested this message, as reducing the purchase price of the property would involve me going back to my lender and starting the mortgage process again!

DaftyDuck

I think the consensus is that we do know about it, but we understand that it would probably be better done by the more common route if a price reduction.

I'm also with jacko74... was this estimate produced via the estate agent?

davidmcn

cpat1 wrote: »

I am surprised that people haven't heard of it before. Both my solicitor and the estate agent suggested this message, as reducing the purchase price of the property would involve me going I am surprised that people haven't heard of it before. Both my solicitor and the estate agent suggested this message, as reducing the purchase price of the property would involve me going back to my lender

We have heard of it before, but are sceptical that it doesn't involve going back to your lender - it's a standard requirement in the CML Handbook that the solicitor reports any incentives. Not sure why failing to report a £1000 incentive is any better than failing to report a £1000 reduction in price.

helga72

I have just gone down this route but wish I hadn't, or had at least sought further clarification. I paid the agreed purchase price but there is no sign of me receiving the allowance I negotiated for roof repairs