Borrowing a deposit

B.Inky

Hello, I hope someone can help me. Me and my partner have been given the opportunity to take out an interest free loan from my employers towards a deposit on a house. My parents would help us out with the rest. I thought that this would probably reduce the amount we could borrow as we would have other commitments but I wanted to get the figures to see if we could afford a house that's come for sale near us.

However my bank wouldn't lend under these circumstances at all, they said we would have to save it all up ourselves (which we were doing anyway, before this offer, but it would take about 4 years). Would other banks do this or is it normal for them to turn you down if your deposit is a loan, even if it's from parents/employer etc.?

Thanks!

USM

Yes completely normal, I don't know of any lenders who accept borrowed funds as a deposit.

Dave_Ham

Potentially there are some lenders that are happy with this although it will all be in the smallprint.

How your employer and your parents deem this money. As a gift then most are satisfied, as a loan not many - maybe 1 although I have not come across many employers doing this before, so would probably play that one by ear and assuming they do it much like a travel season ticket loan just reduce from income and therefore affordability?

Find a broker to search for you, depending upon the many undisclosed variables I certainly think there would be enough to go at.

Deposit (therefore LTV) income and previous credit score will inevitably come into play...

kingstreet

Abbey/Santander will consider it.

They've recently changed their criteria, but it isn't specifically ruled out.

Proof of deposit
We may request proof of deposit, for example if a First Time Buyer was putting down a large deposit. We always require evidence of the deposit where it is £100,000 or more and is not coming from the simultaneous sale of a borrower’s existing property.

We can accept deposits provided by gift or loan.

We will not accept a gifted deposit if:
- provided by the vendor (unless an acceptable new build incentive from the builder/developer);
- protected by a Deed of Trust (or similar);
- the person providing it will be living in the property, but is not named on the mortgage; or
- there is a beneficial/equitable ownership/interest in the property.

The use of a second charge could indicate the amount provided is not a gift and further clarification may be required. We do not allow a second charge on any flexible mortgage products. Where the source of deposit is a loan, you should provide the following details in the notes section on Introducer Internet:
- amount;
- lender (explain background if not a financial institution);
- loan terms (e.g. interest rate, payments required);
- any security required e.g. second charge; and
- confirmation that payments have been factored into affordability.

It may be a good idea to speak to a whole market or independent broker as this is from the Intermediary Criteria. He may be able to provide you with other options too.

I was typing while Dave was submitting!

DVardysShadow

USM wrote: »

Yes completely normal, I don't know of any lenders who accept borrowed funds as a deposit.

In principle, I don't see why not - but it does not help the OP. It does make sense to take out an interest free employer's loan - provided that the borrower has got an acceptable LTV without the loan.

grey_gym_sock

hmm, what would count as "proof of deposit"?

Thrugelmir

What are the terms of the employer loan?

Although interest free the capital will need to be repaid. One assumes over a relatively short time frame.