Create deposit by increasing price

ManWii

Hi

I want to sell my house, I have a tenant that wants to buy it but has no deposit and needs 5% for a mortgage. I want 135,000 for the house. I was wondering if this is legal or feasible, creating a deposit by listing at 141,750 (includes the 5%). Obviously, the Mortgage company need to value it to at least 141,750. Then I get the 135K from the mortgage company and she has a 95% mortgage.

OR is there some other variant that can work?

okborednow

I'm sure someone much more knowledgeable than me will come along but i think what you're describing is called a vendor gifted deposit and that there are fairly specific rules in place around this. I don't think it's completely impossible though

hazyjo

If she gets a £135k mortgage, where is the other £6,750 coming from? You will need to actually gift her that £6,750. I know it all seems like the same thing, but it's not. The solicitor will need it all paid from her in full when the transaction completes.

sal_III

The mortgage Lender will want to see proof of deposit and the buyer solicitor will want to see source of the deposit money.

If your tenant has no savings I somewhat doubt his income and credit history will allow him to get 95% LTV mortgage. Has he actually spoken with a Lender or is it just a wishful thinking on their/your part.

mije1983

If she can't raise what is a relatively small deposit in house buying terms, is she going to be able to afford solicitor costs etc. I'm assuming she is a FTB so no SDLT will apply? If she isn't, then that's an extra cost for her.


I think the biggest hurdle, as you pointed out, is that you are inflating the value of the house, and the lender won't like that as it increases their risk and may not even value it that highly.

kingstreet

In a landlord/tenant relationship I can think of one lender which would accept the gifted deposit you set out.

Who knows if the surveyor who values the property for the lender will agree with your estimated valuation though?

Will your tenant want to risk a few hundred quid to find out?

BTW the valuation needs to be £142,105 to leave a net £135,000.

System

Unless you give her the 5% first the only way this will work is to exchange and complete on the same day. Not all lenders will accept a vendor gifted deposit.

ManWii

Thanks for all the great answers, I learned a lot - including some more acronyms. Seems like it's a non-starter, thanks for the info though

ACG

Its not a non starter, there are lenders who will accept the equity from a landlord - albeit not many.

But the tenant will need to pay for a valuation fee and will need money for solicitors and potentially a broker due to the limited amount of options.

MovingForwards

A vendors cash gift deposit was sorted out with the house my ex purchased, we had to chip in a couple of hundred to make the difference up as well as paying legal fees etc.

The one thing I recall is the maximum sale price was set at the highest figure the property was advertised for with estate agents.

There are a few banks/building societies who agree to this kind of thing.

The solicitor we used did his fruit and was gona pull the plug on the whole purchase as we (my ex) was in his office signing the paperwork! I called the broker, who in turn called the solicitor to explain what it was and how it worked. House purchase went through.

This was early 2000's and it seems to be more common nowadays.