Source of funds declaration

propertyrental

Nephew is applying for a mortgage. Nephew is shortly (3 - 6 months?) due to inherit £X00,000.

If purchase goes through prior to distribution of the Estate, I will lend him the £X00,000, repayable as soon as inheritance is received.

I am one of the Executors so will know/be in control, though it will be a personal loan not a loan from the Estate.

Is it best for nephew to simply tell mortgage lender his source of funds is an inheritance, rather than complicate matters by explaining the loan?

amnblog

With a six figure contribution, the Lender will want to see evidence of the source of funds. Regardless of the message given to the Lender it will need to be proven. 

Your Nephew may do well to use a mortgage broker rather than going direct to a Lender where he may get himself in a pickle.

BarelySentientAI

Lying about the source of hundreds of thousands of pounds in a transaction that you know they will be asking about seems like a poor choice to me.

user1977

propertyrental said:

Is it best for nephew to simply tell mortgage lender his source of funds is an inheritance

That will get very messy as soon as the solicitor discovers it isn't.

silvercar

I think your problem is going to be that the money will be a loan not a gift. Lenders don’t like loaned deposits, they have a strong preference for gifts. Also a gift from a generous uncle is more likely to raise eyebrows than a parent. 

Could the executor make an interim distribution?

amnblog

silvercar said:

Lenders don’t like loaned deposits

Some are OK with it, hence the suggestion to consult a Mortgage Broker

propertyrental

amnblog said:

With a six figure contribution, the Lender will want to see evidence of the source of funds. Regardless of the message given to the Lender it will need to be proven. 

Your Nephew may do well to use a mortgage broker rather than going direct to a Lender where he may get himself in a pickle.

Copy of the Will will show source, though not the actual amount of course.

BarelySentientAI said:

Lying about the source of hundreds of thousands of pounds in a transaction that you know they will be asking about seems like a poor choice to me.

Point taken but.... but ..... but  ultimate source is inheritance.

user1977 said:

propertyrental said:

Is it best for nephew to simply tell mortgage lender his source of funds is an inheritance

That will get very messy as soon as the solicitor discovers it isn't.

Discovers how? But again - point taken.

silvercar said:

I think your problem is going to be that the money will be a loan not a gift. Lenders don’t like loaned deposits, they have a strong preference for gifts. Also a gift from a generous uncle is more likely to raise eyebrows than a parent. 

Could the executor make an interim distribution?

which is exactly my concern and reasoning.

If I did make it as a loan, I'd put in place a clear (deed? agreement?) that it was repayable immediately on receipt of inheritance, together with Will as evidence.

Unfortunately Probate not granted yet, IHT still to pay, so access to Estate funds is very limited.

amnblog said:

silvercar said:

Lenders don’t like loaned deposits

Some are OK with it, hence the suggestion to consult a Mortgage Broker

Do you happen to know which? I'll have to ask nephew who he's using.

Thanks all for comments - further thinking to do.

(ps - it's only just a 6 figure contribution, not that I think that makes a difference!)

user1977

propertyrental said:

BarelySentientAI said:

Lying about the source of hundreds of thousands of pounds in a transaction that you know they will be asking about seems like a poor choice to me.

Point taken but.... but ..... but  ultimate source is inheritance.

user1977 said:

propertyrental said:

Is it best for nephew to simply tell mortgage lender his source of funds is an inheritance

That will get very messy as soon as the solicitor discovers it isn't.

Discovers how? 

By looking at the evidence which nephew will need to produce to the solicitor in order to evidence the source of funds. Which presumably will show the funds coming from your own savings, and nothing to do with the inheritance.

propertyrental

user1977 said:

propertyrental said:

BarelySentientAI said:

Lying about the source of hundreds of thousands of pounds in a transaction that you know they will be asking about seems like a poor choice to me.

Point taken but.... but ..... but  ultimate source is inheritance.

user1977 said:

propertyrental said:

Is it best for nephew to simply tell mortgage lender his source of funds is an inheritance

That will get very messy as soon as the solicitor discovers it isn't.

Discovers how? 

By looking at the evidence which nephew will need to produce to the solicitor in order to evidence the source of funds. Which presumably will show the funds coming from your own savings, and nothing to do with the inheritance.

Would my role as Executor as evidenced in the Will, help? (yes clutching at straws here somewhat).

Alternative is probably to delay the purchase post Grant, but nephew then likely to lose his buyer.

silvercar

The source of funds will need to be your own savings at this point in time. I don't think that is a problem in itself, you will just jump through whatever hoops the solicitor requires to show your source of savings. Contrary to the difficulties some people have reported on this board, we just had to produce 3 months bank statements, showing income above outgoings; 2 statements from the savings account that had sufficient funds; a statement saying that the source was many years of accumulated savings and that it was a gift and an ID/ address check. All very straight forward.

With your timings, I would be inclined to work the other way round. Nephew declares loaned deposit from uncle. If the money comes through in time, your nephew just tells his solicitor that an inheritance came through and so he doesn't need to borrow from uncle. If the timing is to the line, he takes your loan and repays it almost immediately. 

propertyrental

silvercar said:

The source of funds will need to be your own savings at this point in time. I don't think that is a problem in itself, you will just jump through whatever hoops the solicitor requires to show your source of savings. Contrary to the difficulties some people have reported on this board, we just had to produce 3 months bank statements, showing income above outgoings; 2 statements from the savings account that had sufficient funds; a statement saying that the source was many years of accumulated savings and that it was a gift and an ID/ address check. All very straight forward.

Thanks - all doable apart from the 'gift' aspect, which apart from anything else could have Inheritance Tax implications (on my estate) via 7 year rule?

And of course - it's not a gift!