Mortgage-related question

bainbridge · 14 Jan 2020 at 22:12

A family member has kindly agreed to gift the GF and I a 10% deposit for our first home up to a property value of £250k.

We've always done that dirty word (renting) for many years so house buying is new to us. Plus, although I have an excellent credit score, I do have a few credit cards being paid off on a 0% basis, and a bank loan which I'm 2 years away from paying off. The GF has a very good credit score, no credit cards and a bank loan which is 2.5 years away from being paid off. So, not seeing this gift on the horizon, I didn't think our borrowing power was very good at all.

We've got an appointment with an independent whole of market mortgage broker in a few days and in the meantime I've been running through a few online calculators (just based on input figures), reading first time buyer's guides and generally trying to educate myself on how it all works. The general impression I get is we won't be able to borrow enough to get the home we want.

Now, when I was downloading some bank statements from my high street bank website in preparation for our meeting I decided to apply for an agreement in principle which does a soft credit search for us both. Lo and behold I was offered the full amount we need in principle and about 6 different mortgages. I decided to up the amount to £280k (thus reducing the deposit to 8.9%) and was still offered agreement in principle but only a choice of 2 mortgages, with considerably higher repayments. In both cases I was given the option to apply online, being told if it's not suitable it's my own fault because I chose it myself.

So, while we're waiting for our meeting with the independent advisor, am I right in saying my bank (who I've been with for 18 years) are giving me a more accurate reflection of what we can borrow because they've credit checked us? Or are they just trying to lure us in with a great figure and then bring us down to earth with a bump?

TLDR: Bank offered the full amount we want as an agreement in principle but online calculators offer much less, who is most accurate?

Guest2 · 14 Jan 2020 at 22:22

bainbridge said:
am I right in saying my bank (who I've been with for 18 years) are giving me a more accurate reflection of what we can borrow because they've credit checked us? Or are they just trying to lure us in with a great figure and then bring us down to earth with a bump?

TLDR: Bank offered the full amount we want as an agreement in principle but online calculators offer much less, who is most accurate?

Sounds about right. Guess it depends on the bank though. I've been with Nationwide 17 years and they couldnt even borrow me what I wanted. I used an independent advisor and ended up going with Halifax

Dis86 · 14 Jan 2020 at 22:22

Be aware you will probably have to declare when it comes to it that the deposit was a gift and also the family member will be liable for tax. You may be liable for tax should they pass away.

dowie · 14 Jan 2020 at 22:25

AFAIK The agreement in principle, offered to you specifically, is going to be more accurate than some general online calculator.

I'd speak to the mortgage advisor if things are tight tbh... also do keep in mind some banks aren't available to them (or at least used to not be a few years back) - IIRC HSBC/First Direct you'd needed to go direct and check rates yourself and they were among the cheapest a few years back.

weringo · 14 Jan 2020 at 22:27

The bank's offer will give you a more accurate picture.

The online calculators just ask you a few basic questions about your income and debt situation. As you already have several cards and loans this initially doesn't look great from the bank's point of view, but once they have run their full credit checks and seen that you haven't missed payments etc they will be more inclined to lend.

Dis86 said:
Be aware you will probably have to declare when it comes to it that the deposit was a gift and also the family member will be liable for tax. You may be liable for tax should they pass away.

Assuming the family member just gifted cash they will not be immediately subject to tax on the gift.

The bank will however request a letter from the family member confirming its a gift.

bainbridge · 14 Jan 2020 at 22:43

Thanks for your responses folks. We can document the gift if needed so that's not a problem. What I'm kicking myself about is the fact that family have been offering to help us out for a few years but we thought that it would be a small amount and just carried on renting, had I known it was this sort of money we'd have scrimped for a couple of years to boost it up to a really juicy deposit.

It's encouraging that the bank are coming up with some better figures, I hope the mortgage advisor comes up with something decent. We can't hang around - we're both in our 40s

dirtychinchilla · 15 Jan 2020 at 08:12

I strongly recommend using a broker. We've used the same one three times (initial mortgage, changing to a different mortgage, and changing again) and they make your life substantially easier. They have much better visibility of all the bank's rates and can recommend better strategies long term.

At the very least, if you're not going to use a broker then it's worth going into the bank. They are a lot more open when you have an appointment than when you look online. They generally aren't that expensive either. (haven't read everything but it looks like you might be using a mortgage advisor, which is smart).

DampCat · 15 Jan 2020 at 08:29

weringo said:
The bank's offer will give you a more accurate picture.

Assuming the family member just gifted cash they will not be immediately subject to tax on the gift.

The bank will however request a letter from the family member confirming its a gift.

Indeed. They're not liable for tax but the bank may want a letter confirming they have no vested interest in the property.

BUDFORCE · 15 Jan 2020 at 08:56

Just keep in mind with regards to brokers fees, some charge on offer some on completion, you want the latter.

