Loan to pay deposit

ag359

I have noticed that if I can scrape together a 10% deposit I will benefit from significantly lower mortgage interest rates. Is it possible to take a personal loan from a different lender in order to pay the deposit? I realise I would have to declare the repayments when applying for the mortgage, but don't think it would prevent me getting a mortgage. I don't have any other loans or credit card balances (except a student loan which is paid off automatically).

If it makes any difference, the house value would be about 250,000, deposit 25,000 and the loan about 10,000.

ag359

I've been thinking some more, and the other option would be to get a 0% credit card 'loan'. So can I ask the same question for this please?

Having said that, not sure that I could get 10k on a card just like that - have never used a credit card before (although should have a unblemished credit record) so am not very knowledgeable about the system...

Guy_Montag

Ah, never having used a credit card won't give you an unblemished record. It will give you NO record, this worries lenders. A cc company's ideal customer is someone who never misses the minimum payment, though if you get one & pay off the full amount each month that will improve matters.

I'm no expert but it may explain your high mortgage rate.

ag359

When I said unblemished, I meant it has no blemishes on i.e. missed payments etc. I wasn't pretending that i'd be an ideal customer for them! Any ideas on the answer to my question? Is it acceptable to take a personal loan/credit card to help pay a deposit or is this going to upset your lender or ruin your credit score? Obviously, am not expecting a definitive answer, but a few views would be really helpful!

Rick62

It can be worth doing, there is certainly no problem with doing what you suggest, other than it affects your affordability as you point out. Its a case of comparing what mortgage rate you can get with a 10% deposit versus with only a 5% deposit.

Whichever deposit however HSBC rarely have the best rates.

ag359

Thanks rick62, that's very helpful. You say it's no problem - is it still better to not tell the lender that the deposit comes from a loan?

UK007BullDog

I would not suggest you do that.

First of all you said you have not had a CC before. So you will probably find you will not be able to raise a £10K deposit via a card. Also it can work more expensive for you in the long run as the 0% deal will eventually run out.

Secondly if you never had a CC before this as mentioned above makes the lender nervous. So you might not even get the full amount you are looking for.

Thirdly The lender will see on your credit record that you owe a loan or a CC with a huge debt. So they will take that amount away from your available income and reduce your borrowing power. So even though you have a £25 Deposit you might not be able to borrow as much to get to your required amount to buy the property.

So I suggest you speak to your local bank to see what they can offer you as an existing client and then speak to a whole of market broker.

Yes, the more you borrow, the more of a risk you are to any lender as you are not putting anything or very little into the pot, i.e. your personal risk is much lower. This privilege costs. However there are decent deals about especially if you fix for 3 to 5 years. In that time you pay off part of the capital, hopefully the property gains value so that when you remortgage you have 10 or 15% equity.

HTH

meanmachine_2

The difference between a 90% LTV deal and a 95% would probably be too small to compensate for what you'd lose in terms of what you can borrow, and what you'll be paying back on the loan.

Don't bother.

Unless you can get a 0% loan from parents or rellies, it's best not to borrow.

In the next six months, while you're saving more for a deposit, consider taking out a credit card and make sure you pay off what you owe each month.

That will help boost your credit rating.

AndrewSmith

Being completely honest if you are able to afford a mortgage of £225,000 which would indicate applicant income of approx £50,000 (give or take a few thousand) you should be in a position to be saving towards the extra £10,000 needed. You indicate yourself that you have no current loan or credit card payments.

Lenders are not stupid. They will firstly ask you where the deposit is coming from (which you must declare honestly to them as they do specifically ask if you are borrowing from elsewhere for a deposit).

Secondly they will see that you have applied for a loan of credit card recently with a large balance when they carry out a credit check. If you do this after the original app is submitted they may still (as is within their right as per their declaration) carry out a subsequent credit check prior to offer or completion. If they are not happy at any stage they may ask for proof of the deposit funds and source.

Lenders in general do not like you borrowing for the deposit, they prefer it to come from your own resources. Borrowing for th deposit may affect also the amount of mortgage they will be prepared to offer you even if you do manage to obtain it on a 0% credit card.

My advice is to look at what is available with your current savings, or save for a bigger deposit and buy when you can afford it.

Andy

ag359

Andy - thanks for the help.

Our combined income is currently £62,000, will rise to £70,000(ish) in September, and then about £110,000 the following September. This salary progression is as good as guaranteed.

I appreciate that saving more deposit would be the ideal solution, but for our own reasons, we have decided that now is the time we wish to buy, so it's not an option.

As a result, it is just a question of how to do this as efficiently as possible. One option is to borrow from parents, although this wouldn't give us enough for a 10% deposit.

I accept the advice about not taking credit cards/loans. It seems like a fair point. (Although surely lots of people take them out when they move house, for renovations etc??).