Borrowing more to furnish house, bad idea?

ed110220

cwc100 wrote: »

Hello all,
FTB buyer here, we have had an offer agreed which is less than the agreement in principle plus deposit. My other half thinks we should still borrow the full amount in the agreement in principle which would give us a bit extra to furnish the house and an emergency fund for anything that went wrong in our first year. At the moment we are budgeting £4k for fees, which leaves £3k left over in our budget after everything has been paid for. The extra we would have from borrowing the full mortgage in principle is £7k extra. My instincts are uncomfortable with the fact that we will be paying interest on the £7k, but my other half thinks it will be better to pay a little more each month to ensure that we have a safety net for when we are just starting off. We will get some advice from our broker, but I wanted your thoughts? Thanks.

£4 000 seems rather high for fees - always good to budget on the high side and then have money left over though. We paid about £1 700 two years ago.

Fortunately I don't think you'll find anywhere that will let you do what your other half is suggesting. The agreement in principle is to tell you what home you can afford to buy. It doesn't mean you can buy a cheaper home and still borrow the extra money for other things.

Otherwise in an extreme case you could, say, borrow £150 000, buy a hut half way up a mountain for £5 000 and p*ss away the rest, default on the mortgage and leave the bank £145 000 worse off...

Pixie5740

That's what those 125% mortgages from Northern Rock were for and that didn't end well.

nobblyned

You will probably be able to borrow the extea up to your agree ltv. Ie you keep some of your deposit provided the original ltv remains the same. You won't be able to borrow the full difference as will change the ltv you agreed with the bank

Would advise against it though. You pay a lot for that in the long term.

pinkteapot

19lottie82 wrote: »

You can only borrow the price of the property minus your deposit on a mortgage.

Not quite true. The bank don't force you to spend all your cash on your deposit. They'll lend you a maximum percentage of the purchase price, and that's what limits you.

Example:

You have £15k in the bank and plan to use it for a deposit. The bank says they'll lend you £90k, at up to 90% LTV.

You buy a house for £100k. You can either put down £10k and get a mortgage for £90k, giving you £5k left over in the bank. Alternatively, you can still put down the full £15k and only borrow £85k (less than the maximum the bank were willing to lend you). So long as you're within the %LTV, it's up to you.

Assuming that OP is sticking within the percentage limits the bank have set, it's their choice whether to put down a smaller deposit or not.

OP - if you're going to have no emergency money at all in the bank after the move, I'd be tempted to borrow say £1k more. Mortgage interest rates are MUCH lower than rates on credit cards, personal loans, etc. If major DIY/repairs are needed, can you afford them without borrowing?

I wouldn't borrow on the mortgage to buy furniture though. As others have said, Freecycle, second hand, or get the cheapest stuff Ikea do. You can replace as time goes on, as you save up.

hazyjo

cwc100 wrote: »

We don't intend on spending all the money but wanted a little in the bank in case something goes kaput. I understand it has to be a decision shared between two people, but it was interesting to hear your thoughts

If something goes kaput, then you borrow (if you have to). It seems pointless to me borrowing money and paying interest on it (work out exactly how much you pay back over whatever your mortgage term is!), only to have it sit in the bank costing you not only interest, but higher payments every month. Put aside that money you would have been spending on a higher mortgage (guessing £50 a month?).

Jx

barbiedoll

It's good that you say about this being a "joint decision" but I'd advise you to keep a close eye on your partner's finances and if possible, keep your money and financial dealings separate as much as you can.

I love my husband dearly but he had a similar outlook to your partner, if we needed say, x amount for a home improvement purchase, he would borrow several thousand extra in order to give us some "spare cash"

Of course, you can guess the rest, we got into financial difficulty, defaulted on our credit deals and we are now in a DMP with credit ratings at the very bottom of the barrel (mine too :mad:)

You are obviously quite astute, the fact that you are asking on here means that you clearly recognise the pitfalls of his idea. Don't watch the "property p0rn" shows, and don't spend Saturday afternoons dreamily mooching around Ikea etc, most of us end up with Freecycle/hand-me-down furniture in our first homes. And there's nothing wrong with that, if nothing else, you're doing your bit to save the planet!

Good luck with your house purchase

ed110220

I got almost all our stuff from charity shops and Ebay, and not just furniture to make do with, for example a beautiful 1950s sideboard for £45.

Ed

Paully232000

I would think it is a bad idea to borrow more on your mortgage to furnish a house, even if you could.

Try looking at local auction houses as well as not sure where you are but there is a weekly one near to me that always has a furniture section.
Some good bargains to be had, and a bit of excitement as long as you dont get 'auction fever'.:)

jee

Don't borrow more it's expensive in the long run.
Get an interest free credit card to spending on the furniture- you can get the 24month ones now.. Just make sure you put away a bit every month to pay it off.