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Vendor loan deposit

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Annasty
Annasty Posts: 5 Forumite
in House buying, renting & selling
Hi,
Our Vendor has agreed to loan us £160k to allow us to buy the house which we are currently renting. We have agreed a purchase price of £1.14m and had hoped to give them a second charge on the house. However we seem to have hit amassive stumbling block in that the main mortgage companies don’t seem to allow vendor gifted deposit (we also have our own deposit to add to the pot of £200k). Has anyone had any experience of this or has any ideas?? All advice really gratefully received.

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  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    A loan isn't a gift. More of a road block than a stumbling block.
  • Annasty
    Annasty Posts: 5 Forumite
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    I meant loaned deposit not gifted
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
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    What are the conditions of this loan? When does it need repaying ?
  • Annasty
    Annasty Posts: 5 Forumite
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    Loan needs repaying within 24 months
  • anselld
    anselld Posts: 8,283 Forumite
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    Annasty wrote: »
    I meant loaned deposit not gifted

    Which is why it is a non-starter. Nobody is going to lend you the best part of £1m when you need to borrow most of the deposit.
  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
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    edited 16 May 2018 at 7:06AM
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    Annasty wrote: »
    Loan needs repaying within 24 months

    So when they assess your affordability for the ~£780k of borrowing they also have to take into account that you'll be using £7k a month of your post-tax disposable income to save up the £160k within the next 24 months?

    If the fair value of the property is really £1140k then a mortgage loan-to value of under 70% probably wouldn't be an issue if you have good income. Some lenders would have an appetite to go along with there being another loan in the background if it was a second charge behind the mortgage and only repayable when the house was sold, because it's not a debt that's going to get called in before they've got their mortgage loan back.

    But in this case you as the borrower have £160k of debt to be cleared in the next couple of years which may impact your ability to meet your mortgage repayments as you put your money aside each month to save up for it - or even worse, don't bother to save up for it and have a big debt that you can't clear as planned. That short term debt puts your mortgage repayments at risk and if the market drops 25% in the next couple of years and they have to auction off your house at a 'fire sale' price to recover their money, the mortgage lender may not get all their money back after costs.

    If your answer to that is that you already have most of the £160k put aside so the problem won't come up, they would say how do they know you won't spend that money on something else in the meantime, and if you have the money why are you taking the loan?

    A vendor loaned deposit might seem less of an issue than a vendor gifted deposit (as the latter just means the high price is fake). But in practice a "deferred consideration" deal (which happens with commercial property or business acquisitions all the time) only really works if you have lots and lots of assets or income to be able to meet the commitment to pay any remaining balance and the mortgage company can get comfortable with it - which high street lenders working to low advertised interest rates and strict lending criteria, typically don't want to do.
  • Annasty
    Annasty Posts: 5 Forumite
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    The loan will be paid off by a lump sun that we should receive in around 12 months but definitely within the 24 month deadline. This is due to a shareholder event in my partners business- the loan therefore won!!!8217;t affect income.
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
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    The trouble is, this is so far off the norm for most if not all lenders, that they aren't going to consider it. As BH says, maybe if it was open ended so didn't get repaid until the house was sold, they could cope, but when theoretically it wil be repaid over 2 years that massively affects affordability.
    You seem to have been premature in making an offer on this house, by 1-2 years.
  • anselld
    anselld Posts: 8,283 Forumite
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    Annasty wrote: »
    The loan will be paid off by a lump sun that we should receive in around 12 months but definitely within the 24 month deadline. This is due to a shareholder event in my partners business- the loan therefore won!!!8217;t affect income.

    Cant think of a shareholder event which could be guaranteed to complete within 2 years.

    Can you not wait for the event and then offer on more traditional terms?
  • davidmcn
    davidmcn Posts: 23,596 Forumite
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    edited 16 May 2018 at 9:08AM
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    Annasty wrote: »
    The loan will be paid off by a lump sun that we should receive in around 12 months but definitely within the 24 month deadline. This is due to a shareholder event in my partners business- the loan therefore won't affect income.
    What if the shareholder event doesn't happen?
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