Also, don't forget they will get a proc fee from the lender, typically some.35% of the loan, so any fee they charge you they are getting on top of that.

I personally wouldn't pay a mortgage broker a penny, I work in the in the industry and have a dim view of them, there are some who are good and genuinely decent people, I'd say about 10% of them.

Semple · 15 Jan 2020 at 09:38

bainbridge said:
TLDR: Bank offered the full amount we want as an agreement in principle but online calculators offer much less, who is most accurate?

How much less are we talking about?

I'm surprised i would have thought it would have been the other way around. Typically online calculators just multiply all joined income by about 4.75 and a figure is spouted out.

Depending who the AIP was with, some will just ask for basic income/outgoings, whilst others dive into outgoings a bit more.

You'll want some buffer with the value of the AIP + your deposit, as when they go through the affordability checks any fixed repayments such as loans can reduce the amount a bank is willing to lend.

You'll also need to consider that you'll need cash leftover for solicitor fees, removal fees, survey fees etc.

mid_gen · 15 Jan 2020 at 09:39

It's really up to you if you think a broker is worth the money. A bit more convenient? Probably. But remember the banks want your business so it's in their interests to make the application as simple as possible.

Funky-Melon · 15 Jan 2020 at 10:31

bainbridge said:
I decided to up the amount to £280k (thus reducing the deposit to 8.9%) and was still offered agreement in principle but only a choice of 2 mortgages, with considerably higher repayments.

It's worth keeping in mind that mortgage interest rates are in 5% intervals.

If you're buying a house with a 10% deposit you will be on interest rates for someone with a 10% deposit
If you're buying a house with a 9% deposit you will be on interest rates for someone with a 5% deposit - quite a bit more per month, so always push up your deposit to the nearest 5%.

Junglist · 15 Jan 2020 at 10:33

bainbridge said:
A family member has kindly agreed to gift the GF and I a 10% deposit for our first home up to a property value of £250k.

We've always done that dirty word (renting) for many years so house buying is new to us. Plus, although I have an excellent credit score, I do have a few credit cards being paid off on a 0% basis, and a bank loan which I'm 2 years away from paying off. The GF has a very good credit score, no credit cards and a bank loan which is 2.5 years away from being paid off. So, not seeing this gift on the horizon, I didn't think our borrowing power was very good at all.

We've got an appointment with an independent whole of market mortgage broker in a few days and in the meantime I've been running through a few online calculators (just based on input figures), reading first time buyer's guides and generally trying to educate myself on how it all works. The general impression I get is we won't be able to borrow enough to get the home we want.

Now, when I was downloading some bank statements from my high street bank website in preparation for our meeting I decided to apply for an agreement in principle which does a soft credit search for us both. Lo and behold I was offered the full amount we need in principle and about 6 different mortgages. I decided to up the amount to £280k (thus reducing the deposit to 8.9%) and was still offered agreement in principle but only a choice of 2 mortgages, with considerably higher repayments. In both cases I was given the option to apply online, being told if it's not suitable it's my own fault because I chose it myself.

So, while we're waiting for our meeting with the independent advisor, am I right in saying my bank (who I've been with for 18 years) are giving me a more accurate reflection of what we can borrow because they've credit checked us? Or are they just trying to lure us in with a great figure and then bring us down to earth with a bump?

TLDR: Bank offered the full amount we want as an agreement in principle but online calculators offer much less, who is most accurate?

We've just started this process ourselves and in the same scenario as yourself.

In order to reserve the home we had to prove we could buy it and we called up a whole market broker (Key Solutions, they've been fantastic to be fair) who then got us an AIP which I think was with Halifax as they offered one with a soft credit check.

We've ended up going with Barclays as with Halifax you're only allowed something like 2% of the property value in incentives and with the deal we were getting it made more sense to go with a bank who would allow us to keep that as we would've been missing out on about £7-8k. He's actually found us a decent deal, we think. 5 years fixed at 1.70%. Halifax had 5 years at 1.68% if i remember correctly.

If you have 20 minutes or so it could be worth giving them a call.

Just noticed you're in Bristol also. Good luck. It's not cheap here!

jaybee · 15 Jan 2020 at 11:36

Dis86 said:
Be aware you will probably have to declare when it comes to it that the deposit was a gift and also the family member will be liable for tax. You may be liable for tax should they pass away.

Can you explain this in more detail?

Dis86 · 15 Jan 2020 at 11:57

jaybee said:
Can you explain this in more detail?

Not massively I'm afraid! Basically when you apply for the actual mortgage they'll do a credit check etc. And any large sums that have recently appeared in your accounts will need to be explained. If you declare it beforehand then it shouldn't be a problem although our advisor indicated it can be in some rare circumstances as it shows you haven't been able to save for the deposit so you're financially not as stable as it may appear.

