I recently completed a 100% loan to purchase mortgage with gifted equity.
My client in this case was an IT consultant in his twenties. He was a first time buyer looking for a loan of £210,000 with which to purchase a property in Croydon. He came to us because his personal situation meant that many banks were unwilling to lend to him.
The property was owned by his parents, who were keen to give him a helping hand onto the London property ladder. Although the house was valued at £285,000, a purchase price of £210,000 had been agreed upon. My client was hoping to find a lender who would treat the £75,000 difference – the equity gifted by his parents – as the deposit.
There were a couple of stumbling blocks. That he was a first time buyer caused a few raised eyebrows among lenders, as did his age. Tighter lending restrictions in the wake of the 2014 Mortgage Market Review have meant that younger borrowers and first time buyers have sometimes struggled to convince lenders that they are and will be responsible customers. Another potential problem was that the client hadn’t yet been in his job for a year. With the customer’s track record being the main concern of lenders during ever more stringent affordability checks, this was another spanner in the works.
The other challenge for me was to find a lender who was willing to look at the loan against the true value of the property rather than against the purchase price he had agreed with his parents.
My client was particularly keen to secure this loan for tax reasons. If we were to be successful in securing the loan and allowing him to pay the lower purchase price of £210,000 for the property, he would be able to make significant tax savings on stamp duty.
I managed to find a lender happy to take a view on the situation and issue a £210,000 mortgage. Taken against the property value, with the gifted equity being treated as a deposit, this was a 75% loan to value mortgage at the extremely competitive rate of 1.59%. In effect for my client, however, it was a 100% loan, which was an excellent result.