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  • FIRST POST
    • Annasty
    • By Annasty 15th May 18, 10:10 PM
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    Annasty
    Vendor loan deposit
    • #1
    • 15th May 18, 10:10 PM
    Vendor loan deposit 15th May 18 at 10:10 PM
    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 donít 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.
Page 1
    • Thrugelmir
    • By Thrugelmir 15th May 18, 10:14 PM
    • 59,795 Posts
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    Thrugelmir
    • #2
    • 15th May 18, 10:14 PM
    • #2
    • 15th May 18, 10:14 PM
    A loan isn't a gift. More of a road block than a stumbling block.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • Annasty
    • By Annasty 15th May 18, 10:24 PM
    • 5 Posts
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    Annasty
    • #3
    • 15th May 18, 10:24 PM
    • #3
    • 15th May 18, 10:24 PM
    I meant loaned deposit not gifted
    • AnotherJoe
    • By AnotherJoe 15th May 18, 10:34 PM
    • 10,595 Posts
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    AnotherJoe
    • #4
    • 15th May 18, 10:34 PM
    • #4
    • 15th May 18, 10:34 PM
    What are the conditions of this loan? When does it need repaying ?
    • Annasty
    • By Annasty 15th May 18, 10:36 PM
    • 5 Posts
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    Annasty
    • #5
    • 15th May 18, 10:36 PM
    • #5
    • 15th May 18, 10:36 PM
    Loan needs repaying within 24 months
    • anselld
    • By anselld 15th May 18, 10:36 PM
    • 5,867 Posts
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    anselld
    • #6
    • 15th May 18, 10:36 PM
    • #6
    • 15th May 18, 10:36 PM
    I meant loaned deposit not gifted
    Originally posted by Annasty
    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
    • By bowlhead99 16th May 18, 7:03 AM
    • 8,242 Posts
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    bowlhead99
    • #7
    • 16th May 18, 7:03 AM
    • #7
    • 16th May 18, 7:03 AM
    Loan needs repaying within 24 months
    Originally posted by Annasty
    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.
    Last edited by bowlhead99; 16-05-2018 at 7:06 AM.
    • Annasty
    • By Annasty 16th May 18, 7:23 AM
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    Annasty
    • #8
    • 16th May 18, 7:23 AM
    • #8
    • 16th May 18, 7:23 AM
    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
    • By AnotherJoe 16th May 18, 8:05 AM
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    AnotherJoe
    • #9
    • 16th May 18, 8:05 AM
    • #9
    • 16th May 18, 8:05 AM
    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
    • By anselld 16th May 18, 8:07 AM
    • 5,867 Posts
    • 5,588 Thanks
    anselld
    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.
    Originally posted by Annasty
    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
    • By davidmcn 16th May 18, 8:24 AM
    • 8,517 Posts
    • 8,970 Thanks
    davidmcn
    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.
    Originally posted by Annasty
    What if the shareholder event doesn't happen?
    Last edited by davidmcn; 16-05-2018 at 9:08 AM.
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