Mortgage Application Rules

Breezecomm

I have recently applied for a mortgage (full application). I have 100% honest and transparent in my questions. After making the application the underwriters have seen that I get a source of money from the local authority. This is for a house that my father owns and I let out on his behalf to thrid-party tenants. The property does not have a mortgage.

The underwriters seem to be extremely hung up over this because they think it's strange that I'm managing my father's property for him. I think there is nothing wrong with a son taking care of his fathers' property (my dad is getting on).

I have answered all questions honestly and that there really is nothing underhanded going on I understand that they can refuse the mortgage and not give me a reason at all but would they have to pay back the fees I have incurred given that I have been completely honest throughout.

This is a little stressful as they are taking there time and the vendor is getting sick of waiting. So the likely situation is that they will probably give me the money but by that time I would have lost the house I want to buy.

foxy-stoat

So do you include the income on your tax return and pay the relevant income tax, then pay the nett money to your Father who also puts that on his tax return and he pays the tax?

I do not see why that would be an issue unless you are using the income to increase your borrowing or if your circumstances change and you lose your job and maybe use some of your fathers money to pay your mortgage then he could have a financial interest built up, maybe.

ACG

Although you have been honest, your situation is not straight forward.
As foxy-stoat hints towards, there is potential here for tax evasion. You have an income coming in - albeit on your fathers behalf - but how does the lender know it is on their behalf?

Can you evdience tax is being paid on that income? Either in your name or your fathers name? Rental income needs to be declared as an income even if no tax is due.

Lenders can ask a million and one questions and they will still never cover every single persons situation in the country.

For the record, we have a similar situation in our family. My gran is in a home and her house is being rented out. The rent goes in to my dads account, but it is all declared and so if he ever had to get a mortgage, we have a letter from a solicitor confirming my dad is her power of attorney, evidence the income is declared and tax paid and so a lender you would like to think would tick the box to proceed.

Breezecomm

Yes, I can prove that tax is being paid on the property. going back a least 6 years. But when I give the money to my father I don't see any need for him to pay tax on it again.

I have not included any of these funds as part of my request for borrowing.

I'm just hoping this gets through today, as I'm not sure is willing to hang on for another month to see some movement.

Thrugelmir

Breezecomm wrote: »

The underwriters seem to be extremely hung up over this because they think it's strange that I'm managing my father's property for him. I think there is nothing wrong with a son taking care of his fathers' property (my dad is getting on).

Nothing unusual in managing. I assume that you have a POA. More unusual is that you are declaring the entire income as your own and then passing money over to your father on an as and when basis. Where does your father reside currently?

but would they have to pay back the fees I have incurred given that I have been completely honest throughout.

What fees have you incurred so far.

Breezecomm

- Father resides in the UK, lives in his own unencumbered property
- He is retired (so he does not use any of his tax allowances)
- I am on the 40% tax bracket, but as I am picking up the rent I pay the tax, I don't want to be chased 10 years down the line.
- The fee incurred so far, Valuation and Product (nearly 2k) fee both after the decision in principle was done.

If anything we are paying more Tax than we should

foxy-stoat

Breezecomm wrote: »

- Father resides in the UK, lives in his own unencumbered property
- He is retired (so he does not use any of his tax allowances)
- I am on the 40% tax bracket, but as I am picking up the rent I pay the tax, I don't want to be chased 10 years down the line.
- The fee incurred so far, Valuation and Product (nearly 2k) fee both after the decision in principle was done.

If anything we are paying more Tax than we should

Yes your Father is worse off if you pay the income tax on the rental income. If you have POE I would be worried about him, or your siblings, suing you for his lost cash due to you paying the income tax when he has unused tax allowance.

If I were him I would sell the house and get the cash out, make investments and live off the capital than paying 40% on the rental profits, or manage the rental himself. It would save your current mortgage hassles.

ACG

The money is being taxed and potentially at a higher rate than necessary but your father has undeclared income.

The law is pretty clear in that you need to declare your income. Whilst I doubt this would happen under the circumstances theoretically your dad could spend 6 months behind bars.

I can not see how the lender will accept this. Your dad is breaking the law and you are complicit in it. At best the lender will decline your application, at worst you can expect a visit from HMRC which may or may not result in a fine.

That assumes you are not using the rental income in order to obtain a larger mortgage. If you are then you I would say you are guilty of mortgage fraud.

Is your father also getting extra benefits because of a lower income? (I dont need an answer to that, but that is a question the lender will be asking themselves).

I am not sure if you are genuinely being naive about the position you are in or playing dumb but you could find yourself in quite a serious situation depending on the details.

ACG

I have just come across this online although not on the HMRC website. It does not say providing false information resulting in less tax being paid, it just says providing false information. So you and your dad are on the hook.

Providing false documentation to HMRC – either magistrates’ court or as a summary conviction, HMRC tax evasion penalties can range from a fine of up to £20,000 or up to 6 months in prison.

Im not making the post to exaggerate, but I think you need to consider whether or not you should be reporting this to HMRC yourself.

You seem to be unhappy with the lender but this is a making all of your own and they are only what they are told to do by HMRC and the FCA.

Also, if the valuation has been carried out, then it is unlikely you get that money back. If it hasnt been carried out then you will. The application fee is usually refundable if it does not complete, but you might want to have a look at section 4 on the illustration.

Piiiinksocks

I don’t have anything to add on the mortgage front, but in HMRCs perspective they have no loss of income to declare penalties on. If they investigate and decide dad has underdeclred, they will soon be told that son has over declared - even if it’s wrong, HMRC have received tax on the income so have nothing to penalise.

Having said that, legally OP it is not your income and your inflating your income if that’s what you’re declaring for the mortgage which I think could constitute fraud, and you could get in trouble from that perspective.