Mortgage Deposit Query

marcusrhysthomas

My girlfriend and I are looking at purchasing a property at Auction this coming October.

We are first time buyers and don't have enough money to purchase the property as a cash purchase and will need a mortgage.

The conditions of sale stipulate that a 10% deposit must be paid on the day of the Auction and the rest within 28 days.

Im not prepared to risk the possibility of losing the 10% deposit if we are unable to complete the mortgage within the 28 days.

Fortunately my girlfriend's dad has agreed that he would be willing to purchase the property with cash on the basis that we take out a mortgage to buy the property from him.

The idea is that he will buy the property for £200,000.

My girlfriend and I will spend approx £20,000 refurbishing the property.

We are confident that following improvement works the property could achieve a value of £240,000

my query is whether the bank would require us to put down a deposit when taking out a mortgage of £200,000 on a property that will be worth £240,000.

Essentially, the money that we currently have saved up (£20,000) will go towards improvement works and will leave us in a position where we don't have funds to put down a deposit.

Any info/ advice would be greatly appreciated.

Contemptuous

Her father would be able to do a concessionary purchase and effectively "gift" you the proposed £40k difference.

marcusrhysthomas

Thanks for the advice.

Would the lender require us to pay a deposit? I.e if we purchased the property from him for £200,000 on the basis of a max LTV of 90% or would the fact that the property would be worth £240k negate the requirement to pay a deposit as our loan would effectively only be for 83% of the property's value.

TrickyDicky101

If he has so much readily available cash, get him to either loan the money to you (for the entire property) or he buys the property then you purchase from him (at £200k value) using your money as a proper deposit and then get him to lend you the improvement cash.

it is much cleaner and avoids any issues around CGT.

Thrugelmir

You FIL would have to own the property for 6 months before it can be remortgaged.

Unwise to assume that £20k of refurbishment will add £40k in value.