A landlord’s generous offer to pay his tenants’ deposit so they can buy their home could have costly conditions attached, warns one mortgage broker.

It follows LandlordZONE’s story about Nottingham landlord Mick Roberts who wants to sell off his portfolio – mostly occupied by benefits tenants – and is happy to stump up the 5% deposit to help them make the move.

Mark Harris (pictured), chief executive of mortgage broker SPF Private Clients, explains that while most, if not all lenders, allow some part of the applicant’s deposit to be gifted to them, there might be a cap on the percentage the landlord is able to commit.

“The applicant would still be expected to contribute and there may be a loan-to-value bar set lower than what is normally available,” he tells LandlordZONE.

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“Where the landlord is offering to pay the deposit, the lender would typically want this capped at around 5 to 10% but would also require the applicant to put in at least 5% of their own money.”

Alternatively, the landlord could offer the property at a discount from the market value, and the lender will typically work from the lower of the two figures.

Pay back time?

Skipton and Nationwide building societies accept applications from tenants buying from landlords, explains Harris, but he warns: “Lenders will require confirmation that there is no requirement to pay back the money.

“If not, many lenders will decline the application or it will be factored into the affordability assessment so the lender will assume some sort of loan repayment, which will then affect the borrower’s ability to get as big a mortgage as they might otherwise have done.” 

In April, the government-backed mortgage scheme launched to help people with 5% deposits get on to the housing ladder by guaranteeing the portion of the mortgage over 80%.

Government figures show that 68% of private renters want to buy their own home and 76% have started saving for a deposit or put more money into their savings during the pandemic.

1 COMMENT

  1. Mick is attempting to do avery nice thing.

    Lenders prevent this.

    So rather than pay rent.

    Have the tenant NOT pay rent.

    LL may if they choose as a goodwill gesture refuse to accept rent.

    The rent not received magically equals the amount the tenant would have received as deposit assistance from Mick.

    An issue would be for those in receipt of Welfare as rent not paid with the agreement of the LL would be considered as savings which would be revealed in any property purchase.

    All assets have to be declared which would result in any UC claim being suspended.

    A potential ‘clawback’ from the tenant might occur.

    Unfortunately it rarely makes sense for a LL to become involved with the personal domestic finances of UC tenants even if just £1 of welfare.

    Mick deserves to be able to make as much PROFIT as he can.

    Despite the best of intentions it simply isn’t practical to attempt to provide assistance.

    All said and done Mick should just sell up for maximum value.

    It is just too awkward to try and assist his tenants legally.

    Another strategy could be to overpay the mortgage of one of his tenant purchasers by the amount of the deposit he was going to gift over a period of years.
    This as lenders only allow a certain percentage of overpayments.

    Gifted deposits reduce the market value of a property.

    But of course then we come up against HMRC who will only allow restricted amounts per tax year as gifts.

    All very fraught and best left alone.

    Sell up for maximum price.

    Don’t try to assist former tenants.
    It becomes far too complex to do it legally.

    Believe me the DWP are forensic in their interrogation of claimant assets.

    That could cause all sorts of problems.

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