Is This a Terrible Idea? Bank of Dad

annetheman

I've been told by a very helpful MSEF member that I couldn't apply for the shared ownership HTB. So, I'm going with plan B for a house I am going to put an offer on on Tuesday: Bank of Dad.

I know my dad will probably try to give me the money for the deposit but I refuse to let him (he is old and should enjoy his pot). I would like him to take out a loan, which I will pay him back for every month, and then hopefully we can transfer it to me after I've secured the mortgage and moved in and am no longer being assessed.

Is this a terrible idea?

A bit of context:

• Mortgage + loan repayments would still be about £300 less than I'm paying in rent right now (hence why I can't save for deposit! Darn South East rent is high).
• I am in a secure financial position, no other loans or repayments apart from student loan, which is fine
• I understand I am risking negative equity i.e. putting in more than I get out by pay this way
• I am fine with this as the house is a definite do-er upper on a Crossrail station, so I foresee an increase in the valuation over time (I know you can't be certain of this) especially because...
• The lease is low, way low; I will ask the current owner to begin process of renewing for 90 years as a condition of sale
• This will cost me about £7000 to finish and the mortgage advisor has said as long as I can provide evidence the current owner has started the process and I can finish it, they can lend to me
• My credit score is low 600s! So I think I will get a good rate.

I am utterly naive to this whole process so please don't bite me, just let me know if this is a terrible idea and why?

Thanks for your help, friends!

davidmcn

Mortgage lenders don't like you having other loans, so if your dad is happy to give you the money that would be much easier to work with. 

FtbDreaming

If he has the money then surely its worth borrowing that off him and paying him back than having him take out a loan? That way you also save on interest. If you hit difficulty then the loan could cause him a much bigger headache than just giving you the money. 

annetheman

Okay, that sounds great. Now I just have to hope he can get a loan as he has a CCJ against him (long story)! He is a doctor so earns a good wage but I think this will go against him. 
I'll propose my idea to him tomorrow, wish me luck

annetheman

FtbDreaming said:

If he has the money then surely its worth borrowing that off him and paying him back than having him take out a loan? That way you also save on interest. If you hit difficulty then the loan could cause him a much bigger headache than just giving you the money. 

Yes, of course that would be the easy option however I am REALLY really insistent and determined that he should be able to enjoy the savings he has worked for. He should not have them coming back drip by drip from me - he is of retirement age (65) and I really want him to just enjoy his hard-earned money however he wants. My mom died after they were married for 38 years and he needs a break!

If I get into difficulty I will be an independent adult and take care of it - if I can't, he will help me, of course.

MovingForwards

As said above, the lender probably won't accept the deposit being a loan.

Therefore you dad will have to gift money to you, for use as the deposit. If you want to pay him back it's up to you.

Your credit score is not seen, or used, by a lender as they have their own way of credit scoring.

Do you want to put up:

1. Income.
2. Debts / credit card, loans, PCP, HP etc.
3. Property price.
4. Your age.

annetheman

MovingForwards said:

As said above, the lender probably won't accept the deposit being a loan.

Therefore you dad will have to gift money to you, for use as the deposit. If you want to pay him back it's up to you.

Your credit score is not seen, or used, by a lender as they have their own way of credit scoring.

Do you want to put up:

1. Income.
2. Debts / credit card, loans, PCP, HP etc.
3. Property price.
4. Your age.

Yes, he would mark it as a gift and sign an agreement saying he doesn't expect it back (of course I will give it back anyway hahaaa suckers!)

So my income is 55,000, credit card has about 1700 on it as I use it as my main way of paying for everything then pay back in full every month (learnt that on here), no PCP own my car outright, I don't know what HP is but I don't owe any other money apart from my student loan which is a ball-ache as it goes out of my wages but I've also learnt on here that it is not economically beneficial to pay it off early. I'm 30.

The property is only £184,000 because of the short lease of 70 years, hence the need for this agreement with the landlord.

Will that work?
Would my dad get a loan if he has a CCJ?

[Deleted User]

If you are in such a strong financial position why do you not saved your own deposit?  You're 30 years old so why are you bothering your father who in your own words "needs a break?"

Have you even been able to find a mortgage lender willing to give you a mortgage with just 70 years left on the lease?

boo_star

Your plan is utterly bonkers.
Even without the CCJ your dad will have to pay more in interest than he'll get from his savings.  He'd be better off just giving you the money.

Secondly if he can get a loan with a CCJ it'll be at an eye-watering rate, think 40% plus, which you'd presumably be paying for.  It'll be seriously expensive to service the loan.

Thirdly as has been said he'll have to sign a document stating it's a gift.  It'd be better for him to lose £10k if you stop paying than £10k plus whatever silly interest charges it'll accrue monthly until it defaults.  And even then they could go for a charging order.

DON'T DO IT.

annetheman

Lover_of_Lycra said:

If you are in such a strong financial position why do you not saved your own deposit?  You're 30 years old so why are you bothering your father who in your own words "needs a break?"

Have you even been able to find a mortgage lender willing to give you a mortgage with just 70 years left on the lease?

I have ^ already said in my original post, the lender has specifically told me in person that if the current owner starts the process to add the 90 years on the lease and I can provide evidence of this and the fact that I am able to finish it, they will consider lending to me.

I haven't always been on this salary, I actually was on a generic graduate salary 35000 until December 2019 until I got a new job (see my previous posts).

That is not a lot in London AT ALL. I'm buying outside of London in a commuter town and I have found the perfect place that I absolutely love, is a really great investment and I really want - if I don't make an offer it is going to go and I don't think I will find anything I love as much.

In the devastating situation in which I lose this house, of course I will save the old fashioned way. My question isn't about whether it's a good idea for me to buy the house - it's about whether the way in which I plan to do it is feasible - thanks

annetheman

boo_star said:

Your plan is utterly bonkers.
Even without the CCJ your dad will have to pay more in interest than he'll get from his savings.  He'd be better off just giving you the money.

Secondly if he can get a loan with a CCJ it'll be at an eye-watering rate, think 40% plus, which you'd presumably be paying for.  It'll be seriously expensive to service the loan.

Thirdly as has been said he'll have to sign a document stating it's a gift.  It'd be better for him to lose £10k if you stop paying than £10k plus whatever silly interest charges it'll accrue monthly until it defaults.  And even then they could go for a charging order.

DON'T DO IT.

Thank you for the advice! 

The CCJ is my main worry - and it's all my fault (he was the guarantor on a flat I had at university) so I feel doubly bad about it; mine was taken off but because he was busy working in our underfunded hospitals, he couldn't make the court case anywhos, I think this is the first thing to find out.

Can he get the loan at a decent rate, as I said I would still be repaying him farrrrr less than I'm paying in London rent so if I have to pay extra I will. I'll consider it my penance for causing his CCJ in the first place!

Once we know about the loan, I think I'll come back and update y'all about the situation and find out what the consensus is.