Sounds like a nonsense doesn't it.
Sounds dodgy
Surely you can't do that in this day and age?
The answer is that you can but there are some caveats and various rules and regulations which require to be followed. As with all things that sound too good to be true, for a great many it will be because they don't or cannot satisfy the lender's criteria but it can and does work. Let's delve a little bit deeper.
As ever the devil is in the detail.
Relationship
The main condition is that you have to fall within one of 3 categories of relationship. These are as follows: –
Landlord and tenant
Employer and employee
Family relation
How it works is that if you are a landlord, employer or family member then you can sell a property that you own to your tenant, employee or family member at a discount. As long as the discount is in excess of 10% then the buyer can use that discount as the deposit and approach the lender to obtain a 100% mortgage.
For example, if the property is valued at £100,000 and you agree to sell the property for £80,000 then the buyer would approach the lender and seek an £80,000 mortgage. As a "Genuine Bargain Price" the lender would agree the borrowing basing this on the value of the property rather than the purchase price. And what's even better is that they will get a mortgage equivalent to an 80% loan to value. It's a win-win!
This flies in the face of the usual rules on loan to value where mortgages are based upon the lower of the purchase price or value. This special rule is made by the lender as "Genuine Bargain Price" and is specifically used by this one lender.
Valuation
You've probably already thought this through. What is stopping me just inflating the value of the property and then selling it for an agreed price? The lender has thought of this and they just will not simply believe what you say the value of the property is. They will want to undertake their own valuation just to make sure they are comfortable that what you say is a Genuine Bargain Price is in fact that.
Summary
And that is pretty much it. The lender is a High Street lender and is pretty easy to deal with. We did one case last week where we were approached by a client who couldn't quite believe that we could proceed without a deposit.
Listen, it's not going to help everybody but at least you now know that it's out there and it might be something that helps you move forward.
Get in touch with me if you would like to know more.
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