Around 24 months ago there were several providers that would offer mortgages in excess of the value of the house (normally used for consolidating debts, or house renovations). Even 18 months ago it was still possible to get 100% mortgages, but 12 months ago the maximum mortgage you could raise against a property was reduced to 90% and to say that the rates were not too exciting is a massive understatement. However, with the housing market still recovering in some areas buyers have been making reduced offers on property and boxing clever, with the benefit of professional advice, to either obtain a cheaper rate or purchase with a smaller deposit. How?
Mr & Mrs Smith want to buy a house that is on the market at £150,000 but only has a cash deposit of £10,000 to cover legal costs and stamp duty (approximately £2,500). Using the fact that they have no chain and can move quickly the seller agrees to sell the house lower than the market value, and accepts an a offer of £142,500. However, the paperwork is drawn up showing the valuation of the transaction at the £150,000 and full disclosure is made of the fact that the property is being sold at £7,500 undervalue, which then becomes treated as what is termed a ‘Vendor paid deposit’. In effect Mr & Mrs Smith now have a deposit of £15,000 (Their original £10,000 plus the £7,5000 vendor paid deposit and minus £2,500 for legals and stamp duty) which means that they are now looking at a loan to value of just 90%, which opens the door to far more products and more attractive interest rates. Please note that not all lenders are happy with this scenario so professional advice is recommended.