Conveyancing query

TolsBols

My wife and I have made an offer on a house and it's been accepted. We're currently engaging a solicitor to handle our conveyancing, but I have a little query.

I am selling my flat and ideally, our deposit shall be formed from the equity of that sale and our own savings. However, if the sale doesn't go through by the time the seller of our house wants to exchange contracts, my parents and in-laws have agreed to lend me some money to tidy us over until I pay them back when the flat has sold.

If they have to lend us I would rather avoid declaring this to the solicitor. One reason is that he would charge £72 (inc. VAT) and also for an "Insolvency Act Indemnity Insurance Policy" premium, which is anything between £120-£180. They would also want various proofs of identity from my parents and in-laws which would unnecessarily slow down the process, especially because two of them are self-employed / company directors.

The above fees are applicable if the deposit in our purchase is "gifted". My question is, would any money loaned to me by my parents and in-laws be viewed as "gifted" money? I would have thought technically it shouldn't, as it is a loan rather than a gift – meaning they would get the money back following the sale of my flat. Effectively it's just an interest-free loan, but from my family and not a bank.

So in the solicitor forms we are completing, shall I just assume the money is coming from my equity and our joint savings? If I need the family loan, my parents and in-laws can forward that money into our account to see the purchase through and once my flat has sold, pay them back the exact sums loaned. Is this legitimate / legal without having to declare this to our solicitors?

Thanks in advance for any help!

marksoton

Withholding information from your own legal representation is never smart...

Is there a mortgage involved?

And there's no technically about it, it's either a loan or gifted...

MrJB

Lenders wont be happy if you're borrowing money to fund your deposit, hence why it has to be gifted. If you declare it as a gift then parents/in laws will have to sign a declaration to the effect that it's a gift and that they do not expect its return nor claim any ownership of the house as a consequence.

In short borrowing money will not be considered a gift unless you declare it as a gift (which if you agree to repay is mortgage fraud).

Either way, be straight with your solicitors - will you meet the affordability of your loan if you need to borrow more/reduce the LTV?

davidmcn

TolsBols wrote: »

So in the solicitor forms we are completing, shall I just assume the money is coming from my equity and our joint savings? If I need the family loan, my parents and in-laws can forward that money into our account to see the purchase through and once my flat has sold, pay them back the exact sums loaned. Is this legitimate / legal without having to declare this to our solicitors?

Leaving aside whether there's a mortgage involved, your solicitor will require to check the source of your funds (to comply with anti-money laundering regulations) so they'll see the money appearing in your account and ask you where it's from.

In short, no.

dc197

TolsBols wrote: »

if the sale doesn't go through by the time the seller of our house wants to exchange contracts

In the situation where one cannot afford to own two houses at once, it's common to exchange for the property you are buying and the one you are selling at the same time.
If you agree to buy but your own buyer goes AWOL before exchanging, there is a chance you'll end up owning both properties, which the lender on either might not be too happy about.
So if you chain these two transactions together you can avoid needing to borrow money from your family.

TolsBols

Just to clarify, there is a mortgage involved. Indeed we processed an LTV of 70% with the lender only 2 days ago and just awaiting the official offer.

MrJB wrote: »

In short borrowing money will not be considered a gift unless you declare it as a gift (which if you agree to repay is mortgage fraud).

Either way, be straight with your solicitors - will you meet the affordability of your loan if you need to borrow more/reduce the LTV?

I can meet affordability either one of 2 ways - (1) awaiting the equity from selling my flat (which if it comes through before purchasing the house, makes this issue redundant) or (2) borrowing some money from my family to see through the purchase until I pay them back with the equity.

It seems unfair that just because I have access to a legitimate, interest-free loan from family that I would be penalized because either the solicitor can't charge me his fee or because the lender can't force me to take out a higher LTV from the lender which would incur more on our monthly repayments!

marksoton

TolsBols wrote: »

It seems unfair that just because I have access to a legitimate, interest-free loan from family that I would be penalized because either the solicitor can't charge me his fee or because the lender can't force me to take out a higher LTV from the lender which would incur more on our monthly repayments!

It's not unfair, it's the mortgage lender making sure no one else has an interest in the property if it all goes wrong.

davidmcn

TolsBols wrote: »

It seems unfair that just because I have access to a legitimate, interest-free loan from family that I would be penalized because either the solicitor can't charge me his fee or because the lender can't force me to take out a higher LTV from the lender which would incur more on our monthly repayments!

You're not being "penalised", they are normal and legitimate costs for the complication/risk you're adding to the transaction.

lewishardwick

When discussing gifts/loans from family members. Are solicitors only interested in funds for the mortgage deposit?

My partners mother has loaned him some £££ to put towards legal fees as he was not happy with me paying them. All his deposit money is tied up in a HtB ISA / Savings account so not accessible until the exchange...

I was adamant he should wait to borrow anything until after the sale as I could easily cover all legal costs...

marksoton

lewishardwick wrote: »

When discussing gifts/loans from family members. Are solicitors only interested in funds for the mortgage deposit?

My partners mother has loaned him some £££ to put towards legal fees as he was not happy with me paying them. All his deposit money is tied up in a HtB ISA / Savings account so not accessible until the exchange...

I was adamant he should wait to borrow anything until after the sale as I could easily cover all legal costs...

Yes, because a loan for legal fees does not represent a legal interest in the property being purchased.

Whether the lender would be happy about the applicant owing money that could affect affordability is another matter....

TolsBols

marksoton wrote: »

It's not unfair, it's the mortgage lender making sure no one else has an interest in the property if it all goes wrong.

marksoton wrote: »

Whether the lender would be happy about the applicant owing money that could affect affordability is another matter....

Thanks Mark. But I'm not sure the lender is the issue here. We already have the agreement processed with them.

My issue now is with the conveyancer, who we are appointing ourselves and not going through a lender's solicitor. Not declaring if the money is gifted means I avoid those additional fees and the extra proofing hassle.

There is no grey areas regarding the loan. I know for a fact my family have that money in their funds and it would just go into my account and I could see through the purchase with no issue. They would then be paid back with the equity once my flat sold. So is it really an issue if I don't mention that to the conveyancer?

So long as he sees I have the funds in my account, would he raise eyebrows or would he want to know where it came from? As another poster implied, I don't want to commit fraud.