Seller has offered cashback on completion, is this legal?

SBD90

This might seem a bit long winded but here goes.

I have had offers on my house that are close to what I am after, however to afford the house we want (£250k) I need a little bit more so that I won't be left without any money in the bank when everything is finalised. The estate agent has told the seller of the house this and in return they have come back and said that if I offer the asking price they will give me £5k on completion. I asked the EA if this was even legal and they didn't seem to know.

What are peoples thoughts on this. Cheers

kingstreet

Fine, as long as you need no mortgage.

If you do, it falls foul of the "vendor gifted deposit" rules and your solicitor must inform your mortgage lender. This will result in the deduction of the cashback from the valuation; resulting in you ending up with how it should have been done in the first place, as a price reduction.

theartfullodger

So after completion when the £5k doesn't arrive - what then eh??

Simply thank them for their kind offer and state you will proceed on the basis of £245k purchase price: If they won't play you've got a very, very weird vendor who I'd decline to do business with.

Expecting an estate agent to know what is legal or not may lead to disappointment or, indeed, financial losses...

Nobbie1967

Unless declared to your solicitor, it's likely to be avoiding some SDLT, but apart from that it just seems unnecessarily dodgy. Why don't they just drop the price £5k? You run the risk of them not giving you the £5k after completion.

SBD90

Nobbie1967 wrote: »

Unless declared to your solicitor, it's likely to be avoiding some SDLT, but apart from that it just seems unnecessarily dodgy. Why don't they just drop the price £5k? You run the risk of them not giving you the £5k after completion.

I think the reason they have offered this deal is that they would probably accept £240k, which for me would mean a deposit of £24k, which i can afford, however it would leave me with not much left at the end therefore not really viable. If I gave them the asking price of £250k my deposit would only be jumping £1k, but at the end they'd be giving me £5k which makes it viable.

With regards to your last point when i was quizzing the EA they said they would hold the sellers £5k then release it to me on completion or return it to the seller if the sale fell through.

EmmyLou30

Your only way to free up £5k for initial works to your new house is to either save up another £5k between now and completion, or take out a mortgage for £5k more (by making your deposit £5k less). I'm guessing the reason you can't do this is because you'd fall foul of the LTV required by the mortgage company to ensure you can afford the house.....this is exactly why they make these rules. Any underhand dealing of a 'gift' from the vendor would need to be mentioned to the mortgage company and this would put you in exactly the same position as if you lowered your deposit to free up the cash.

SBD90

EmmyLou30 wrote: »

Your only way to free up £5k for initial works to your new house is to either save up another £5k between now and completion, or take out a mortgage for £5k more (by making your deposit £5k less). I'm guessing the reason you can't do this is because you'd fall foul of the LTV required by the mortgage company to ensure you can afford the house.....this is exactly why they make these rules. Any underhand dealing of a 'gift' from the vendor would need to be mentioned to the mortgage company and this would put you in exactly the same position as if you lowered your deposit to free up the cash.

Ok thats all I was wanting to know thanks. Obviously if the deal could have been done it would have been beneficial to me so I wanted to find out.

G_M

You'll be paying SDLT based on the purchase price without account of the £5K so it will cost a bit extra.

Unless it's carefully written into the contract, there's a risk you'll never see, or have a long fight for, the cashback. And if it's IS in the contract then that defeats the object of the excercise!

This is a silly idea.

Senior_Paper_Monitor

Its not avoiding SDLT - you will actually be paying additional SDLT !!

The issue is that lender (assuming there is a mortgage) will not accept this arrangement.

Incidentally (assuming the seller is not a developer - in which case we are presumably talking a new build, in which case the problem probably goes away) who is supposed to benefit from this arrangement (other than possibly the estate agent who gets his commission on £5K) and how ?

eddddy

Senior_Paper_Monitor wrote: »

... who is supposed to benefit from this arrangement (other than possibly the estate agent who gets his commission on £5K) and how ?

The buyer would benefit by getting a bigger mortgage...

... assuming the valuer values the property at the selling price.


The OP can get a bigger mortgage on a £250k house than they could on a £245k house.

Which is specifically why mortgage lenders don't allow it. (And if the OP did it without telling their solicitor/lender - technically it would be mortgage fraud.)