buy without deposit, "vendor gift" too good to be true???

paolodit

Hi everyone!

My girlfriend and I have had enough of renting, and figure we might as well get a mortgage. We have spoken to several banks & independents.

We will/have about £3500, which we figure we will need for fees/stamp duty, costs & misc. So that leaves us with, erm Nill for a deposit..

Apart from the problem of me being self-employed, which we seem to be finally finding a solution too... How can we buy a house?!

a) 100% mortgages seem very costly.. (but still better than paying rent)

b) getting a £10k loan for deposit, seems a bit stupid, because the rate may be higher for that... (but again better than rent)

c) Then we heard about a "vendor gift", which seems like a stroke of genius. This only works because most vendors accept an offer of 8-10% less than asking price. right?

But it sounds too good to be true?? I don't quite understand it, can anyone explain it? Here's my sketch:

So our desired house @ £150,000
we get offer accepted @ £140,000
get mortgage @asking price £150,000
and £10,000 deposit (6.66%) comes from the vendor as a "vendors gift", as we "over pay" them for the property.

Does that mean that I am paying an extra £10,000? to buy a house?? Where does the £10k go?? Am sure this is just a maths issue....??

My main point is, are there any catches? I can see that it wont :
a) work on properties that wont budge on price.
b) if the vendor if a professional developer, as they may be liable to more capital gains tax

but whats the catch?? Should I do it? It is legitimate right? google doesnt have much on this, help! why arent more people doing this??

Thanks, Paolo

Voyager2002

A non-starter.

The mortage will be for an amount up to the actual price paid or the valuation, whichever is lower.

The good news is that the costs of buying are likely to be a little less than you expect. But in any case, house prices are on the way down, so no need to hurry.

paolodit

thanks for your words, voyager..

Are u sure, its not possible, 2 independent mortgage advisors I have spoke to, said that this is possible? Without me prompting them.. its just whether its a good idea? And does it work in practice?

Also arent house prices going to go up in April, when a flood of personal-pension money enters the market? So nov - feb is a good time to buy?...

Slider

It is possible, I have done it in the past. As long as the house values up to the 150k, shouldn't be a problem. Most new builds in are area, offer similar schemes 5% deposit paid, etc.

I think many years ago, is was considered illegal, but not now.

Is it a good idea, as no one can be sure whats happening to prices etc, it boils down to how much you want to have your own home.

loveboat1234

Here is just a quick tip to make sure you evaluate your situation well :

first...buying your own place is much more expensive than renting as all the reparing cost are forked out by you ( In the last month I had to call out for repair twice at a total of £300 ...if I had rented this would had been free ) and not to mention that the wash machine broke last week just after the warranty expired so another £180 next week for a new one as repair was £100 for part and £50 for labor. Now on your dream place you will have to pay a repayment mortgage at 845.00 @ 4.5% ( but what if the rate goes up ? ) so can you not rent a lovely place all furnished for this ? also this is what happen to me.......I love the place but got a new job offer and could not move as the re-selling/ renting process would have taken for ever in this slow market so made the maths with the bank ( penalties for paying off the mortgage and all the fees ) and decided to stay with my current compamy as it would have saved me at least £10000 this year. Now make sure you are 100% ready and up to it...make a list of what you will need to buy ( open an Argos catalogue ) and price all the goods you need....bed...carpets...washing machine....hoven you name it and see how far you go. If you rent and you have a problem you just call the landlord and he has to come and fix it ...when you are fed up of the area/place just move somewhere else.
Hope this helps

paolodit

thanks for your notes.. Indeed doing excel sheets of everything, seems a logical way forward...

So has anyone else had any experience of doing a "vendor gift", or any mortgage consultants got any wise words to say?

thanx

itsarichmansworld

Hi I bought my place 4 years ago without a deposit nor 100% mortgage. We found a flat being sold on behalf of a company basically the lady who owned it before us used it as a part exchange, with this company we approached them and offered considerably less than what it was worth we paid £15000 when it was valued at £22500 (the benefits of living in Scotland dirt cheap houses!) We got it valued a few weeks ago and its now worth £60000! so we have a massive deposit for our new home. Try repossesions etc I know it benefiting from other peoples misery but you may not need a deposit if you have a good IFA.
Also some mortagage companies pay for legal fees etc?

Robert_Sterling_3

paolodit wrote:

Does that mean that I am paying an extra £10,000? to buy a house?? Where does the £10k go?? Am sure this is just a maths issue....??
Thanks, Paolo

It looks as if there is a pretence that the house is worth £10,000 more than it really is.
So you pay £100 extra stamp duty.
The vendor is happy to end up with £10,000 less for the house than it is said to be worth.
Who is the loser in all this?

Fairdo_2

Going on to the original question, I am wondering whether you have got the wrong end of the stick (slightly!)

These advisers may have been sending you along the "Shared Equity" route.

Several new home builder companies are working on the model suggested by the Chancellor to attract more "affordable housing". Many are offering the purchase of selected properties on their developments to be on a "No Deposit" basis where you buy say 70% of the stated value of the property and they continue to own the remaining 30%.

They effectively have a charge over your property and would allow you to live there rent free for their part, on a lower mortgage than you would have paid. The down side is that you would have to pay off the remaining 30% within 10 years on sale of property, "staircasing", or expiry of the 10 years (whichever comes first).

They will select the plots that this available on, meaning it is likely to be the least attractive ones, as they have a quota of "Affordable homes" that they need to supply to obtain planning consent these days.

This allows them to do this and look like the good guy!

Bear in mind that with most new homes sites, the purchase price tends to be artificially inflated anyway.

You do also get the sites that offer a 5% deposit paid and/or stamp duty paid scheme so that they intice more potential buyers. Several lenders are happy to accept this legitimately. No catch, just remember they don't do it for free, it is already reflected in their price.

paolodit

hi, thanks for your notes.

The mortgage guy seemed to say that it was applicable for older houses, so not just new property. Which then in theory allows us to get a 100% mortgage, without the higher rates/fees of a 100% mortage.

So the only downside is higher stamp duty? And the possibility that the vendor may not agree to it?

So is it a moneysaving genius scheme?
thanx!

Ian_W

paolodit wrote: So is it a moneysaving genius scheme?

It's a moneysaving scheme, if:
1] Vendor is prepared to reduce but nominally sell at original price so you can use that discount as a deposit [probably the hardest bit].
2] Lender's valuation isn't lower than the asking price.
3] The discount is at least 5% and the mortgage you apply for doesn't have HLC's for loans above 90% LTV.
4] You're prepared to pay the extra S/D if applicable.

Not sure about the "genius" - developers/builders have been doing this "deposit paid" type of scheme for years when new props aren't selling, but they seem to have more clout with lenders so don't have a problem with valuations. They just over-egg the selling price to allow for the discount, err, sorry "deposit-paid" scheme and other incentives.