Bank waited to tell me they have a problem

bobobski

Hi all

Quick background: through an independent broker I've applied for a 90% LTV mortgage; I am putting in 5% and a loan from a friend is covering the other 5%. I'm not interested in opinions on whether this is a good idea or not please; we've gone over it every way imaginable and decided to proceed this way.

I have been upfront about this loan since day 1 with the broker. He told the bank even before applying for the MIP about it and they were fine; he included it on the application for the MIP and they were fine and they issued it that day; he then included it on the full application, which passed the initial stages, and they booked and paid for the valuation - and then they decided they don't like the loan so won't lend to me on this basis.

This leaves me with two options: get a 95% mortgage - which is presumably what they want me to do so I'll pay them more interest - or lie and call the loan a "gift".

Any thoughts here?

AnotherJoe

Maybe there was not clarity about the loan or the terms on which is it repayable ?

They are not bothered about the extra 5% interest, they are following the regulatory hoops they have to jump through to prove they did due diligence.

bobobski

Thing is, they didn't ask for more clarity, they just declined to continue. I'd offered to give them the spreadsheet which will calculate how much I owe to my friend but they didn't want that - all they ask for is what do I have to pay him back per month (not even how much I actually intend to pay him back). I can't see what law they'd be breaking if they offer me a mortgage where some of the deposit was a loan from a friend.

AnotherJoe

Affordability rules. Very few lenders will accept a loan you repay* as part of your deposit as it's the same as you being loaned more than whatever multiple of earnings they are prepared to loan you. If their maximum is say 4.5x earnings plus you are also borrowing an additional 0.5x then they are knowingly allowing someone to take a 5x.

A lot of it comes down to broad brush rules that don't fit everyone, even if you can afford it or it's cheaper than renting you can still be denied.

* a loan that isn't repayable until you sell the house may be allowed by some lenders.

StopIt

Of course they wont lend a 90% LTV based on 5% of the deposit being a loan.


You can raise a complaint with whoever advised you, but there's little circumstance in which a loan can be used towards a deposit.

bobobski

AJ, the mortgage is for a lot less than 4x my salary. With the friend's loan, it's still under 4.1x salary. Besides, surely they factored that in at MIP stage?

SI, the point is they initially said yes and actually incurred their own expenditure on that basis, and then changed their minds. I can't believe there is literally no circumstance in which it's possible, as if that were true they would have said no at the beginning; indeed, my broker would have told me not to bother framing it in these terms.

David_White

If a lender was happy with you taking out a loan to cover your deposit they may as well just offer 100% mortgages again.

Which lender is this?

AnotherJoe

This is why I wondered if they originally believed that the loan did not require immediate repayment and once that was made clear that it did, then they reverted to the position you'd expect. What did your broker say ? Did he or she know you intended to repay it on an ongoing basis ?

ACG

There are not many lenders who will accept a loan as part of the deposit, I can only think of one.

If your broker disclosed it to the lender, then I think you need to complain to the lender and they should refund the val fee. If the broker did not disclose it then your complaint goes to the broker and they should refund your val fee.

Why have you not just applied for a 95% mortgage?
If I am being honest, if you came to me with what you have applied for, I would turn you away. You are making life overly complicated.

bobobski

David, but they are willing to give 95% mortgages and I'm intending to borrow 95%. Also, the friend's loan is completely unsecured, so it doesn't affect the bank's security in any way.

AJ, possible, but we gave them all the information right at the beginning. My broker is just as annoyed as I am as he'd been led to believe that it was all going swimmingly and then they reject me fairly far down the line because of information they've had since day 0. Yes, he knows I intend to pay it on an ongoing basis; I've told him how much I need to pay and how much I intend to pay.

ACG, why is it overly complicated to want to cut the interest rate by 1.5% by borrowing 5% and splitting the interest saved between my friend and me? If my broker had no issue with it, and until recently the bank had no problem with it, and people do it every day but they lie and call it a gift - why is my situation overly complicated? The weird thing is the lender is paying the valuation fee, so if they reject me now they've lost it. I guess someone cocked up internally and will be getting a talking to?

ACG

Because if you do not pay the mortgage, the house is repossessed, your friend then says he wants his 5%. Obviously as the po have first charge he will not get it, but they potentially have a legal matter to deal with.

I'm not arguing with you, I am just saying the waters become a little muddied and at 90% ltv with high risk and minimal profit margins, they do not need your business when they can lend to 10 other people in your place.

I accept your annoyed and I would be too in your shoes, but from experience with quirky cases, I have generally learnt where you are wasting your time. I know a lender who would accept the loan in principle but I still would not do the case.