Groups

    Mortgage with deposit bigger than actual mortgage amount

    Hi,

    I am looking to buy my first house.

    I am looking in the region of spending £150,000.

    Now, here is the thing. My parents are thinking of giving me £100,000 that they have. For this, i will pay them £400 per month as they are close to retirement and this will cover all their major monthly outgoings (rent, coucil tax etc).

    So, i would need a mortgage of £50,000.

    Would i still be looking to get a normal mortgage, or are there any special things to consider when having such a large deposit?

    Thanks for any help.

    15 Comments

    I would speak to an independent financial advisor.

    Also, bear in mind that as well as the cost of the house you have to pay stamp duty, solicitor's fees, council tax, moving costs, etc etc etc, so it may be better to keep some of the £100k back to pay for all those things.

    You need to be aware that if you tell the mortgage company that you are paying it back at £400pm, they will take that into account when they look at the overall affordability of the mortgage. You will also need to be aware of any tax implications involved with the gift/loan of this money.

    You can still get a normal mortgage, one of the better rates, although some lenders can be wary of the fact that 2/3 of the cost is being provided by your parents. You may have to get a separate legal agreement drawn up to confirm whether your parents will have a charge over the property (i.e. you fall out with them, you sell the house, the mortgage gets paid off, the rest of the money? legally it's your unless your parents hold a legal charge on your house).

    I, personally, would speak to an IFA (most IFAs are happy to provide initial advice and consultation for free, they make their money from the lender who provides the mortgage you get) and possibly look into the tax implicaitons around what would happen if (god forbid) your parents were to die within 7 years, as you may have to pay some inheritance tax on the gift. Citizens Advice will happily point you in the right direction.

    As cis_groupie says, you will have stamp duty of 1% of the purchase price, survey fees (anything from £300 for a basic survey to £900 for a full structural survey), solicitors fees (should be under £500 for purchasing) and then moving your stuff into the house. Depending on which mortgage product you go for, you may also have a booking/arrangement fee to pay, however some mortgage products offer free basic valuations and money back towards your legal charges - your IFA will be able to offer you advise on what is best, and show you a cost break-down of the different options.

    Original Poster

    I had a feeling that this may be a little complicated

    All looks like good advice, i guess with this kind of thing, you cant beat proffessional guidance.

    JayBird;1639528

    I had a feeling that this may be a little complicated :)All looks like … I had a feeling that this may be a little complicated :)All looks like good advice, i guess with this kind of thing, you cant beat proffessional guidance.


    unless you end up buying yachts/hotels/football clubs/luxury cars like the Bugatti Veyron, buying a house is probably the biggest thing you will buy in your lifetime. DEFINATELY get some advice from an IFA, but don't be scared to ring round the mortgage lenders yourself as sometimes the offers direct are different from the offers through an IFA. Each one you speak to will instill a little more understanding on the whole "house-purchase" thing and you will start to feel less nervous about it.

    JayBird;1639528

    I had a feeling that this may be a little complicated :)All looks like … I had a feeling that this may be a little complicated :)All looks like good advice, i guess with this kind of thing, you cant beat proffessional guidance.



    Take the £100,000, pay your parents the £400/month, up to them whether they declare it for tax.

    Don't tell the bank anything about it, as far as their concerned the money is yours. Go get yourself a stonking deal, maybe one that lets you overpay as it sounds like you've got a good rate so you might be able to pay the £50k off faster which would obviously be good for you in the long run.

    Are you paying your parents capital or interest? If it's interest then remember you're not actually paying it off but a 4.8% interest rate sounds good. Think about what would happen if interest rates changed, you fell out with your parents or you lost your job etc.

    I'm not really that sure what would happen if your parents died within 7 years, effectively I think you would either pay inheritance tax on it or it would add to the inheritance tax liability. Either way you'd probably have enough from the inheritance to pay it anyway.

    If you're paying parents capital back then they wouldn't have to pay tax as it's not profit. Although paying them back means they'll have the money again so it'll add towards the inheritance tax one day. Although the thresholds are going up considerably so it might not make a difference anyway.


    EDIT - And your parents rent and they can live on £400 a month???

    Original Poster

    Benjimoron;1639577

    Are you paying your parents capital or interest? If it's interest then … Are you paying your parents capital or interest? If it's interest then remember you're not actually paying it off but a 4.8% interest rate sounds good. Think about what would happen if interest rates changed, you fell out with your parents or you lost your job etc.



    Well, from me and my paretns point of view, the £100,000 is a gift, i dont need to pay it back, but i do need to help them out paying their rent and stuff in the future. I'm not paying back the £100,000 as such, although, i guess the tax man may not see it like this. There is no interest on what i would be giving them.

    I guess my real question is will i be getting a considerably better deal by putting down £100,000 on a house and paying £400 to my parents + whatever the mortgage costs per month compared to say just laying down a 10% deposit (which my parents would give me and have nothing to pay to them)!?

    I think when we were in a similar position and had a decent amount of cash to put as a deposit it worked out that 20% deposit worked out the best to get the best deal anymore than that didn't really make any difference to the mortgage rate. The best bet though is to get some advice from an unbiased source.

