Loaned Deposit from Parents to Help buy new house

robbiecookie101

Hi guys,

My girlfriend and I are looking to move. Currently, we live in a 1 bedroom flat (I am the sole owner) and are hoping to purchase a 2 bedroom house.

Because of our current situation and the fact that is still very much early days. My intention is to purchase the new house by myself as she has no savings. Although she will live there, I would be the sole name on the mortgage and later down the line she can 'buy in' to the property / I can add her on if we become married.

We have now found a home which would be perfect for us. After speaking to my mortgage broker and working out how much equity / savings etc I have the maximum I could potentially bid for a new house would be £250,000

Unfortunately the house we are looking at would cost more like £270,000.

My parents are willing to lend me £20,000 to make up the difference, they are not concerned about how long it may take for me to pay it back but at the same time they can't gift it to me. They themselves are not concerned about drawing up contracts or making the loan official as they 'trust' me but personally I'm not comfortable with that, I'd much rather have something official that protects there money if something was to happen to me / my job in the future.

I do want to borrow this money so I can purchase the house and I know that alongside the mortgage repayments I can start paying them back (even if my GF was to move out). I believe I can pay them back within 5 years so I wouldn't be relying on selling the property to repay them.

So guys - what's the best way to handle this? i'd like to know some of the options before speaking to my solicitor

Thanks in advance!
Robbie

kingstreet

robbiecookie101 wrote: »

My parents are willing to lend me £20,000 to make up the difference

You will have limited lender options for this so establish those which will allow this, establish the lender's requirements, then tell your solicitor what will be required.

Cakeguts

What is likely to happen is that the mortgage company will just subtract the £20k from their loan.

kingstreet

Cakeguts wrote: »

What is likely to happen is that the mortgage company will just subtract the £20k from their loan.

Perhaps you are suggesting that any lender accepting such an arrangement would see any payments on the loan as a commitment and reduce the OP's mortgage borrowing power accordingly?

If you were, I would heartily concur.

However, if no payments are to be made, if the loan is repaid from the eventual sale proceeds and/or if a second charge or deed of trust will be used, that won't be the case.

robbiecookie101

Ok thanks guys - so from what I'm hearing the only way I could really purchase this property would be if the £20,000 came as a gift rather then a loan?

teddysmum

robbiecookie101 wrote: »

Ok thanks guys - so from what I'm hearing the only way I could really purchase this property would be if the £20,000 came as a gift rather then a loan?

No. Read the last part of the previous post.

kingstreet

A gift without reservation would see the number of lenders open to you increase drastically.

There are a couple of of options only, if it's a loan.

dimbo61

You could look at the Barclay springboard Mortgage.
Parents put 10% into a savings account earning 1.75% for 3 years.
Why can't your girlfriend go on the mortgage ?

Pixie5740

I too am wondering why the girlfriend can't be on the mortgage. The fact she doesn't have any savings is not a barrier, a simple Declaration of Trust is all that would be required to take care of the deposit. Presumably the girlfriend will be expected to pay half the mortgage whilst living in the property.

Lord_Baltimore

My guess is that robbie is hedging his bets. You can't be sure when a 'girl friend' might find a nest that's more appealing. Don't blame him; he seems to be the one financing this arrangement

buglawton

Cakeguts wrote: »

What is likely to happen is that the mortgage company will just subtract the £20k from their loan.

Correct, you have to fill in forms to explain where the £20,000 capital came from and provide documented proof. On explaining its a loan they'll want to see full written & signed terms on it (even if from close relatives). At which point the mortgage co will re-assess your mortgage offer a large amount downwards. Maybe go the parents as guarantors route to try to up the loan amount?