The parents will be living in the property and wish to gift the equity to their son. Unfortunately, Mr and Mrs Morris do not have a deposit so they need a 100% loan. The property value is £100,000 and the purchase price is £72,000. Whilst the applicants are able to prove their income, Mr Morris has £1500 unsatisfied CCJs from 2003 and a poor credit profile on a personal loan and credit cards.
Trevor Youens is director of Flower
On the face of it this is a classic grey/light adverse case. The first port of call for many advisers will be something like GMAC-RFC light adverse via Pink or any number of similar options.
But it is important that we look beyond some of these offerings which are clearly fine but tend to be at least a few basis points above the more recognised high street lenders.
Considering the facts, there are number of elements to this case which mean that we may be able to take a more conventional approach. First we must deal with the issue of the deposit. The parents have effectively gifted the deposit to their son and daughter-in-law and as an IFA we would be looking to provide advice in relation to the inheritance tax implications of this.
Putting these issues aside, most lenders would view this gift as merely the deposit funds coming from an outside source without recourse to additional borrowing. Once a suitable deed has been drawn up recognising the parents' interest there is little impact on the new mortgage.
The reason I labour this point is that this leaves us with a decent 72% LTV case which can be considered by lenders on a full status basis. Undoubtedly, some lenders would take a dim view of £1,500 in unsatisfied CCJs and see a less than exemplary credit record as grounds to reject the case out of hand. But there are many names – some of which may surprise you – which will consider this case on its merits if presented in the best light by a professional adviser. Abbey, Halifax, The Woolwich, Cheltenham & Gloucester and Chelsea would all look at this case and ask for more details of the CCJ and an explanation for the other problems. Abbey would be happy to have a look at it on standard terms if it is convinced that the problems are just a blip.
My point is that we are generally expected to make mortgage cases fit into boxes on online submissions and will inevitably take the path of least resistance on cases such as this one. We are thereby not doing a good job for our clients. We are failing to consider all the options as professional advisers with experience of the market and the ability to work in clients' best interests.
It would do us no harm at all to proactively broke a mortgage case rather than taking what seems to be the easy option.
Dev Malle is associate director at Pink Home Loans
With house price inflation a barrier to many potential first-time buyers, assistance from parents has become more commonplace.
This help may take the form either of monies towards a deposit or, as in this case, gifted equity in an existing property. In effect this means where the first-time buyer has no deposit they are looking to borrow 100% of the reduced purchase price.
A number of lenders will lend on gifted deposits and reduced purchase prices, taking the market value of the property into account in a similar way to a Right to Buy case.
Mr and Mrs Morris have the advantage of being able to prove their income which means they would usually qualify for lower interest rates as full status customers. However, the things that will restrict their choice are the unsatisfied CCJs and the poor credit profile on their personal loan and credit cards.
There are a number of lenders who will take a flexible approach to this case, taking into account the 28% equity in the property and that the case is presented on a full status basis. Two obvious homes for the Morrises spring to mind depending on whether the couple require a discounted or a fixed product.
Platform will lend 100% of the reduced purchase price for a family purchase. It would want to satisfy itself that the vendor's mortgage is up-to-date so the sale is not to stave off repossession.
Platform would also want to see three months' bank statements from the applicants showing good conduct. Currently, Mr and Mrs Morris could take an exclusive Pink branded product with Platform giving a 2.45% discount for 12 months with a pay rate of 5.3%. This product has a three-year early redemption charge.
Alternatively the case would fit into a Pink branded GMAC-RFC light adverse product fixed until September 2006 at 6.65%. This product has no ERC beyond the term of the fixed rate.
It is important that Mr and Mrs Morris understand that while they don't require a deposit due to parental generosity, they will need to have sufficient savings to meet valuation and legal costs, not least as the above schemes will probably require indemnity policies to protect the sale undervalue, meaning an additional legal fee.
Finally, it is important that the parents understand that with appropriate indemnity in place they do not have a claim to the equity in the property and it would therefore be advisable for them to take independent legal advice.