Gifted Deposit Mortgages
If you have been given a discount by a developer or a seller to use as your deposit then you will need a gifted deposit mortgage. This is a specialist area as the way in which the transaction is structured differs from normal purchase.
Deal structure...
The lenders that you need to approach are different, the way you approach them is different. You need to make sure the solicitors you use understand how to structure gifted deposit deals and know how to draft the contracts in the right way among many other things.
Now some lenders accept gifted deposits and some don't. Some lenders will accept gifted deposits if approached in the right way as a result of which, using the right solicitors becomes paramount.
You also need to make sure that you approach lenders who will process the mortgage quickly and issue an offer in 2 to 3 weeks max so that you stick within the 28 day deadline that most developers put as a condition of giving you the discount.
Obtaining the right lending...
If you are obtaining a buy to let mortgage then before you even take a deal on, make sure that you'll be able to get the lending based on the property's rental income. A lot of new build properties don't stack up for buy to let mortgages restricting the lending options open to borrowers.
You can still get a buy to let even if the rent doesn't stack up but will only be able to do this a few times and hence can't rely on it to build your portfolio. The only other option is to buy the property on a residential mortgage, and this is dependent on the circumstance of each buyer and won't be open to all.
So for a buy to let mortgage to work for a gifted deposit deal, make sure that the rental yield is at least 5%.
How do you work out rental yield?:
Yield = (Annual rent/Price of property) X 100%
E.g. if you have a property for £150,000 with 15% discount and the achievable rent is £650 month which comes to £7,800 a year, then the rental yield would be:
(£7,800/£150,000) X 100% = 5.2% This fits as it's greater than the 5% yield we need to achieve.
Maximum lending...
Maximum lending you can obtain on a buy to let for gifted deposit deals is 85%, or 95% on a residential mortgage. You can structure the purchase in such a way as to get a cash back depending on how much discount you received from the developer and how much you're borrowing.
Some investors put down a 5% deposit on top of the 15% discount they obtained in order to have 20% deposit for a buy to let mortgage so that the rent can stack up due to the extra deposit. The other alternative is to negotiate a higher discount from the developer on the basis that the rent doesn't stack up - some have done this successfully and managed to get 25% discount off the property price and get a buy to let mortgage where the rent stacked up.
Since this is a specialist subject, we advice you fill in our enquiry form to contact us so that we can explore all the options of lending open to you if you are buying via a gifted deposit.
To speak to someone on this specialist area click here.