Mortgage Deposit Question

Dem85

JSR wrote: »

Why can't a deposit be funded by a loan? I've not seen this prohibited on lending criteria when I was looking. In fact, my mortgage application form had a check box for this option. Surely it only matters that you can afford both repayments. The mortgage lender is not exposed to any more risk whether the personal loan was spent on a car or used for the deposit?

Still I'm curious why the need to consider a loan given the relatively small amount needed relative to such a large income. I would have thought the £5K could be accumulated in just a few months?

This is exactly my question. I thought that because I am borrowing quite a small amount (i.e. 157.5k - which is only about 2 times my annual income), the mortgagor would not mind me borrowing a personal loan to pay for the fees as long as I can afford both repayments. I thought that all that mattered to the mortgagor is that (i) I have good credit rating and (ii) I can repay. Just wondered whether anyone has done it.

True that I could save £5k in 2-3 months, but my Tenancy has a break clause which I can exercise in a couple of months, otherwise I will be stuck with my rent which is currently quite high (£1270 pcm) for another six months. So my options are:

1. Stay where I am until November and buy something then.
2. Move to rent a cheaper property (which I am also actively pursuing), so that I could save faster.
3. Buy a property.

As I have kids, moving properties is not very easy, so I thought whether buying now could be a realistic option.

I am not too worried about property prices going down as I am considering buying something not far from where the Olympics will take place, so hope it will be ok...

Dem85

Thrugelmir wrote: »

Why not save for 12 months and build up your deposit?

That is an option, but I think I would have saved more if I bought now and paid interests on personal loans/mortgage than pay rent.

On the other had, I understand that it could work the other way, i.e. property prices going down, better mortgage deals available in a year's time.

Dem85

edinburgher wrote: »

I earn £16000 and my girlfriend £8000 yet we managed to save £15000 in a year so you should have no problem.

After tax I take it? Still, 62.5% of your income - nicely done!

Very well done indeed!

Living in London, renting, with a family to support is not very cheap. I am not complaining, however. In fact, moving to Essex for a while to save a bit more is an option I am considering.

Henry_P_Chester

Thrugelmir wrote: »

Why not save for 12 months and build up your deposit?

On £85k a year the OP could save for a month or two and have more than enough to cover the deposit and fees!

My advice save for a few years and buy mortgage free. It will save you around £150,000 in interest payments on a £200,000 house!

Dem85

shy2011 wrote: »

You can use a loan for the deposit as long as your income covers the loan and mortgage and outgoings for affordability purposes. However is it worth paying more interest when you could save for a little while longer?

Shy2011, I think you ultimately got it. So, the answer is that I should be able to take both personal loans and mortgage as long as I can repay it. But has anyone done it or seen it done?

The question however is whether paying higher interest on both the loan and mortgage is worth the money I would save on rent, which I would have paid during the period of saving more money for the deposit.

Dem85

Henry_P_Chester wrote: »

On £85k a year the OP could save for a month or two and have more than enough to cover the deposit and fees!

My advice save for a few years and buy mortgage free. It will save you around £150,000 in interest payments on a £200,000 house!

I think it will take me ages to save to pay full price for a 200k property and I probably won't have the discipline to do it.

With the mortgage, instead, I think it is easier as you know how much you owe and have to allocate a particular sum every month. When increase of salary/bonuses come - you can repay more (subject to terms).

And finally, you'd have your own property in the meantime - you can make it as you want, buy the furniture you want etc. Things you aren't allowed to do if you rent. I see buying property as an investment which I would repay earlier (as I hate debt), than save for it.

shy2011

Im a mortgage advisor and the company i work for accepts loans as a sourse of deposit. Like i said aslong as its affordable. Ofcourse underwriters dont seem to like this being done its certainly not against our policy.

Henry_P_Chester

Dem85 wrote: »

I think it will take me ages to save to pay full price for a 200k property and I probably won't have the discipline to do it.

With the mortgage, instead, I think it is easier as you know how much you owe and have to allocate a particular sum every month. When increase of salary/bonuses come - you can repay more (subject to terms).

And finally, you'd have your own property in the meantime - you can make it as you want, buy the furniture you want etc. Things you aren't allowed to do if you rent. I see buying property as an investment which I would repay earlier (as I hate debt), than save for it.

It's not a very good investment as it will cost you a fortune in interest!

opinions4u

shy2011 wrote: »

Im a mortgage advisor and the company i work for accepts loans as a sourse of deposit. Like i said aslong as its affordable. Ofcourse underwriters dont seem to like this being done its certainly not against our policy.

Perhaps you should confirm your status in your signature line. It may also help the op if you name lenders that you know support borrowed deposits.

Those who have a deposit they have saved themselves, or had gifted from parents, are significantly less likely to be repossessed than those who have borrowed their deposit from another lender.

In today's market any lender accepting loan funded deposits is probably in breach of agreements with it's wholesale funders.

There is absolutely no doubt that the more borrowers have to lose, the more committed they are to making their payments.

Needing to borrow a deposit suggests an inability to afford mortgage payments, brings an additional financial burden on to a borrower and clearly implies having less to lose if financial stress occurs in future.