    JayBird;1639595

    Well, from me and my paretns point of view, the £100,000 is a gift, i … Well, from me and my paretns point of view, the £100,000 is a gift, i dont need to pay it back, but i do need to help them out paying their rent and stuff in the future. I'm not paying back the £100,000 as such, although, i guess the tax man may not see it like this. There is no interest on what i would be giving them.I guess my real question is will i be getting a considerably better deal by putting down £100,000 on a house and paying £400 to my parents + whatever the mortgage costs per month compared to say just laying down a 10% deposit (which my parents would give me and have nothing to pay to them)!?



    Well, the rate that your parents were going to give you is 4.8% isn't it? That's likely to be better than the bank is going to give you so you'd be better off taking their money. You're not likely to get a much better rate whether you're putting a 15% deposit or a 66% deposit. There's usually a cut off point which I believe is around 15%.

    The problem you've got is that afaik they're not allowed to give you a gift of £100,000 (unless you marry them?) Maybe better off having it in writing (through a solicitor I guess) that they're loaning you at 0% so they're making no profit (no tax to pay) but you're paying back £400 a month.

    Original Poster

    caz1cool;1639639

    I think when we were in a similar position and had a decent amount of … I think when we were in a similar position and had a decent amount of cash to put as a deposit it worked out that 20% deposit worked out the best to get the best deal anymore than that didn't really make any difference to the mortgage rate. The best bet though is to get some advice from an unbiased source.



    Yeah, i have just done a couple of quick calculations on a mortgage calculator

    95% Mortgage - fixed term for 5 years
    During fixed period: £873.34
    After fixed period: £981.48

    20% Deposit - fixed term for 5 years
    During fixed period: £725.12
    After fixed period: £814.90

    £100,000 Deposit - fixed term for 5 years
    During fixed period: £703.99 (including what i would give to parents)
    After fixed period: £741.63

    Obviously these are very simplistic and not considering other costs that each option may incur.

    Benjimoron;1639656

    Well, the rate that your parents were going to give you is 4.8% isn't it? … Well, the rate that your parents were going to give you is 4.8% isn't it? That's likely to be better than the bank is going to give you so you'd be better off taking their money. You're not likely to get a much better rate whether you're putting a 15% deposit or a 66% deposit. There's usually a cut off point which I believe is around 15%.



    My parents aren't giving me a rate. Its 0%.

    Benjimoron

    The problem you've got is that afaik they're not allowed to give you a … The problem you've got is that afaik they're not allowed to give you a gift of £100,000 (unless you marry them?) Maybe better off having it in writing (through a solicitor I guess) that they're loaning you at 0% so they're making no profit (no tax to pay) but you're paying back £400 a month.



    Yeah, this is something i will have to seek advice on.

    Bottom line is:
    As long as your parents survive 7 years after the gift there will be no Inheritance Tax liability. Even if the worst happens and one of them dies it doesn't mean that you will have to pay IHT. The liability is on a sliding scale and only kicks in at £600000 for married couples. It's not something you need to consider at this stage.

    Yes, you will get a better deal from a lender for a 60% deposit. They may ask where the deposit is coming from. Your parents may have to sign a disclaimer saying they don't own any part of the house. Neither is a problem.

    Your parents will probably be liable for tax on the 'income' from you, but only if they declare it. Parents lend children money all the time and it's rarely a problem.

    Consider the other costs listed in other posts such as survey fees, mortgage application fees, stamp duty and so on. The deal at 55% deposit won't be worse than at 60% so it might pay to keep some back for emergencies.

    What very nice parents you have!

    Original Poster

    amanda f;1640039

    What very nice parents you have!



    They owe me for being such a brilliant son :thumbsup::whistling::w00t:

    Look in to Offset Mortgages:

    House £150,000 purchased with 20% Deposit at £30,000

    Mortgage - Offset Account - Balance

    120,000 .. 70,000 .......... 50,000

    This means you only pay interest on the £50,000 from the Bank and whatever you pay your parents.

    IM if you want to go in to specifics...

    Shahie;1642206

    Look in to Offset Mortgages:House £150,000 purchased with 20% Deposit at … Look in to Offset Mortgages:House £150,000 purchased with 20% Deposit at £30,000Mortgage - Offset Account - Balance120,000 .. 70,000 .......... 50,000This means you only pay interest on the £50,000 from the Bank and whatever you pay your parents.IM if you want to go in to specifics...



    or deposit £100k, mtg £50k

    you only pay interest on the £50k and whatever you pay your parents.

    Offsets tend to be higher by nature compared to normal variable rates and are really only worth it if you intend to overpay by more than 10% of your mortgage balance every year.

    Go with the lowest rate you can get, don't get an offset mortgage. If you can only pay off 10% then put any extra money you can pay off into an ISA and you'll probably be earning a higher rate that you're paying anyway.
    Post a comment
    Avatar
    @
      Text
      Top Discussions
      1. How dangerous is Donald trump?31137
      2. ❅☁☁❅ I want☼to talk☼about the☔WEATHER☔no politics☃no religion❅☁☁❅18846166
      3. Just heard this...2 ★★★★★★★★★★★★★★ congrats to all on 392k ★★★★★★★★★★★★★★7764206
      4. Microsoft Gamescom - Possibly more free games / Project Scorpio44

      See more discussions