Can a seller help a buyer with their deposit?

Francis63

user1977 said:

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?

No, I mean the value is £315,000 as per the asking price.

The point of it is that the buyer can get on the ladder. If the price is simply lowered to £300,000 the buyer still has to find a big deposit. So yes it's a merry-go-round, but it means a person (or couple) gets their first house, where they would have no hope and carry on renting for ever.

user1977

Francis63 said:

user1977 said:

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?

No, I mean the value is £315,000 as per the asking price.

The point of it is that the buyer can get on the ladder. If the price is simply lowered to £300,000 the buyer still has to find a big deposit. So yes it's a merry-go-round, but it means a person (or couple) gets their first house, where they would have no hope and carry on renting for ever.

Well, the lender won't want to get on the merry-go-round with you, so like we're saying, it won't work. Lenders take the lower of the valuation and the (net) price actually being paid as being the value. After all, if the property is really worth £315k, then why isn't the vendor finding someone able and willing to pay £315k for it?

Francis63

Imagine I'm selling, I've found my dream home to move to, I need a quick sale on my current home so I don't lose my dream home. 

If my options are 
*I can sell via an 'express' agency at a reduced price & they make the profits
* I can sell at auction at a reduced price (probably NOT to a first time buyer as often cash buyers/developers)
*I can reduce the price greatly for a quick sale and hope my buyer has no chain and no mortgage issues 
* or ... I can sell at asking price to a first time buyer but pay my buyers deposit so that they can more easily get on the ladder

I know which I'd like to do. I'd like to help a ftb. It could set them up for life. Imagine if lots of sellers did this.

Francis63

MaryNB said:

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.

That's incredibly sad that if your Aunt gives you some money you can't use it as a deposit on your house? If it's a gift or a win, or earned, it's still your money and you are responsibly putting it towards a home.

user1977

But the lack of any equity at the start makes them more at risk of repossession. Which is the risk the lenders are concerned about, given that ultimately they're at risk of suffering a shortfall.

Why do you think 100% mortgages have disappeared from the market?

Thrugelmir

Francis63 said:

I know which I'd like to do. I'd like to help a ftb. It could set them up for life. Imagine if lots of sellers did this.

Little point imagining as they wouldn't. People generally wish to achieve the best selling price they can. 

MaryNB

Francis63 said:

MaryNB said:

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.

That's incredibly sad that if your Aunt gives you some money you can't use it as a deposit on your house? If it's a gift or a win, or earned, it's still your money and you are responsibly putting it towards a home.

The issue is where the money comes from. Banks often have blanket policies to reduce risk. They still check the source of all monies received but will limit allowable gifters to those they deem less risky. 

What you're describing - a vendor gifted mortgage - used to be a bit more common but many banks stopped providing them. Your buyer may be able to find a lender but it's going to be far more difficult and they'd be extremely limited with lenders. They might not be able to get the most competitive interest rates.

The removal of 100% mortgages from the market is not the only change to lender in recent years. Mortgage lending has become far more strict. The market is not comparable to lending in the 80s.

Francis63

user1977 said:

But the lack of any equity at the start makes them more at risk of repossession. Which is the risk the lenders are concerned about, given that ultimately they're at risk of suffering a shortfall.

I totally get that, but if the home is worth £315k then its worth £315k.  The vendor is simply willing to lose £15k for a quick sale and a sure sale (no chain) and because they actually want to help someone else (as well as themselves by achieving a quick sale). 

The risk to the lender of a shortfall is the same whoever paid the deposit. 

The history of a FTB paying their rent on time for the last say 3 years should be assurance enough of their ability to pay their mortgage; particularly where that rent id higher than monthly mortgage payments will be (which is common). Only negative equity would be an issue and with say a 10% deposit this is unlikely.

This kind of scheme could actually prevent a house market devaluation (which is the lenders nightmare as alters LTV ratio. after a purchase) and possible risk of negative equity as plenty of FTBs would be able to get out of the rent trap. - and it IS a trap.

 

user1977

Francis63 said:

user1977 said:

But the lack of any equity at the start makes them more at risk of repossession. Which is the risk the lenders are concerned about, given that ultimately they're at risk of suffering a shortfall.

I totally get that, but if the home is worth £315k then its worth £315k.  The vendor is simply willing to lose £15k for a quick sale and a sure sale (no chain) and because they actually want to help someone else (as well as themselves by achieving a quick sale). 

But that's not how lenders assess value, so I'm not sure you are totally getting it!

Gavin83

Francis63 said:

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? 

How does this benefit anyone but the buyer? You're essentially asking the vendor to give a large sum of money to a stranger. I'm also curious as to where you think this £15k will come from as until they've received the money from the sale they can't release it from their property.

Is it difficult for FTB? Yes, and I should know, I was one myself last year. Is that the vendors problem? No.

From a lenders perspective, ignoring the money laundering aspect for a second, the ability to save up a deposit demonstrates some level of financial stability. If you can't afford to save up a deposit can you really afford to own a house?

Also mortgage payments aren't always less than rent.