With regards to financial gifting I believe you can only gift up to £3000 per year tax free (with some exceptions) otherwise it may become subject to inheritance taxes should you pass away within a set period.
This can be up to 40%.

jaybee · 15 Jan 2020 at 12:11

Dis86 said:
With regards to financial gifting I believe you can only gift up to £3000 per year tax free (with some exceptions) otherwise it may become subject to inheritance taxes should you pass away within a set period.
This can be up to 40%.

It's 7 years. If someone gifts you a shedload, as long as they survive 7 years it's not taxable as I understood it.

Dis86 said:
.... And any large sums that have recently appeared in your accounts will need to be explained..

You've just described a lot of people just before buying a house I suspect. Loads of people act in the same way and will buy a house having inherited or having been given gifts from the bank of mum and dad. Or sold something. Or possibly even won gambling. Why do they care where the deposit came? £25000 from Mum and Dad surprisingly works as well as £25000 from a Casino.

Junglist · 15 Jan 2020 at 12:27

With ours we had to declare any gifted monies and we had to fill out a form with them saying where the money was from and it was a gift not a repayable loan etc.

I think up to £10,000 it's OK but after that point they need to see bank statements from, in our case, parents for fraud measures. We only (I'm not ungrateful!) got given a few thousand so they didn't need parents bank statements

sja360 · 15 Jan 2020 at 12:37

jaybee said:
You've just described a lot of people just before buying a house I suspect. Loads of people act in the same way and will buy a house having inherited or having been given gifts from the bank of mum and dad. Or sold something. Or possibly even won gambling. Why do they care where the deposit came? £25000 from Mum and Dad surprisingly works as well as £25000 from a Casino.

Money laundering, drug dealing, prostitution etc all illegal ways to earn loads of cash aren't seen as suitable customers for a bank offering 100k+ loans.

Some people do save up rather than getting the bank of mum and dad/gran and grandad. Takes a few years but if you want something you'll save for it.

I think our economy needs to reintroduce the idea of saving money from a younger age, whether its for a car/house or something else its quite important to put something aside.

I remember doing a rbs bank children's account each week at school, putting in £1-2 or whatever. Seems like small money but come 12+ years it's got you something.

Little_Crow · 15 Jan 2020 at 13:34

We used Which? when we got our mortgage 7ish years ago, they also required a letter saying that the sizable deposit from my inlaws was a gift and not a loan - I don't know if there was any further checks done by them or the mortgage provider, but it seems a fairly standard thing.

sja360 said:
Money laundering, drug dealing, prostitution etc all illegal ways to earn loads of cash.

Prostitution is legal by the way, in the UK at least.
There are some insanely archaic rules around what is legal/illegal, but sex workers have to declare and pay tax on earnings like any self employed person.

Psycho Sonny · 15 Jan 2020 at 14:10

To answer OP Agreement in Principle so long as you have answered all of their questions honestly and to the best of your knowledge then I would take that over any random calculator.

If you have twisted the truth then I wouldn't rely on it.

Also as people have stated above mortgages work on increments of 5% in terms of reducing interest.

5-9% deposit = same interest rate as 5%
10-14% deposit = same interest rate as 10%

so essentially you your deposit to hit 5,10,15,20, etc as a percentage of the value of the property.

Here comes a curve ball. Lets say you see a house you want to buy. It's offers over £250K. it's been valued at £265K and you end up offering £280K to get it and it's accepted. Lets say you have a deposit of 50K. They will take what you overpaid above the value off your deposit and loan based on what you have left over.

So 50K-15K = 35K.

Your deposit is now £35K on a £265K property. So 13% = 10% rate

Whereas had you bought a property valued at £280K for £280K then it would be a 18% deposit = 15% rate

Even though in both scenarios you bought a home for £280K with the same £50K deposit.

Also you will need to account for SDLT, Solicitors fees, moving costs, buying of white goods and furniture, etc. For example My mate just bought a house and he has so far only furnished 1 room downstairs and others are lying empty, etc. He has had to go out and buy 3 beds, 2 tv's, tumble dryer, sofa, chairs, etc. It's good to have a spare £5K+ in the bank account so you can buy stuff for the house.

jaybee said:
Can you explain this in more detail?

Your solicitor will ask you what was the source of your deposit. You will have to say X amount was a gift and X amount is savings, etc.

They will then ask you and the person who gifted it to you to sign a form. Saying legally it is a gift and you don't need to or intend on paying it back.

As for the tax side of things. Ignore that. You are allowed to gift someone £5K or £7.5K per year or something tax free. And if you haven't used the previous years allowance that can be added on top for a max of 1 year so effectively double.

So you say it's a 12.5K gift to you and a £12.5K gift to your partner. Which means no tax applicable.

Things get trickier obviously with larger amounts. If the person passes away within 5-7 years then you would be liable for inheritance tax depending on the size of their estate.

Essentially I wouldn't worry about it too much. It will be nothing or pennies. As like I said the majority will be eaten up by the tax free allowance you are allocated per year for gifts.