Best way to pay for a house?

dgaf

Hello,

I have seen a property for sale that I would really like to buy. I have spoken to the owners and they will not be moving into their new build for another 5 months, so I time on my side, but...

My current house is freehold and worth more than the one I am looking to buy.
My plan is to sell mine and use the funds to purchase the property in cash.
My worry is that the property may sell before I can get mine sold, so I have spoken to a bridging loan company who said they would lend me the money to buy the new property (secured against my freehold property), only problem is their fees for arranging and the monthly interest rates are very high for the providing the bridging loan. I was told it is for a 12 month term, and 3 month minimum (so I won't be able to pay it back early if my property did sell after a month or two after taking it out).

I have spoken to friends and family (many that I have helped with loaning them money in the past when they have purchased a property), who would be able to loan me the money to buy the new property (they can all show source of funds, i.e. it is from their wages or earnings from their own business), and once mine does eventually sell I can pay them back, or I can use money from some fixed term bonds that mature next year to pay them back if my home did not sell.

If I cashed out my GIA to pay for the new property, I will get hammered with the CGT on the share sales - so I don't think that option is any good.

Nuclear option is to cash in my S&S ISA but I would prefer not to do that because it has taken me a long time to build it up to where it is now, and I don't want to lose the tax free status of it.

My question is will I be able to use the money from friends and family to buy the property that I want, as this will save me the exorbitant bridging loan costs? Or will this cause me problems when I go to complete the purchase?

eddddy

dgaf said:

My question is will I be able to use the money from friends and family to buy the property that I want, as this will save me the exorbitant bridging loan costs? Or will this cause me problems when I go to complete the purchase?

That should be OK.

The issues are...


1) If you're buying through an estate agent, the agent will want to make sure you've got the money and you're not a time-waster. So they'll ask to see your bank statements to prove it.

If you say something like "I don't have my money in my bank account, but my friends and family are going to lend it to me..."

The estate agent might think "I've heard all these types of excuses before, and they're generally from time-wasters."

So you might have a challenge convincing the estate agent to take you seriously.



2) Your solicitor will want to do Anti Money Laundering checks on all the money. So they're likely to want a number of months of bank statements from each 'contributor'.

Will your friends and family be happy to hand over wads of bank statements?

dgaf

2) Your solicitor will want to do Anti Money Laundering checks on all the money. So they're likely to want a number of months of bank statements from each 'contributor'.

Will your friends and family be happy to hand over wads of bank statements?

Yes this was my main concern. Borrowing from 17 different people nearly 375K in total.

Each of them would agree to supply bank statements - as I have already checked with them as I thought it may well flag up AML rules. I was going to initially get a letter from each of them stating how much they are loaning me.

I will buy the house privately, so just the solicitor no estate agent will be involved which bought the price down as the seller will save on estate agent fees.

I am hoping to sell my main residence and use the money to make the buying process straight forward, but am just planning on a fall back option by borrowing from friends and family if my house does not sell in time - and was wondering if anyone had done it like this and what did the solicitor require from them.

Also the bonus of selling first (if possible) is I wont be clobbered by the higher stamp duty charge - I know I will have 3 years to claim it back but would rather not have to find the extra 20k right now. 

david29dpo

Get a good local solicitor and it wont be a major problem.

Emmia

dgaf said:

2) Your solicitor will want to do Anti Money Laundering checks on all the money. So they're likely to want a number of months of bank statements from each 'contributor'.

Will your friends and family be happy to hand over wads of bank statements?

Yes this was my main concern. Borrowing from 17 different people nearly 375K in total.

Each of them would agree to supply bank statements - as I have already checked with them as I thought it may well flag up AML rules. I was going to initially get a letter from each of them stating how much they are loaning me.

I will buy the house privately, so just the solicitor no estate agent will be involved which bought the price down as the seller will save on estate agent fees.

I am hoping to sell my main residence and use the money to make the buying process straight forward, but am just planning on a fall back option by borrowing from friends and family if my house does not sell in time - and was wondering if anyone had done it like this and what did the solicitor require from them.

Also the bonus of selling first (if possible) is I wont be clobbered by the higher stamp duty charge - I know I will have 3 years to claim it back but would rather not have to find the extra 20k right now. 

How are/were you aware the house is for sale?

