Using a loan to pay a developer 5% deposit

sturgeon

I have a home which I'm going to sell to fund a new build home. I have more than enough equity to pay the required 5% deposit on the new place, which they need within 3 months of me reserving the property (I need to reserve asap)

However, as the new one won't be built until January I'm trying to find the best way to raise that deposit. I could remortgage but it's slightly more complicated as I have a shared equity property, plus would incur many fees as well as an ERC charge.

If staying with my provider though, Halifax, I've read they can waiver ERC charges-is that right?

The other option my broker is advising me on, is taking out a personal loan to pay for the developer's deposit. This would not be using the loan to pay the deposit to the mortgage lender as when it comes to completion in December/next January, the deposit for that will be coming from my equity in the property. I'm basically borrowing money to pay it back in 6 months with my own equity.

The main reason I was concerned is due to potentially using a loan to pay the mortgage deposit, which I know is a big no. This is slightly different though. I'm concerned that having a loan with my otherwise flawless credit rating will mean that my affordability for the new home will reduce, although the broker has explained he can tell the mortgage provider that the loan will be paid off on completion so won't be an ongoing debt.

Can you share your thoughts?

Jon_B_2

How much is the developers reservation fee? Help to buy is max £500 and I know a lot of developers only charge £1000.

sturgeon

It's £500 for help to buy.

That's fine but the deposit the developer needs is 5% of the agreed price within 3 months, that's what I'm referring to above.

kingstreet

What's happening to your buyer's deposit?

https://forums.moneysavingexpert.com/discussion/comment/68450284#Comment_68450284

Senior_Paper_Monitor

I'm assuming that the 5% is part of the true contract exchange - which you presumably you won't do until you have also exchanged on your own sale (as Kingstreet intimates), however you may have difficulty finding a buyer for a second hand flat requiring exchange in August and completion in January.


This is often overcome by part-exchanging with the developer.


Borrowing the deposit for a contract that you must complete not knowing whether you have sold your asset on which you are dependent for the ability to complete is high risk - take advice.

kingstreet

Senior_Paper_Monitor wrote: »

I'm assuming that the 5% is part of the true contract exchange - which you presumably you won't do until you have also exchanged on your own sale (as Kingstreet intimates), however you may have difficulty finding a buyer for a second hand flat requiring exchange in August and completion in January.


This is often overcome by part-exchanging with the developer.


Borrowing the deposit for a contract that you must complete not knowing whether you have sold your asset on which you are dependent for the ability to complete is high risk - take advice.

More here;-

https://forums.moneysavingexpert.com/discussion/comment/68460262#Comment_68460262

sturgeon

I cannot sell/move out until December this year or January next year as I'd have nowhere to live. However, I know first hand the selling prices and speed of sale for properties on my development so that's not a big concern for me.

libf

Ask the developer if you can exchange without putting extra money beyond the reservation fee down. Barratt are fine with me doing this. If you're buying on mortgage though, you won't even be able to apply for most mortgages until 6 months before you move in or the mortgage offer will have expired before completion...

I reserved a new build a couple of weeks ago, which is due to be ready December at the earliest, so I won't be applying for the mortgage until August, and therefore won't be exchanging until after that.

Lifes_Grand_Plan

I hope you've done your reaearch and are doing this with your eyes wide open, but please make sure you do your research on buying a newbuild, especially if buying "off plan"... there have been some horror stories over the years about them on here....

jaxkesa

libf wrote: »

Ask the developer if you can exchange without putting extra money beyond the reservation fee down. Barratt are fine with me doing this. If you're buying on mortgage though, you won't even be able to apply for most mortgages until 6 months before you move in or the mortgage offer will have expired before completion...

I reserved a new build a couple of weeks ago, which is due to be ready December at the earliest, so I won't be applying for the mortgage until August, and therefore won't be exchanging until after that.

fyi..Santander have just launched HtB mortgages with a 9 month completion deadline. I'm going with one of these as my new build is also ready from December at the earliest and I was going with Santander anyway. Not sure if this applies to you tho.

libf

jaxkesa wrote: »

fyi..Santander have just launched HtB mortgages with a 9 month completion deadline. I'm going with one of these as my new build is also ready from December at the earliest and I was going with Santander anyway. Not sure if this applies to you tho.

I'm putting in 10% deposit so I can get better rates elsewhere (DIP with Nationwide approved yesterday and HelpToBuy approved today), but thanks for the info.