Barclays mortgage - gifted equity query

ewdennis12

Hello,

We thought that we where fairly close to completing on my girlfriends parents house with a mortgage from Barclays, which seems to have run into difficulty and confusion, and we could use some independent advice.

Our broker managed to get us a mortgage offer from Barclays in September for 60% of the value of the house, with the remainder being made up with our deposit and an equity gift from the owners, which would only ever be repayable to them if we sold the house, and which recognised Barclays as having the first legal charge with a deed of priority, even if this meant my girlfriends parents lost the money.

Our Broker spoke with Barclays regarding this arrangement before submitting the application and they said it was fine, a letter of intent from my partners parents outlining this was also sent along with the application to Barclays, so they where aware of it, and we assumed issued the offer on that basis. 

The conveyancer was confirming this arrangement with Barclays as part of his enquiries and received a short letter stating "it is not acceptable for Barclays to resort to the secondary borrowing to fund the deposit for the purchase and cannot proceed on this basis", which, aside from being cryptic in itself, is also inaccurate as we're not borrowing any of our deposit.

The conveyancer now believes that the only way to proceed is for the gift to be made with no strings attached, which has its own set of issues. Whilst the broker, after speaking with Barclays who now claim to not deal with gifted equity at all, believes that they made a mistake and that the only way to proceed is to apply for a totally different product (a tracker mortgage with Natwest), which would not only be incredibly uncertain as we where rejected from them in September, but also more expensive and risky which regard to interest rates. 

I'm looking for advice on how to proceed with this as I've been operating beyond the limits of my knowledge for some time with process, and thought that we where nearing an end to something which I, and the sellers, both saw as something that was relatively simple and routine.

JMA74

This is their criteria on Loans that are Repayable on Sale of the Property (which this is)

What Barclays says:

It is not acceptable for applicants to resort to secondary borrowing to fund the deposit, for example, by raising a personal loan. The only exceptions to this rule are:

• Where Barclays has agreed to provide a short term loan (WMI clients only);
• Where the applicant is raising a deposit from the equity in another property;
• Where the deposit is an equity loan;
• Where the deposit is a Forces Help to Buy (FHTB) loan.

You say you arent borrowing the deposit but by making the gift from parents repayable, it is a loan.  They arent gifting you the money, they are loaning it to you until such a point as you sell the property and you repay it.   

What has your solicitor advised? 

Was your broker wise enough to use their livechat?  I never call a lender these days, get it in writing every time.  The above criteria is available pre application though so if i was going against that criteria i would certainly want it in writing

Keep_pedalling

If you have to repay it on the sale of the house it is a loan not a gift. And it would be treated that way for IHT purposes as well, if that is relevant for them. 

ElwoodBlues

I presume the bit about it being repayable on sale of the house is them wanting to protect against any of that equity ending up going your way should you separate and sell the house? Rather than because they really do want the money back - depending on circumstances and it being an open ended loan, they probably aren't relying on it/expecting to ever get it back?

Would it not just be better to buy the property at a lower price? Or stay at full price but they gift their part of the deposit to your girlfriend and then you get a deed of trust to make it clear that portion is all hers?

ewdennis12

JMA74 said:

This is their criteria on Loans that are Repayable on Sale of the Property (which this is)

What Barclays says:

It is not acceptable for applicants to resort to secondary borrowing to fund the deposit, for example, by raising a personal loan. The only exceptions to this rule are:

• Where Barclays has agreed to provide a short term loan (WMI clients only);
• Where the applicant is raising a deposit from the equity in another property;
• Where the deposit is an equity loan;
• Where the deposit is a Forces Help to Buy (FHTB) loan.

You say you arent borrowing the deposit but by making the gift from parents repayable, it is a loan.  They arent gifting you the money, they are loaning it to you until such a point as you sell the property and you repay it.   

What has your solicitor advised? 

Was your broker wise enough to use their livechat?  I never call a lender these days, get it in writing every time.  The above criteria is available pre application though so if i was going against that criteria i would certainly want it in writing

JMA74 said:

This is their criteria on Loans that are Repayable on Sale of the Property (which this is)

What Barclays says:

It is not acceptable for applicants to resort to secondary borrowing to fund the deposit, for example, by raising a personal loan. The only exceptions to this rule are:

• Where Barclays has agreed to provide a short term loan (WMI clients only);
• Where the applicant is raising a deposit from the equity in another property;
• Where the deposit is an equity loan;
• Where the deposit is a Forces Help to Buy (FHTB) loan.

You say you arent borrowing the deposit but by making the gift from parents repayable, it is a loan.  They arent gifting you the money, they are loaning it to you until such a point as you sell the property and you repay it.   

What has your solicitor advised? 

Was your broker wise enough to use their livechat?  I never call a lender these days, get it in writing every time.  The above criteria is available pre application though so if i was going against that criteria i would certainly want it in writing

The solicitors advice seemed to be general, he just advised that Barclays may not accept the parents having any security on the property whatsoever and that it may have to be strictly a gift. However this guidance seems to say otherwise.

He did raise your point about the gift early in the process though, but repeatedly called it a second mortgage on the property which might have added to our confusion, as it fit neither of our preconceptions of what a 'loan' or a 'mortgage' is. I accept that the law is black and white on this though. 

I'll give both of them a call tomorrow and ask if rephrasing the 'gift' to a loan, could be a way forward with the offer we already have.

mi-key

Would it be possible to have them give the money as a gift for the purporses of the mortgage. Then once the mortgage is all in place and you own the house, get a seperate legal agreement done with her parents?  

ewdennis12

mi-key said:

Would it be possible to have them give the money as a gift for the purporses of the mortgage. Then once the mortgage is all in place and you own the house, get a seperate legal agreement done with her parents?  

I've also been thinking about this, and it was floated by the parents too.

What would the agreement be though, a promissory note?