Can a seller help a buyer with their deposit?

Francis63

I was trying to think of a solution to the problem first time buyers have with saving for a deposit whilst paying high rents.

In many cases a mortgage is cheaper than a private rent, so it's such a shame that the stumbling block is the deposit. I was lucky, I got a 100% mortgage back in the late 80's, but not sure how obtainable that is for first time buyers now.

So...
If a seller is asking £315,000 for their house, the buyer can afford the repayments (less than current rent) but hasn't saved enough deposit; so stuck. Can the seller give (not loan) the buyer say £15,000 towards their deposit? (buyer pays the rest if more than 5% needed) to be held by solicitor until completion. Everyone happy, if seller maybe would have accepted an offer of less than the asking price anyway.

I realise a slightly different contract would have to be drawn up, but is it do-able? 

user1977

Francis63 said:

Everyone happy

Lender not happy. Won't work.

Francis63

user1977 said:

Francis63 said:

Everyone happy

Lender not happy. Won't work.

Why? They make money on the mortgage. As long as the valuation is ok surely it's not the lender's business where the deposit comes from? Whether it's a parent/grandparent/benefactor? Would they question that?

Slithery

Lenders are very likely to not accept a deposit that's mostly gifted, especially from someone unrelated to the buyer.

user1977

Francis63 said:

user1977 said:

Francis63 said:

Everyone happy

Lender not happy. Won't work.

Why?

Because you're artificially reducing the LTV percentage, and that's relevant to the risk to the lender.

It's a complete nonsense to say "I'm selling this to you for £315k, but I'm giving you £15k so you can give it straight back to me as part of the price". Obviously you're really selling it for £300k.

Hedgepigs

Francis63 said:

user1977 said:

Francis63 said:

Everyone happy

Lender not happy. Won't work.

Why? They make money on the mortgage. As long as the valuation is ok surely it's not the lender's business where the deposit comes from? Whether it's a parent/grandparent/benefactor? Would they question that?

Because the house would in effect just be sold at £15k under asking and the bank would value that as such. It's no different to a seller accepting a lower offer now or any other time in the past. 

Francis63

user1977 said:

Because you're artificially reducing the LTV percentage, and that's relevant to the risk to the lender.

It's a complete nonsense to say "I'm selling this to you for £315k, but I'm giving you £15k so you can give it straight back to me as part of the price". Obviously you're really selling it for £300k.

I get that, but if the surveyor agrees with the selling price in his valuation then the LTV remains the same. The risk to the lender remains the same. The deposit is still paid and only the remaining 95% is at risk (or 90% if the buyer has contributed another 5%, where 10% deposit is needed); so unless house devalues by that amount the lender has no increased risk. 

It all depends on the surveyors valuation surely?

user1977

Francis63 said:

I get that, but if the surveyor agrees with the selling price in his valuation then the LTV remains the same.

If by "selling price" you mean the net price i.e. the surveyor has valued it at £300k then yes, but in that case what would be the point of the merry-go-round with the £15k?

Hedgepigs

Banks surveyors don't (or very rarely) value higher than purchase price. 5% is not a lot of margin for error for the bank. I'm sure it's a very kind thing to do, but the bank will see that a seller 'gifting' £15k or whatever amount purely as that they couldn't achieve full asking.

propertyhunter

I'm sure the government will come up with another scheme to prop up the housing ladder. They've been talking about removing the mortgage stress tests most recently. 

All that is going to happen is that more debt is taken on and people work for longer.  

MaryNB

Francis63 said:

user1977 said:

Francis63 said:

Everyone happy

Lender not happy. Won't work.

Why? They make money on the mortgage. As long as the valuation is ok surely it's not the lender's business where the deposit comes from? Whether it's a parent/grandparent/benefactor? Would they question that?

It is the lender's business because they have to adhere to anti money laundering regulations. They need to know where the money is coming from.

The more distant the relationship with the giftor, the more concerned the lender is about money laundering. Hence why many have strict rules about who can gift money. Many lenders require it to be from a family member. I got my mortgage from Halifax and they won't even accept gifted deposits from cousins, friends, aunts-in-law, uncles-in- law.