Buying a property - sellers offering cash on completion.

Jumblebumble

AJC1998 said:

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.

The fact that the idiots suggesting this tell you not to discuss with your solicitors tells you every thing you need to know
And if the estate agent goes bust in the meantime?
Or the estate agent is the vendors cousin?
The only person you should take advice from is your Solicitor as he is properly regulated and has indemnity insurance
The Agent and Broker could disappear overnight

AJC1998

First of all thanks for your responses.

The estate agent has just told me (via email) that it’s all above board, no tax needs to be paid, and the sellers will provide a ‘gifting letter’ alongside the 2 payments-50% before exchange and 50% on completion.

the no tax bit I gather From your responses seems true. I guess there isa slight risk that they may not pay the 2nd 50% but seems unlikely. 

As discussed above my huge concern is therefore the legalities of it all. I have a told the EA that we will only proceed if a solicitor is involved.

davidmcn

AJC1998 said:

The estate agent has just told me (via email) that it’s all above board, no tax needs to be paid, and the sellers will provide a ‘gifting letter’ alongside the 2 payments-50% before exchange and 50% on completion.

In what way is it "above board" if it's not in your contract and you're not telling your lender? And what on earth is a "gifting letter" when this clearly isn't a "gift", it's a cashback intended to be part of the property sale?

blue_max_3

Are you paying stamp duty on the cash amount? If not, and it's due, you would be effectively party to fraud. Obviously, this is not an issue if it's below the threshold.
I assume the estate agent are happy to lose out on their cut too.
The only way I'd do this is cash up front before exchange and give them a receipt.

davidmcn

blue_max_3 said:

Are you paying stamp duty on the cash amount? If not, and it's due, you would be effectively party to fraud. Obviously, this is not an issue if it's below the threshold.
I assume the estate agent are happy to lose out on their cut too.

Other way round as the cashback means the actual consideration is lower than whatever the OP will be declaring for SDLT purposes - which is still technically wrong but I doubt HMRC will be bothered about people paying (if anything) too much tax.

Estate agent will be more interested in the cashflow of getting a fee paid rather than their 1% or whatever of what the cashback is.

blue_max_3

davidmcn said:

Other way round as the cashback means the actual consideration is lower than whatever the OP will be declaring for SDLT purposes - which is still technically wrong but I doubt HMRC will be bothered about people paying (if anything) too much tax.

I was assuming the offered price (going through the solicitor and therefore what stamp duty would be payable on), would be less then originally offered, thus depriving HMRC out of the SDLT on the amount.

davidmcn

blue_max_3 said:

davidmcn said:

Other way round as the cashback means the actual consideration is lower than whatever the OP will be declaring for SDLT purposes - which is still technically wrong but I doubt HMRC will be bothered about people paying (if anything) too much tax.

I was assuming the offered price (going through the solicitor and therefore what stamp duty would be payable on), would be less then originally offered, thus depriving HMRC out of the SDLT on the amount.

No, the solicitor thinks it's a higher price, the proposal between the parties is to lower it by the cashback which they don't want to tell anybody else about.

Robbo66

Nothing wrong with a vendor cashback but you will have to disclose it your your lender and it should be in the contract.
this is something builders used to do in the past and I have even seen it advertised on resale houses, its just not very common these days

princeofpounds

Let's try explaining this again...

Where it is not above board is with regards to the mortgage lender. Let's say you agreed to buy a property for £200k. You put up a 10% deposit, and borrow 180k from the bank. Loan-to-value is 90%, and the lender is protected if property prices fall 10%. That is on the limit of their lending criteria.

You then renegotiate the price down 10k, with a hidden cash incentive from the buyer. You are paying 190k, and still borrowing 180k from the bank. LTV is now 95%, and the lender is only protected if property prices fall 5%. The lender would never have lent you that proportion intentionally, as you have little skin in the game.

You have effectively duped them into thinking that their security - your house - is worth more than it really is. You have borrowed more than they would have allowed you to if the situation is known.

That is why it is mortgage fraud. Whilst it's above board between yourself and your seller, it is not above board with your lender. Your solicitor acts for your lender as well as you, which is why they don't want to involve them.

As I stated earlier, this kind of game is not unheard of. I wouldn't recommend it - who wants this hanging in the background? - but you can see why people in your position are tempted to resort to it.

Did you check the link I gave you earlier about lenders who permit a certain level of incentives? 

GDB2222

AJC1998 said:

First of all thanks for your responses.

The estate agent has just told me (via email) that it’s all above board, no tax needs to be paid, and the sellers will provide a ‘gifting letter’ alongside the 2 payments-50% before exchange and 50% on completion.

the no tax bit I gather From your responses seems true. I guess there isa slight risk that they may not pay the 2nd 50% but seems unlikely. 

As discussed above my huge concern is therefore the legalities of it all. I have a told the EA that we will only proceed if a solicitor is involved.

The estate agent put that in writing? Wow, they must be truly desperate.

Look, you've had lots of advice. It's not going to change.  Not only are you thinking of committing mortgage fraud, you're not keeping it to yourself. You're involving several other people who can inform on you at any time, AND you've advertised it on a public forum. 

You do realise that you could end up in jail over this? The vendor and the estate agent could get a rap over the knuckles, but you're the one borrowing extra money against a fraudulent price for the property.