unsercured loan as deposit?

PRINCE$$

Hi,

We are looking to purchase our first property but do not have a deposit. I have been looking at mortgage rates and they are much better if we could put down a 5% deposit. It it a good idea to get an unsecured loan for this amount rather than a 100% mortgage? I have looked at what we could get on Moneyback Mortgages and it seems we would have no problem getting a mortgage either way but I'd be interested to know if anyone has done the loan as deposit thing or if it is a good idea?
We would be buying a house of around 2.5x joint salary, both debt free apart from OH's student loan, and have enough cash put away to pay for fees/solicitors/stamp duty etc.
I am going to see a fees free whole of market broker but just wanted to get some opinions first.

Thanks in advance

Leon_W

If it's affordable then I think it's a good idea and have recommended this to clients of mine.

95% rates are cheaper than 100%

Unsecured loans are charged at a higher rate but are usually repayable over a shorter term so the overall interest should work out less.

Remember, if the loan is taken out before applying for the mortgage it has to be declared (the mortgage co will know anyway) and it will effect the maximum mortgage amount you will be allowed to borrow.

Alternatively, if your sure that you'll get the loan then you can always apply for the mortgage first and it won't effect the size of the mortgage.

Some lenders will ask if you are borrowing extra funds to buy the property, and some don't, so it may be wise to take this into consideration when chosing a lender dependant on which route you take, if you get my drift.

Also ensure that you chose a lender that doesn't charge a Higher Lending Fee as any savings you might think you are making could be wiped out by this alone.

All the best.

regularsaver1

Most banks/unsecured lenders will not allow you to borrow an unsecured loan for a mortgage deposit

PRINCE$$

Thanks to both of you for your replies.
I am a little confused now though, is this possible or not?
Cheers

PoochyChoo

you could borrow it for ''a new boat'' thus solving the 'are you borrowing it for this property' question.... and it wouldnt be a mortgage deposit, although if you were to then sell the ''boat'' and use the money as a deposit, then there is no problem.

PRINCE$$

That's what I was thinking, I could do with a new car... ;-)
I hope thats not too naughty?

kennyboy66_2

It's not too naughty at all. However, ask yourself this - if you have no deposit - it kind of suggests you have not been saving regularly over the last 24 months. How are you going to find the monthly repayments ?

I would try saving for a bit.

PRINCE$$

Fair point :-)
The reason for not saving up a deposit is that we have been becoming debt free, credit card debt from travelling. We can easily afford the repayments especially as we dont have other debt to pay now (we were paying a lot a month on our cards to get it sorted quickly).
We could also over pay the mortgage/loan so I dont think affordability is an issue.

Poppycat

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regularsaver1

PoochyChoo wrote: »

you could borrow it for ''a new boat'' thus solving the 'are you borrowing it for this property' question.... and it wouldnt be a mortgage deposit, although if you were to then sell the ''boat'' and use the money as a deposit, then there is no problem.

are you suggesting the OP lies?

regularsaver1

op - have you got money for solicitors and possible stamp duty ect?