First time buyers - loan from parents towards deposit

Zazu52

Hi,

My partner and I are looking to buy our first flat together, currently renting. 
We are lucky enough to be getting some financial help from our parents towards the deposit. 
My partner's parents also have a decent amount of extra cash they are willing to loan her, with interest rates well below market value and flexibility about repayments. This would allow us to put down a big wedge of the flat value in the deposit and hopefully get the LTV ratio of the bank mortgage down below 60%. Our initial plan was to loan roughly equal amounts from her parents and the bank, with her paying her parents back and me paying the bank mortgage. 

However, when speaking to a mortgage adviser, he implied that we should avoid doing this as if a part of the deposit is down as a loan to be paid off then that will put off some lenders off completely, and limit the amount of money we can borrow with others. 
I feel that this would probably be offset by the fact that it would allow us to get a smaller loan from the bank/building society, allowing us to get a shorter term mortgage (which is appealing to me) and save us both money in the long run with the fact that her parents will be charging minimal interest and can be flexible about payments if we need to miss a month, or want to pay off extra in a lump sum at any time. The mortgage adviser thought it would be best to just mortgage the full amount of a property after the 'gift' deposit money, even if it means having a 30 year mortgage over a 15 year mortgage. 

Has anyone on the forum had any similar experience or bought a home in a similar fashion? 
We are unsure what do now as if we completely rule out using any of the loanable money from her parents then it limits our budget somewhat. Is there a way to prove to the lenders that the money 'loaned' for the deposit will be on favourable terms - perhaps getting in writing a minimum amount that her parents would be expecting to be paid back each month? 

Any help or advice would be much appreciated
Cheers!

leodis23

I believe that if the family contribution is declared as a loan to be repaid, then the amount of the contribution is taken off your affordability, as it's credit you owe.

If the money was declared as a gift, then you'd probably be in a stronger position to get a mortgage, but your partner's parents would have to sign a declaration saying it's a gift, with no expectation of repayment and they wouldn't own a stake in the property. My dad gifted me a small amount to boost my deposit and bring forward the date I could buy, and he's declared it as a gift (even though I'll eventually pay him back, whether he wants it or not)

Thrugelmir

Various complications arise if the money was loaned. Generally lenders therefore require the money to be gifted. A signed declaration to this effect wiill be required. Which would make any privately agreed arrangement null and void from a legal perspective. 

John_

Lenders want you to have “skin in the game”, and they also base affordability on your overall commitments. A loan from family gives problems on both of these counts, and they may also feel that you would favour family over the bank if times got tough.