There are a range of schemes available to assist someone purchase a home. Many of the UK’s leading developers offer ‘Builder Gifted Deposits’, sometimes advertised as ‘5% deposit paid’. Somewhat less known about is the option to purchase properties with a ’Vendor Gifted Deposit’.
Builder Gifted Deposit
Many of the leading UK developers offer Builder Gifts or a percentage of the deposit paid by the developer. Some also offer ’Deposit Match’ whereby for example the person buying the property comes up with 5% of the deposit, the developer gives another 5% and there is a mortgage put in place to pay the remaining 90%.
How does this actually work? It can take a little thought to grasp the concept, however, it is actually incredibly simple. To use easy figures, lets say a property is worth £100,000 and is being advertised at £100,000 sale price with a ’Builder Gifted Deposit’ of 5%. This means that in reality the developer is proposing that the property is worth £100,000 on the open market, however, they are willing to sell for £95,000. The contracts are drawn up for a sale at £100,000 with a declared deposit contribution from the builder or seller. This does not mean that the vendor physically pays 5%, they in effect create a voucher for the 5% off. The solicitor checks that the paperwork is legal and correct and they will also check that the lender is fully aware of the structure of the deal and that there is an incentive offered.
Vendor Gifted Deposits
Vendor gifted deposits work in a very similar way to builder gifted deposits, the primary difference being the seller! Rather than being the developer or builder who has built the property it is an older property being sold by the current owner who is not a builder or developer. The principle of how it works remains the same as the builder gifted option. Lenders do approach Vendor Gifts with more caution than Builder Gifts and while this was a popular option pre-credit crunch it is not currently suppoerted by lenders.
Family Gifted Deposits
It is not at all unusual for family members help others in the family get on the property ladder. Family gifted deposits are approached in two main ways. The first is a gift of a sum of money towards a purchase of a property which can be used as all or some of the deposit required by the lender. The other alternative is that the property is being sold by one family to another at a discount and that discount provides part or all of the deposit required so that the family do not actually part with any money either way and the mortgage lender funds the purchase. It is again important to make sure that the gift is declared to the lender at the out set of the application. It is normal for the Mortgage Lender to ask for a letter from the person giving the gift to confirm any conditions of the gift and whether it includes any legal interest in the property by the person giving the gift.
Landlord Gifted Deposit
As a tenant, your landlord may decide to sell the property you rent. It is quite likely that if he/she does so, they would offer you, the tenant, the property at a discounted price rather than pay an Estate Agent fees and wait for a buyer on the open market. Again, any discount offered can be used as all or part of the deposit required to get a mortgage and purchase the property.
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Think carefully before securing other debt against your home. Your home may be
repossessed if you do not keep up repayments on your mortgage
Where you only place a small deposit on a property you should be aware that you
may enter into negative equity as the value of property can up or down