Personal loan to fund the purchase of a flat?

Loan_soldier

Hello,

I have been looking into mortgages recently, this has been ruled out because of my partner and I have a small income and being self-employed.

We have over half the purchase price in savings (25k) so I was thinking would it be possible to a personal loan of 15K to cover the cost of the purchase (40kish) and effectively use it like a mortgage?

Would a lender have a problem with this?

I would be fine with securing the loan against the property.

Thanks in advance,

TadleyBaggie

With little income you will struggle to find a lender I suspect.

[Deleted User]

If your income is so small that you can't secure a mortgage of £15,000[1] how do you expect to be able to service a £15,000 loan and afford property ownership at the same time? How much do you and your partner earn?

You certainly can use a personal loan towards property purchase, the problem is that if you're refused a mortgage for the required amount it's very unlikely you'll be able to get a personal loan for the same amount as in general mortgages are far more secure for lenders.

[1] ~£15,000 is such a small amount for a mortgage are you sure the problem is your income rather than the low amount? A lot of lenders won't dip below say £30,000 for a mortgage. Did you speak to a mortgage broker or apply online with a high street bank for the mortgage?

Loan_soldier

citricsquid wrote: »

If your income is so small that you can't secure a mortgage of £15,000[1] how do you expect to be able to service a £15,000 loan and afford property ownership at the same time? How much do you and your partner earn?

You certainly can use a personal loan towards property purchase, the problem is that if you're refused a mortgage for the required amount it's very unlikely you'll be able to get a personal loan for the same amount as in general mortgages are far more secure for lenders.

[1] ~£15,000 is such a small amount for a mortgage are you sure the problem is your income rather than the low amount? A lot of lenders won't dip below say £30,000 for a mortgage. Did you speak to a mortgage broker or apply online with a high street bank for the mortgage?

We can not get a mortgage because we are both self employed with only 1 years accounts, we live in Scotland (which makes a difference apparently) and the minimum property value was 90k, no lender would lend to us on this basis.

We have not applied for a mortgage, we merely enquired with a specialist broker.

Our combined income is about 15k.

The absurdity is we could easily afford it as it would cost less than our current commitments in our rented flat.

alansmith7

you consider using moneysupermarket http://www.moneysupermarket.com/loans/
and see if anyone is willing to provide you with the loan.

Tixy

With a £15k income you will fail lenders affordability checks for a £15k personal loan.

You may find you need to wait until your businesses are better established and you can demonstrate higher earnings and have been in business a longer period of time.

To answer the original question, some lenders may specifically exclude the use of a loan for purchase of a property.

Pixie5740

As a fellow self-employed person, I found it difficult to get a personal loan when I looked a couple of years ago. The lenders I looked at wanted me to be a home owner since I was self-employed, even though I've had accounts with one of those lenders since 1988 including my main current account.

I gave up in the end and decided I didn't really need a loan after all. There might be some lenders willing to consider a self-employed person who isn't currently a home owner though.

I'll just add that there's more to the cost of home ownership that mortgage (or loan) repayments though so comparing repayments with rent doesn't give the full picture.

macman

Out of interest, what kind of flat can you buy in Scotland for just £40K?

jonesMUFCforever

Banks will not lend on an unsecured basis to buy land or property.

HappyMJ

jonesMUFCforever wrote: »

Banks will not lend on an unsecured basis to buy land or property.

I know that is true...but it is so stupid. They'll lend money for you to spend it all on a overseas holiday that only lasts a month (during which time you aren't working and earning so apply for a payment holiday on your return) and that you'll be paying for years for but not lend the money so you can buy something with some residual value.

boo_star

HappyMJ wrote: »

I know that is true...but it is so stupid. They'll lend money for you to spend it all on a overseas holiday that only lasts a month (during which time you aren't working and earning so apply for a payment holiday on your return) and that you'll be paying for years for but not lend the money so you can buy something with some residual value.

Why?

A personal loan from a bank is unsecured whereas a mortgage is secured. Why offer an unsecured loan when they can get security by way of a mortgage agreement?

I appreciate there are ways of turning an unsecured loan into a secured one via a Charging Order but it's a lot of faffing around (and far from guaranteed) when they can just do it in a secured manner in the first place.