From: Ronald Raygun 
Subject: Re: loan as deposit?
Newsgroups: uk.finance
Date: Fri, 18 Jun 2004 12:02:44 GMT

Tim wrote:

> "Ronald Raygun" wrote
>> Ah, yes, that well-known scam where the price of the house
>> is X, and they pretend it's really X+Y, with Y being a "deposit"
>> (but from a dubious source), just so the LTV is based on V
>> of X+Y, especially when the Y is big enough for L to be X.
> 
> Why do you call it a "scam"?
> 
> If the house is (legitimately) valued - by a competent surveyor - at X+Y,
> then where is the "scam"?
> If the surveyor instead values the house at only X, then the mortgage will
> (of course) be based on only X - so there is no advantage at all to
> "pretending" the sale amount is over X.

Mortgage loans are usually based on the lower of valuation and purchase
price.  So if the house is legitimately valued at X+Y (or even X+Y+Z),
yet the seller is only getting X, then the lender is being hoodwinked
if being pretended to that the selling price is X+Y.

> Obviously, the vendor would only consider selling at amount "Y below true
> value" (or in other words, they'd only pay the deposit of Y themselves!)
> if the house has been on the market already for a long time, and (s)he
> needs the loot very quickly.  Selling at below-value is his/her choice.

Indeed, but then the true value isn't X+Y, it's X.

All that apart, the very concept of deposits is anathema.  There is
only one price, and every penny of it should be paid on completion,
and not before.  That's one thing the Scottish system has right.