Does this count as ‘buying with a mortgage’?

eddiejones

Hi folks,

So I have a LISA, and looking to buy somewhere in the region of 250k.
Now as it happens my parents have some spare cash and are keen to act as my mortgage provider... I.e. a solicitor draws up some mortgage style agreement, whereby I pay them instead of a bank. I appreciate this is quite a tricky question but perhaps someone knows whether it matters who provides the mortgage? I.e. to qualify as !!!8216;buying with a mortgage!!!8217; does it need to be with a FSA-regulated company for instance?

Cheers,

Ed

masonic

The requirements are:

- The property must be purchased through an eligible conveyancer and the LISA money paid directly to the purchasing conveyancer.
- The property must be purchased with a loan in which the lender registers a legal charge over the property.

Your main hurdle would be convincing the conveyancer to be party to the arrangement. Also, your parents might be conducting a regulated activity in being a money lender - if this were indeed the case, then that would be unlawful.

Why not just apply for an offset mortgage? In terms of overall fees and cost, it would likely be comparable or cheaper.

Herbalus

apply for a small mortgage. Say £20k. As your parents happen to not quite have enough of course. With no early repayment fees.

Box tixed.

dunstonh

does it need to be with a FSA-regulated company for instance?

Not sure you meant food standards agency Its Financial Conduct Authority (FCA).

Bank of parents would not be classed as a mortgage.

eddiejones

masonic wrote: »

The requirements are:

- The property must be purchased through an eligible conveyancer and the LISA money paid directly to the purchasing conveyancer.
- The property must be purchased with a loan in which the lender registers a legal charge over the property.

Your main hurdle would be convincing the conveyancer to be party to the arrangement. Also, your parents might be conducting a regulated activity in being a money lender - if this were indeed the case, then that would be unlawful.

Why not just apply for an offset mortgage? In terms of overall fees and cost, it would likely be comparable or cheaper.

Thanks for the reply - very informative.

What if my parents registered a legal charge over the property? That doesn’t sound very complicated.

How would the offset mortgage work? I’ve googled what they are. My parents would put in 100k say and lend it to me at exactly the same mortgage rate that the bank is charging? I.e. so they’d get the same rate. But I guess the bank would have the ‘first charge’ on the property. And my parents wouldn’t have much in exchange of loaning the money at quite a low rate.

eddiejones

dunstonh wrote: »

Not sure you meant food standards agency Its Financial Conduct Authority (FCA).

Bank of parents would not be classed as a mortgage.

Haha, yes

eddiejones

Herbalus wrote: »

apply for a small mortgage. Say £20k. As your parents happen to not quite have enough of course. With no early repayment fees.

Box tixed.

That seems clever. I guess that would mean my parents would have to ‘give’ me the money as banks won’t like part of my deposit being a loan?
We could then pay it off quickly. And then sort out an arrangement afterwards? Like me then conveniently agreeing to ‘give’ my parents what they had previously given me. But on a monthly basis and with some interest. And giving them a charge on the house in the process? Sounds tricky!

eddiejones

dunstonh wrote: »

Not sure you meant food standards agency Its Financial Conduct Authority (FCA).

Bank of parents would not be classed as a mortgage.

Why would it not be out of interest? For various reasons? Or because of the ‘first charge’ thing?

masonic

eddiejones wrote: »

Thanks for the reply - very informative.

What if my parents registered a legal charge over the property? That doesn!!!8217;t sound very complicated.

As a minimum, you would need a legal document, prepared by a solicitor, signed by both parties and registered as a charge at the Land Registry. Edit: Just checked the ISA Regulations 2017 and in there it specifies a legal mortgage for land in England and Wales. So your parents could not do this.

How would the offset mortgage work? I!!!8217;ve googled what they are. My parents would put in 100k say and lend it to me at exactly the same mortgage rate that the bank is charging? I.e. so they!!!8217;d get the same rate. But I guess the bank would have the !!!8216;first charge!!!8217; on the property. And my parents wouldn!!!8217;t have much in exchange of loaning the money at quite a low rate.

In this case the parental loan would be unsecured. A loan agreement could still be drawn up. You would receive the money and deposit it. You would then only pay mortgage interest on the net balance owed to the bank (and could pay the difference in interest payments to your parents). An advantage of this option is that some or all of the money could be repaid to your parents in certain circumstances - for example if they fell into hardship - subject to whatever agreement you had.

In either case, the interest paid to your parents would be treated as income. If said income was a significant part of their annual income, that would be when they might be considered in the business of money lending and subject to FCA authorisation.

eddiejones

masonic wrote: »

In this case the parental loan would be unsecured. A loan agreement could still be drawn up. You would receive the money and deposit it. You would then only pay mortgage interest on the net balance owed to the bank (and could pay the difference in interest payments to your parents). An advantage of this option is that some or all of the money could be repaid to your parents in certain circumstances - for example if they fell into hardship - subject to whatever agreement you had.

Ok. Would a bank be OK lending me money if I had a loan for 100k as per of my deposit? Perhaps if it was in line with my affordability anyway? E.g. if they were willing to lend me 200k without said loan, they would be willing to lend me 100k with it (or thereabouts)


Edit: I guess I still have a question over what defines a !!!8216;legal mortgage!!!8217;?

Zorillo

Why would they need to know it was a loan? As far as they're concerned the £100k deposit in your account by your parents is a gift, surely?

The fact that you've agreed to pay it back with interest is between you and your parents.

The bank will only require proof that the £100k is there and that you're able to make the repayments on what they lend you.