Gifted deposits

djdaface

I had not heard of these before today, I was just assuming that the LTV goes on whatever the bank values your place to be, so if you managed to undercut the asking price you could represent this as a deposit off the LTV.


I take it thats completely wrong?

I am currently negotiating on a new build flat that was rediculusly priced at £240,000 But because not many are selling in the block and they are concidering reducing them I have offered £190,000 for a quick sale and they are concidering it.

I was assuming i would not need a deposit at all for this, do I now have to go back to the developers and see if they will arrange a £50,000 gifted deposit?!

Conrad

Few lenders will use gifted equity as depsoit on new builds. The point being the property is worth less where no gifted deposit is available to 'sweeten' the deal.
If you get repossesssed there will be no gifted depsot to entice buyers so the value is effectively lower than that you might pay now where a gifted deposit is available to you.

I bought a newbuild flat in 2005 for letting thinking I had a bargain - I got a very similar discount to you, but when I came to resell the true value was even less than the figure I had paid, and that was 2005, perfect location etc

djdaface

So my best bet would be to go speak with my lender tell them what I am planning to do and see what they have to say about it?

I was planning on HSBC as they seem to have a decent tracker at the moment

Trollfever

I don't think that mortgage lenders are currently competing with each other to lend on new build flats.

dunstonh

Some lenders have really dropped their loan to valuations on new builds and new build flats inparticular.

In a house price crash/decline, new builds are hit harder than existing builds. The worst hit is new build flats/appartments. Especially in areas of oversupply.

Plus there has been a fairly widespread abuse of gifted deposits and even fraudulent gifting to inflate the house prices which the lenders are now very wary of. Typically, developers have been increasing the prices by 10-15% and then give back 5% as a gifted deposit. So, in effect you go straight into negative equity as the new build is probably 10-20% overpriced anyway.

In your case though the reduction in sale price is not a deposit in the eyes of the lender. Its no different to buying an existing build and agreeing a lower price with the vendor. I would also suggest you make sure you can get a mortgage on a new build flat with the deposit you have as your options are going to be more limited.

homer_j_3

I may have explained more in my other post that if they are accepted these days they are limited usually to 5% and some lenders will still ask that you match it out of your own pocket if they are to take it.

Gifted deposits are not the spawn of the earth in all cases as they are classified as vendor gifted and builder gifted. The builder gifted ones are the ones that are responsible for a lot of negative equity on new builds.

rdsmortgageman

Most lenders are happy to accept 5% if a gift from a builder (although some are sticky on flats)

Halifax and Bank of Scotland will use value as opposed to purchase price (excluding new build and self cert).

djdaface

Ok thanks this is all very helpful.

They came back with a counter offer of £200,000 today which i declined as im looking for a really good deal rather than a good deal.


But I have learnt from this post, if they accepted the £190,000 offer, the best approach would have been using my savings for a £10,000 (5%) and having the builders value the place at £200,000 and have another £10,000 as a gifted deposit.

I think Im going to be better off to continue to sit tight for a bit longer and continue the savings.

Cheers for your help guys

dunstonh

But I have learnt from this post, if they accepted the £190,000 offer, the best approach would have been using my savings for a £10,000 (5%) and having the builders value the place at £200,000 and have another £10,000 as a gifted deposit.

That is valuation fraud.

djdaface

????

is it? surely thats just decreasing the asking price to £200,000 rather than £240,000

homer_j_3

Its only worth what someone will pay for it. If you are only willing to pay a lower amount it is only worth that amount.