Taking out a loan to pay provide a deposit - good or bad idea?

MobileSaver

GoldenUx wrote: »

I wont have to tell them it's a loan. All I have to tell them is that my parents are fronting up the money. They wont be told I'm paying them back.

You'll be asked whether it is a gift or a loan and if the former your parents will be asked to confirm this in writing.

Assuming that your response means you intend to lie, that'll be a great start in life for your one year old when his mum and grandparents are prosecuted for mortgage fraud.

It seems surprising that you are concerned about affecting your parents savings but aren't concerned about earning them a criminal record!

Fang_3

GoldenUx wrote: »

I wont have to tell them it's a loan. All I have to tell them is that my parents are fronting up the money. They wont be told I'm paying them back.

Your parents will have to sign a form legally relinquishing any right to claim the money back. If the mortgage company find out then you could be done for what you are committing - fraud.

GoldenUx

Fang wrote: »

Your parents will have to sign a form legally relinquishing any right to claim the money back. If the mortgage company find out then you could be done for what you are committing - fraud.

Erm I haven't committed anything so enough of the finger pointing! I've come here for advice so now I know NOT what to do. I'm not familiar with the law because I'm not a criminal or a lawyer or police officer. Hence my naivity!

Fang_3

GoldenUx wrote: »

Erm I haven't committed anything so enough of the finger pointing! I've come here for advice so now I know NOT what to do. I'm not familiar with the law because I'm not a criminal or a lawyer or police officer. Hence my naivity!

You don't sound ready to buy a house. Far too immature.

kmmr

DVardysShadow wrote: »

Put bluntly, you are only fooling yourself if you believe that by taking out a loan in your parents name you are not touching their savings.

• If you default on the savings, of course your parents will have lost their savings
• If you default on the loan, of course your parents will have to make to money good from ... er ... their savings

If you must do this [I and I agree with the ohter posters, it is all a bad idea] - if your parents are getting less than 3.5% on their savings, then it is better to use the savings rather than the loan.

Another factor to take into account is that if the interest on your mortgage is 5% on a 90% LTV, you will need to find 4.5% of the value of the home each year for the interest only. If you borrow 5% of the value of the house from parents and pay it back over 5 years, you will need to find another 1% of the value of the house each year. So you will have to find about an extra nearly 25% over your mortgage.

As I was reading the first page, I was trying to find a way to say this - but this is exactly right.

If your parents want to lend to you, and you want to borrow, why not pay then 2.5% on their savings? They win, you win, and the banks lose. The reality is that if you don't pay them back the loan, you are risking their savings anyway, just adding a layer of complexity, and giving the banks a bit more income. Plus the bank gets a hand on the house, just making life even more difficult for you and your parents.

You think you are doing a good thing, but you are borrowing in their name , for no good reason!

I borrow deposits from my parents (twice), and just paid it back over the first year. It's an ok idea if you can really afford it. For me, it was just a timing issue, I knew I could pay them back pretty quickly.

Manual_Reversion

OP, I think you've been given a rough time by some posters, although I agree with many of the sentiments. You make your case well but I think your low post count works against you unfortunately and has resulted in some pithy replies.

Would I do what you're proposing? Well I did something similar. In 2005 I took out a 25k unsecured loan in order to put down a deposit for a house and pay for work on it. I was 25 and didn't really have much of a clue (or, rather, no relevant experience). My wife and I relocated in 2008 and STRd. Fortunately the market had risen in that time and we were able to clear the mortgage, unsecured loan, and have a pot left for a future deposit.

How did we get away with it? We were fortunate with our timing: (1) Interest rates were stable and inline with long term trends and (2) house prices continued to rise.

Contrast to now: (1) Interest rates, or rather mortgage rates, can't get any lower [i.e. will only go up] and (2) despite a strong recovery in the past year or so, there is credible evidence that house prices are resuming their correction (with no more adrenaline shots left to stop it)

Are you happy if the value of your soon-to-be-bought house will decrease to the point that you may not be able to move if you need to (negative equity)? You have £350/month leftover. Are you happy that this may evaporate into interest payments on your mortgage when rates rise?

Good luck with the decision and I hope it works out for your family.

Kind regards.

PasturesNew

Loan as a deposit technicalities aside, I'd suggest to you that you should consider what happens if your partner and you split up and they move out and won't pay half ... and you end up ditching the place at less than you paid for it .... and you'd then have no home, have to borrow more from your parents to sort out the negative equity ... and then be at home, with mum and dad nagging you, owing them a shedload of dosh.... not a good position to be in.

Oh .... if you're determined, check out a thing called a "Together Mortgage" that some bank or other offers .... your parents would put the money into an account there for 5 years (I think) and that amount offsets your mortgage in some way and enables you to get access to a mortgage/better rates. Also, your parents' money's safe as it's never in your hands.

PasturesNew

Manual_Reversion wrote: »

In 2005

.... they were giving loans and mortgages out like sweeties on Halloween to anybody that could demonstrate they probably had a pulse.

sonastin

PasturesNew wrote: »

.... they were giving loans and mortgages out like sweeties on Halloween to anybody that could demonstrate they probably had a pulse.

:rotfl::rotfl::rotfl::rotfl::rotfl::rotfl::rotfl::rotfl::rotfl::rotfl::rotfl::rotfl:

neverdespairgirl

GoldenUx wrote: »

I wont have to tell them it's a loan. All I have to tell them is that my parents are fronting up the money. They wont be told I'm paying them back.

You are likely to be asked to prove it, and your parents to guarantee it. If everyone starts lying at that point, looks like obtaining a pecuniary advantage by deception, to me.