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.
“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.