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A gift or a loan?

buy to let Jan 31, 2016

With regards to getting a BTL mortgage, I have been told by people that I need to show that I have the deposit in my account for the last 3 months. My in laws are selling their house for £45k and we have agreed to put this money into property investment. So if my father-in-law put that money into my account, do I have to wait 3 months before I can get a BTL mortgage or have I been told wrong?

Understanding the lender's thinking guides you to the answer.

Your solicitor has the responsibility under Anti-Money Laundering laws to provide proof that your deposit is from a legitimate source but...

BTL mortgage lenders in particular want to determine that you have not borrowed the money and it is really your own cash you are using and you are not trying to disguise the fact you are borrowing from someone/where else.

To that end they often want to see an audit trail stretching back 12 months, not 3. If chunks of money have just dropped into your account within that time, they will want to drill down to see where it came from.

  • If it came from your own capital but from a different investment source i.e. you sold some shares, that should be fine
  • If you inherited it and that can be verified by a solicitor, that should be fine
  • If you refinanced a property you already own to release cash and that can be verified by a solicitor, that should be fine
  • If it was a gift from a close family member i.e. parents, that should be fine, but they will usually have to sign a disclaimer confirming it is a gift not a loan, they do not require it to be repaid and they will have no interest in the property you are buying
  • If you got it from your mother's cousin twice removed, it will not be fine
  • If you borrowed it from anyone other than immediate family, it will not be fine. Gifts from such people are also not fine as lenders won't believe that anyone would just decide to 'give' you thousands of pounds unless they are a close relative

Lenders are aware that investors are doing private deals to borrow deposit money once your own cash has run out, that is contrary to their T&C's and this is their way of policing it

Your father-in-law gifting, not lending, that money is unlikely to be allowed unless his daughter, your wife, is one of the applicants.

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