If you saw a board, then the seller will almost certainly still have to pay the fee to the agent as they'd argue they introduced you via the medium of the for sale sign - so don't expect a discount from the seller just because the agent didn't show you round, or isn't otherwise involved.

housebuyer143

The solicitor is likely to charge you for every AML check so with 17 you could be looking at a cost of £800 to do this? 
Also, have you factored in second home stamp duty in your calculations? 

The bridging loan can be taken closer to the time, so you can tell them that's what you doing and then try and sell your current house as you have 5 months to find someone and then try and get the sale and purchase lined up. 

dgaf

Emmia said:

dgaf said:

2) Your solicitor will want to do Anti Money Laundering checks on all the money. So they're likely to want a number of months of bank statements from each 'contributor'.

Will your friends and family be happy to hand over wads of bank statements?

Yes this was my main concern. Borrowing from 17 different people nearly 375K in total.

Each of them would agree to supply bank statements - as I have already checked with them as I thought it may well flag up AML rules. I was going to initially get a letter from each of them stating how much they are loaning me.

I will buy the house privately, so just the solicitor no estate agent will be involved which bought the price down as the seller will save on estate agent fees.

I am hoping to sell my main residence and use the money to make the buying process straight forward, but am just planning on a fall back option by borrowing from friends and family if my house does not sell in time - and was wondering if anyone had done it like this and what did the solicitor require from them.

Also the bonus of selling first (if possible) is I wont be clobbered by the higher stamp duty charge - I know I will have 3 years to claim it back but would rather not have to find the extra 20k right now. 

How are/were you aware the house is for sale?

If you saw a board, then the seller will almost certainly still have to pay the fee to the agent as they'd argue they introduced you via the medium of the for sale sign - so don't expect a discount from the seller just because the agent didn't show you round, or isn't otherwise involved.

The owner told me they have put it up for sale.

I have agreed to buy it (on condition that the Rics house survey level 3 does not show up any major problems) and the the owner has taken it off the market now so we can do a private deal.

silvercar

In my experience of solicitor’s AML checks, if you showed evidence of your savings and investments as proof you can afford the property, they would be satisfied. They then tell you their account number to transfer the money into. As long as the money comes from an account in your name they are happy.

This leaves you open to get the money from whatever source you like, as long as it goes through an account in your name. I know this makes a mockery of the rules and checks, but it seems to be how solicitors operate. You’ve proven you have the money, you’ve showed the source is legitimate, you’ve paid the money over from your own account and that seems to be enough boxes ticked that solicitors are happy to proceed. I guess there are only a small percentage of people that would have their own money and not use it for the purchase and so it’s a risk that they take. 

dgaf

housebuyer143 said:

The solicitor is likely to charge you for every AML check so with 17 you could be looking at a cost of £800 to do this? 
Also, have you factored in second home stamp duty in your calculations? 

The bridging loan can be taken closer to the time, so you can tell them that's what you doing and then try and sell your current house as you have 5 months to find someone and then try and get the sale and purchase lined up. 

Yes I was told the costs could spiral with 17 AML checks and if the solicitor has to write to all 17 they may charge me for each letter too!  I am going to try another idea (just waiting for some people to check and get back to me), borrow all the funds from just two people to buy the property and then pay them back with the money from the 17.

Second home stamp duty is not a problem as I will have 3 years to sell mine and then a further 12 months (from sale date)to claim the second home stamp duty back.

I am hoping not to use the bridging loan option if I can help it as the fees and interest charges are very high even securing it on my freehold property,
The only good thing is I do have 5 months to sell mine, if I did find a buyer for mine earlier I could always go and stay with friends for a few months.

dgaf

silvercar said:

In my experience of solicitor’s AML checks, if you showed evidence of your savings and investments as proof you can afford the property, they would be satisfied. They then tell you their account number to transfer the money into. As long as the money comes from an account in your name they are happy.

This leaves you open to get the money from whatever source you like, as long as it goes through an account in your name. I know this makes a mockery of the rules and checks, but it seems to be how solicitors operate. You’ve proven you have the money, you’ve showed the source is legitimate, you’ve paid the money over from your own account and that seems to be enough boxes ticked that solicitors are happy to proceed. I guess there are only a small percentage of people that would have their own money and not use it for the purchase and so it’s a risk that they take. 

That is a good idea, thank you. My only concern is would they not want to see my bank statement to prove that the money I transferred to them for the property purchase did indeed come from my own savings and investments?

anselld

You could transfer your ISA to a flexible ISA provider which would allow you to remove funds and then replace them within the tax year.  Good timing for that right now as it would give you the best part of a year to replace funds if you draw after 5 April.