Shall I get a loan for my deposit?

Baby_A

Hi,

I have started working again recently after a career break when I had my baby. We have been renting for 2 years, and I am fed up of paying someone else's mortgage. We want to buy our own place as my daughter is sharing with us, and we are really tight on space but are told we need 10% deposit (thats min 20k).

Do you think its a good idea to get a loan for that amount or should we save (which will take over a year). Surely the interest on that loan wont be worse than my rent x 12? (£760 x 12 = £9120).

What do you guys think?

Woby_Tide

but instead of rent you will have a mortgage payment, you won't just be paying the deposit loan back.

tiny1

Its not so simple ....

The kinds of Q. to ask yourself include:-

How "cheap" is it for you to borrow ?

How are house prices going in your area ?

What kind of interest rate will you be paying to borrow for a deposit ?

Have you calculated all costs of purchasing i.e. legals, moving costs, insurance, repair costs and items to purchase ?

Its also worth considering the mortgage cost if interest rate's rise.

Finally - will house prices continue to rise in your area? flat line or go south in the next year or two ?

Is it worth waiting for a better quality prop at todays prices ?

Will the govt. HIP make a difference from next year on house prices ?


If you can answer the above ....

You will be the first to know if buying right now is for you or not.

AndrewSmith

Dont forget that if you take a loan, it will reduce the amount of mortgage you are able to get.

When calculating your borrowing capacity a mortgage company will take any loan payments, multiply them by 12 to gain an annual payment and deduct this from your income before applying the income multiple.

A loan of £300 per month for example has the effect of reducing your mortgage borrowing capacity by £14,400 assuming 4 x your income.

It is generally never worth borrowing for a deposit, besides the lender will ask where the deposit funds are coming from, and it will be evident that they are coming from a loan when the credit score shows a recent loan application for a similar amount to the deposit being taken up.

Don't do it, would be my advice.

Andy

FaTB

Sounds like a repo waiting to happen IMHO !!

Baby_A

FaTB wrote:

Sounds like a repo waiting to happen IMHO !!

I posted on here for advice not snide comments!

Baby_A

Woby_Tide wrote:

but instead of rent you will have a mortgage payment, you won't just be paying the deposit loan back.

Yes I do have enough left at the end of the month to pay both plus bills etc because me and my husband are working, just rather pay the loan amount off every month whilst in my own house than save it for over a year and stay in rented accomodation.

lynzpower

Baby A

I took a loan from my parents at 0% that I didnt declare when I took out my mortgage. It is an arrangement whereby if I cnat afford to pay my folks back , they can pay the odd month for me in any case. However, this hasnt happened yet.

I personally wouldnt take out a normal loan for all the reasons that Andrew Smith pointed out. Additionally when you move into your new home you will more as likely have stacks of other things to pay for ( furnishings appliances blah blah, plus any work you need to do to the property to make it habitable)

You will be paying out interest on the loan, whereas you could get more out of it if you save the deposit now and bank it, at least you get the interest.

I wish Id done it that way round, I wouldnt have been so financially stuffed as I am now if I had.

Baby_A

lynzpower wrote:

Baby A

You will be paying out interest on the loan, whereas you could get more out of it if you save the deposit now and bank it, at least you get the interest.

Although I will be paying interest on the loan, wouldnt I be more better off as I would have put 12/18 months landloards rent on 12/18 months of my mortgage payments?

lynzpower

Can you afford to pay both equivalent to rent and mortgage

AndrewSmith

It depends on the figures you are talking about.

The fact is though that taking a loan for your deposit:

a) Is not something that lenders like to entertain, and some would even decline a mortgage because of this.

b) Will reduce the amount of mortgage you will be given assuming the lender agrees to you taking a loan for the deposit in the first place.

Post some rough figures to give an idea of exactly the numbers involved.

Andy