It was a common feature of the boom years in property transactions for deals to proceed with all manner of incentives by sellers and others to buyers, especially with new build properties. In some cases, incentives are still provided.
The difficulty with the way incentives were and sometimes are made available is if they are made at the last minute and where there may be a suggestion of manipulating the transaction so that less money passes between buyer and seller, where the lower amount does not mean a proportionate reduction in amount advanced by the lender. In other words, an attempt by a buyer to put less money into the transaction whilst the lender still may think that the buyer is putting down say 10% or more.
Typical ways in which these sorts of incentives were attempted was by way of gifted deposit, where the seller would agree not to get a deposit on exchange of contracts at the last minute. This is an obvious manipulation and one which it is clear most lenders would at least want to know about and approve or may not agree. Historically, some lenders would allow a small amount of gifted deposit without reducing the loan amount, but most lenders rules are now much tighter.
Other forms of incentive which do not directly and obviously impact on the sale price or money which passes to the seller can include issues such as cashback, service charge free periods in big developments (where service charges can run to thousands of pounds per year) or even free gifts of cars or other items which a buyer could then if they wanted, turn back into cash.
From a lender’s perspective, most will want to be fully aware of any such inducement, and for understandable reasons, given that many thousands of transactions proceeded in the last decade where a borrower may have ended up putting little or no money into a purchase.
Lenders will also want to know if deposit funds do not come directly from a buyer. The lender wants to be sure that a borrower has deposit funds and puts a sum of money into a property, so that the borrower takes on an element of risk and has demonstrated they can afford the deposit and mortgage. It is not unusual, still, for buyer’s solicitors to come across a situation where funds arrive for exchange of contracts from someone other than the buyer, perhaps instead from a family member. In such situations, the solicitor must alert the lender to the position, as the solicitor will almost certainly be acting for the lender also and have legal and contractual duties to the lender.
Frankly, attempts to “pull the wool over lenders eyes” were quite common in the days of the property boom and I am still surprised that some buyers still think they can find a clever way to do so. In many respects, attempts to do this historically also seemed to be based on an attitude that “if everyone else is doing it why shouldn’t I”. Technically speaking, an attempt to manipulate a lender or withhold information could easily be tantamount to fraud. Even if someone were minded to try those tactics now, they should be aware that we are in a different era where it is clear there is increased appetite to enforce legal wrongdoing.
In short, don’t attempt to get away with being less than completely honest and frank with your solicitors or mortgage lenders. It is highly unlikely to work and may leave you in a very bad situation if you attempt it.
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