Buying a property - sellers offering cash on completion.

AJC1998

Hi everyone-first post and a pretty complicated one!

We had an offer accepted on a property and mortgage approved before coronavirus. When that hit we paused the process.

we have since negotiated a discount with the sellers, but are now having difficulty getting a mortgage on this new reduced amount (even though it’s borrowing less!)

The sellers are worried they will lose the house they are buying if they wait for us to get a new mortgage (their sellers already threatening to pull out) so have said that if we go with the original value and mortgage (which is still valid) they will pay us the difference between that and the newly agreed price.

sounds fine in theory but I can’t seem to get any clarity on if this is 1) legal and 2) if we would need to pay tax on this ‘gift’?

We don’t want to lose the property, so it seems like a good suggestion, but should we be wary? The estate agent and mortgage broker have said it should be fine but we need to keep separate from solicitors and just negotiate this direct with the Sellers...

davidmcn

It's a terrible suggestion, because if you don't put it in the contract you've got no remedy if the "cash" never materialises, and if you don't tell your lender you're effectively committing mortgage fraud.

No, there's no tax to be paid, as effectively all you're doing is reducing the price, but that's the least of your worries.

AJC1998

Someone mentioned that the estate agent could hold the fee until completion then release it to us? The estate agent actually suggested the idea I think!

No idea though...definitely not an expert.

DCFC79

I'd walk away now.
Why are you having problems getting a mortgage ?
Maybe try a broker.

princeofpounds

Yes it's a terrible idea, unless they give you the money before you exchange contracts! If that seems like a ridiculous thing to do, bear in mind it's just the inverse of the situation you would be in if you accept a secret payment after exchange. And yes, it is mortgage fraud, as the value of the lender's security is actually lower than you have told them. Having said that, sometimes people take the risk, I can't pretend it's never happened.

One thing you must check though - a couple of lenders do not require being informed of buyer's incentives if they are below a certain size.

https://www.cml.org.uk/lenders-handbook/englandandwales/question-list/2054/

AJC1998

It seems mortgage companies are a lot less willing to lend post coronavirus! 

We are using a broker-who actually suggested the same idea!

AJC1998

One other thing to add-they have offered to pay half at exchanging and half at completion.

davidmcn

If this is the sort of shenanigans that your broker and the estate agent think is fine, have a think about what else they might have been up to.

SpiderLegs

Aren’t you going to need a corrupt solicitor to make this plan work?

eidand

sounds like your best bet is to stick to the original price or lose the property. 

hazyjo

And how would you run money laundering checks? Incredibly risky. I wouldn't do it.