Source of Deposit

Apollo81

Good Afternoon, new to the forum, so please be gentle.

We are currently renting, and were lucky enough to be offered to chance to buy the property from our landlord. We signed a declaration of trust, which was witnessed in June 2021, with the option of purchasing the property 12 months later. 

We have been paying rent, but we have also been transferring our house  deposit to the landlord. In return, he has been reducing our rental payments accordingly. Again, this is all documented in the declaration.

we have now hit our 10%, with evidence of monies being transferred to landlord, confirmation of payments received via email, and also a spreadsheet with all calculations,

My question is, is this source of deposit deemed acceptable, as it is fully traceable, and we will still be borrowing 90%. His solicitor has reviewed and also witnessed the paperwork.

EDIT: We also have an option to buy agreement .

Apologies for long post, but any advice would be appreciated.

TIA

kingstreet

A couple of lenders might accept a gifted deposit in a landlord/tenant situation if that is what this actually is...

Apollo81

That’s  the thing, it’s not a gift. I have the bank statements of me transferring the funds over. This helped reduce our rental payments.

kingstreet

How exactly is this deposit going to be paid then?

Are you paying full market value for the property?

Apollo81

My landlord has no mortgage on this property and a large portfolio, and will be selling at market value of £211,600. We will be looking for a mortgage of £190,400 ( we have an AIP of £315,000.)

We can show mortgage lender full paper trail of our deposit sitting with the landlord / seller of the property. 

The only reason we were sending our funds over to him was because he reduced our rent according to interest, and it worked out better for us than the deposit sitting in savings.

penners324

You need to ensure this is recorded as a deposit in the legal paperwork as opposed to a reduction in the purchase price. 

If the latter then you may find yourself on a 100% LTV mortgage (which don't really exist anymore).

It may mean the landlord has to pay the deposit to your solicitor to then get it back on completion....

K_S

@apollo81 I've never seen it done this way tbh.

As long as your conveyancer (hopefully the same firm that has set up this arrangement) is happy to report this as an acceptable deposit to the lender, you may be ok. You probably want to avoid lenders who ask for proof of deposit as a standard packaging requirement as it will be difficult to explain.

This isn't directly related to the issue here but it would be interesting to know how the landlord accounted for the lower rent when reporting property income on his tax returns.

And out of interest, what does the agreement say happens to the pre-paid deposit if (for whatever reason) you aren't able to proceed with the purchase?

Exodi

Apollo81 said:

My landlord has no mortgage on this property and a large portfolio, and will be selling at market value of £211,600. We will be looking for a mortgage of £190,400 ( we have an AIP of £315,000.)

We can show mortgage lender full paper trail of our deposit sitting with the landlord / seller of the property. 

The only reason we were sending our funds over to him was because he reduced our rent according to interest, and it worked out better for us than the deposit sitting in savings.

I'm not saying I disagree with what you've done - if it enabled you to secure the house you wanted AND save money at the same time, what's not to like.

It's just interesting that he reduced your rent according to a some level of interest, which say was higher than the money sitting in savings.

Was this higher than you could have got from a HTB ISA? Are we talking higher than 2% (what you can get from most savings accounts?). I'd love to know what he did with the money (and whether he's taking investments from other people!).

I think the easiest way to untangle this though, would be to have yours and his solicitors collobrate and agree that the deposit has been paid - and inform the lender as such. Otherwise have him send the deposit back to re-send...

His reason for it was probably security that he had a buyer lined up.

Apollo81

@K_S

Thank you for your reply. It’s in our agreement that if it does fall through for any reason, our deposit will be refunded, and rent will return to the original agreed amount 

Apollo81

@penners324

Thank you for your reply.

it’s all documented as a deposit, and not a reduction in purchase price.

Apollo81

Also just spoken with landlord, and he is more than happy to send deposit back over to us. Looking to start full application beginning off May.