Mortgage Deposit - Loan from parents

[transitman]

We’re looking for a new house and my parents have offered to loan us funds to increase our deposit.

This would be a loan and not a gift probably with a contract agreeing to repay on the sale of the property, anyone any experience of how mortgage companies treat this?

Do they view this as additional borrowing or impacting our affordability and therefore reduce what they would be willing to lend us?

[2 sMoKiN bArReLs]

Surely you just say you've got the deposit?

[2 sMoKiN bArReLs]

Nobody else need know how you achieved your funds.

[hajaba123]

The lender will absolutely want to know where you got the funds from and what terms are attached to them. Some will allow and some wont, there may be terms attached
Sarnie will hopefully be along soon and explain it properly

[transitman]

hajaba123 said:

The lender will absolutely want to know where you got the funds from and what terms are attached to them. Some will allow and some wont, there may be terms attached
Sarnie will hopefully be along soon and explain it properly

Thanks

Yeh we want to play it by the book so would declare the loan if we did go in that direction and was worried it might cut down our potential lenders.

[ar-em-en]

I think most would expect parents to sign a disclaimer saying it was a gift and they have no interest in the property.

[The Rotrex Kid]

ar-em-en said:

I think most would expect parents to sign a disclaimer saying it was a gift and they have no interest in the property.

But it’s not? It’s a loan. OP makes that quite clear.

OP, speak to Sarnie. Normal advice.

[klan8456]

The vast majority of lenders will be uncomfortable with it being a loan, not a gift.

[anonymous-user]

It’ll depend on the terms of repayment, £1 a year or £1000 a month?

The lenders will absolutely question the source of your funds and, in this case, your affordability to repay.

[akirk]

It will definitely impact decision making by mortgage lenders... some are now limiting the % you can have from a parental gift...

It is logical - having a parental gift shows that on your income you were not able to save the full deposit - that has an impact on how they believe you can / can not afford to pay the mortgage...

[LosingGrip]

ar-em-en said:

I think most would expect parents to sign a disclaimer saying it was a gift and they have no interest in the property.

My nan gave me and my girlfriend some money towards a deposit.

Had to sign a letter for TSB saying it's a gift etc and they have no interest in the flat.

Solicitor required bank statements showing where I got the money from and also showing it coming out from my Grans account.

[Coxey]

brickwall said:

Yes when I bought my first place a few years ago (before the rules were tightened), my parents gave me some money and had to sign a statement saying this was a gift not a loan, they had no interest in the property, and no future recourse on the money.

Yes I had to do this for both my kids just recently

[320d is all you need]

akirk said:

It will definitely impact decision making by mortgage lenders... some are now limiting the % you can have from a parental gift...

It is logical - having a parental gift shows that on your income you were not able to save the full deposit - that has an impact on how they believe you can / can not afford to pay the mortgage...

I don't think it does.

Especially if you're renting already it's very hard to save up a huge lump sum.

When even at a 95% LTV your monthly payments are generally less than the rent anyway!

Our parents helped us and we just had the money in our account. We didn't need to justify how or where we got the money.

[Pebbles167]

My dad have me £5k towards my mortgage to make the 10% deposit at a better rate than the 5%. I repay him the money I save each month because of the better rate. That being said, he said it was a gift, but I feel that I would like to pay it back anyway.

Do not inform the mortgage lenders if you can help it, just say you have the money. There is a bit that says that your parents have either loaned or given you the money, so they presumably do want to know. If your parents trust you enough to set up a standing order to repay them, do that, and keep it quiet. If not, I cant imagine it impacting that much. Although it depends how quick they want it back. If the payments are steep, I'd rather just wait and save up myself.

[Countdown]

LosingGrip said:

My nan gave me and my girlfriend some money towards a deposit.

Had to sign a letter for TSB saying it's a gift etc and they have no interest in the flat.

Solicitor required bank statements showing where I got the money from and also showing it coming out from my Grans account.

Exactly the same here when I gave money to my eldest.

[Sarnie]

Almost all lenders will decline your application if the deposit is a loan and not a gift.

Lenders will 100% want to know where the deposit is coming from and you will need to provide evidence of it.

If it's a gift, the Giftee will need to sign a letter to confirm it's a gift, not a loan and no security over the property will be taken.

OP, feel free to drop me a line if you need help discussing the options

[leef44]

Sarnie said:

Almost all lenders will decline your application if the deposit is a loan and not a gift.

Lenders will 100% want to know where the deposit is coming from and you will need to provide evidence of it.

If it's a gift, the Giftee will need to sign a letter to confirm it's a gift, not a loan and no security over the property will be taken.

OP, feel free to drop me a line if you need help discussing the options

This is what I thought, even if it was repay 1 pound per year and repay fully on sale of property. Because from the lender's point of view, this is a second mortgage on the property which increases the risk of the lending.

So the lender might offer a mortgage at a much higher rate and ensure they have first security over the property. This would require much more legal paperwork as a result and the expense which goes with that.

[roadsmash]

320d is all you need said:

I don't think it does.

Especially if you're renting already it's very hard to save up a huge lump sum.

When even at a 95% LTV your monthly payments are generally less than the rent anyway!

Our parents helped us and we just had the money in our account. We didn't need to justify how or where we got the money.

You either had an inept conveyancer who didn’t ask for proof of funds, or the amount from your parents showing in your bank account was negligible enough to not be questioned.

It is important for the banks to know where any cash is coming from so they can rule out 1) money laundering and 2) unofficial borrowing (for the deposit).

As mentioned by other posters, the latter could render the mortgage becoming unaffordable, which in the lender’s eyes is bad news.

[transitman]

Sarnie said:

Almost all lenders will decline your application if the deposit is a loan and not a gift.

Lenders will 100% want to know where the deposit is coming from and you will need to provide evidence of it.

If it's a gift, the Giftee will need to sign a letter to confirm it's a gift, not a loan and no security over the property will be taken.

OP, feel free to drop me a line if you need help discussing the options

Thanks Sarnie

Exactly what I had feared, sent you a message.

[klan8456]

Sarnie said:

Almost all lenders will decline your application if the deposit is a loan and not a gift.

Lenders will 100% want to know where the deposit is coming from and you will need to provide evidence of it.

If it's a gift, the Giftee will need to sign a letter to confirm it's a gift, not a loan and no security over the property will be taken.

OP, feel free to drop me a line if you need help discussing the options

How far back through your statements do they look? Could someone transfer 50k today, and then the recipient applies for a mortgage in 24 months and it doesn’t need to be declared?