Loaned money for deposit

HeadSmashedThreeWays

Hi all- new here so thought I would post.

I wonder if anyone can help. My parents have savings of £30k+ and want to help us out with our deposit. The question is two fold:

Much of their money is tied up in bonds etc so they're considering getting a personal loan for some/all of the amount as the interest would be less than their penalty charge for taking the money out early/before it matures.

They would require some of the money back, so it wouldn't entirely be a gift. They also want to draw something up with their solicitor to protect themselves (because of a messy divorce in the family that left a relative who had been lent some money very out of pocket once her spouse left- understandable).

So the question is a) is it legal to get a loan to help someone else to buy a house and b) we know it would affect our mortgage application if it was a loan from them to us initially, so would it be legal for them to write a letter saying it was a gift and then for them to get a document drawn up say six months later saying something like "as daughter and son in laws circumstances have changed they now want to pay us back the sum of XX AMOUNT and will be gifting it back at a rate of XX AMOUNT over XX YEARS"? Theyre very worried about inadvertedly commuting fraud but we are in London with two kids and our rent is now a joke compared with what we would pay if we brought.

Thanks for any advice!

Guest101

a. yes you can get a loan for any reason, drink it away or gift it to anyone you like.
b. no that would be fraud. a gift is a gift and a loan is a loan. - If you choose to gift them back the money you can do, with no consequences, but there is no legal protection or entitlement for your parents.

marksoton

a) Not if you declare it as a gift
b) See a

spadoosh

a i believe is perfectly legal.

What a lender generally will not accept is someone else having a stake in your property. Which is exactly what youre suggesting with the loan.

I like your parents prudence! They seem fairly sensible although think it would be worth encouraging you to save more for yourself as you will be putting yourself at the limits. You dont pay your rent you get kicked out, you dont pay your mortgage you get kicked out, house sold, and probably a chunk of debt on top.

I do understand your reasons for trying to find a work round though.

If your not honest on a mortgage application it is fraudulent. If they say gift it will have to be a gift. Deferring an arrangement is just that it doesnt make it obsolete at the time of getting a mortgage.

What are you bringing if you dont rent?

davidmcn

(a) is legal
(b) sounds like fraud

HeadSmashedThreeWays

Thanks all. Okay so b is fraud- we won't do that then! Is this still the case if the arrangement wasn't written up for some time afterwards, i.e. Six months, a year, two years? Or if it was worded differently i.e. "Daughter and son in law have received XX amount from us which was originally a gift but now our circumstances have changed and we need XX amount for our old age and they have agreed to pay this to us by XX DATE"?

They feel horrible asking for legal documents to be drawn up but my grandparents lent a large amount to my aunt and her husband with nothing in place and then he naffed off and never paid them a penny more (but took half of the equity in the house when he left!) Essentially they trust me but not my husband LOL (or at least, not my husband if we split and things got horrible).

It's such a minefield. We looked at family springboard or guarantor mortgages but all seem incompatible with Help to Buy London which is what we need to use. We could carry on renting but our issue is that we are now paying £1500 a month for a house that's fine but single glazed, a bit shabby. We are in a sought after and expensive part of london so this is common- believe it or not we are in a better house than many!- and basically landlords can charge what the heck they like. Our rent has gone up twice in a year now and we are just sick of throwing good money after bad.

kingstreet

Why don'y you use a lender which will allow you to borrow your deposit and give your parents a second charge over the property?

A broker will be able to establish the options for you.

If you are buying a newbuild on HTB Equity Loan you cannot do this as the Homes & Communities Agency requires a second charge over the property and will not permit another.

Guest101

HeadSmashedThreeWays wrote: »

Thanks all. Okay so b is fraud- we won't do that then! Is this still the case if the arrangement wasn't written up for some time afterwards, i.e. Six months, a year, two years? Or if it was worded differently i.e. "Daughter and son in law have received XX amount from us which was originally a gift but now our circumstances have changed and we need XX amount for our old age and they have agreed to pay this to us by XX DATE"? - nope. You cant reclaim a gift.

They feel horrible asking for legal documents to be drawn up but my grandparents lent - gifted?. a large amount to my aunt and her husband with nothing in place and then he naffed off and never paid them a penny more (but took half of the equity in the house when he left!) - well the courts decided that was the correct decision. Essentially they trust me but not my husband LOL (or at least, not my husband if we split and things got horrible). - Well then they have no respect of you and your choice of partner and I wouldn't accept either a loan or a gift from such people.

It's such a minefield. We looked at family springboard or guarantor mortgages but all seem incompatible with Help to Buy London which is what we need to use. We could carry on renting but our issue is that we are now paying £1500 a month for a house that's fine but single glazed, a bit shabby. We are in a sought after and expensive part of london so this is common- believe it or not we are in a better house than many!- and basically landlords can charge what the heck they like. Our rent has gone up twice in a year now and we are just sick of throwing good money after bad.

Well you need to accept that you can hide a loan as a gift, or a gift as a loan.

AnotherJoe

When would your parents want the money back? If its at an indefinite key event such as, you sell the house, or you separate or divorce, that can be handled with a loan agreement and a second charge on the property.

If they want it back to a timetable, lets say "in 5 years time" or "if one of us becomes ill and we need the money" or "when we feel like it" then you've got a problem, because then the lender will take into account the fact you need to save up to pay it back in a certain time period, and its like an ordinary loan and affects your affordability.

However, if its not required back to a timetable, there's no reason you cant also over time save up, pay them back and have the loan redeemed/second charge removed.

saajan_12

If they gift it now, its gone. They can't unilatterally change the terms and make it a loan.

There's nothing stopping them from gifting you money and later you periodically gifting them money. However there's no way of getting protection for them now or in the future if you / your partner decide to stop paying.

ST1991

Some mortgage lenders may look at this situation as a 100% mortgage unless you have something to contribute towards the deposit yourselves. Essentially you are borrowing say 90% from mortgage and 10% from another lender (parents).

I thought (correct if i'm wrong) that the full deposit should not be a loan, as you are borrowing to afford instead of being able to afford already...