How do lenders know if you're using a loan to boost your deposit?

idkwhattosay

I don't understand this. If I go with a mortgage broker and they find me a lender, how do they know where my deposit money has come from? I took out a loan for a car but then changed my mind, if I use that loan money to boost my deposit in a year or so (loan would be no more than 30% of deposit), how would they know those 30% or so is a loan? Can someone explain please?

HappyMJ

idkwhattosay wrote: »

I don't understand this. If I go with a mortgage broker and they find me a lender, how do they know where my deposit money has come from? I took out a loan for a car but then changed my mind, if I use that loan money to boost my deposit in a year or so (loan would be no more than 30% of deposit), how would they know those 30% or so is a loan? Can someone explain please?

If it's a year ago you've just wasted a whole years interest on a loan you did not need and kept the money in the bank to fund a purchase a year later. Is that right?

Answering your question...there's no way they would know as they aren't going to go back that far in your bank statements.

They will use the payments you make towards the loan in an affordability calculation which reduces the amount your can borrow. If you used the money that was advanced from the loan to repay the loan you might find you can borrow much more on a mortgage at a lower rate than the unsecured loan. It might be a slightly higher rate due to a higher LTV ratio so it's something which you'll need to plug lots of numbers into the calculator to figure out if it's worth repaying and having a smaller deposit or not and having a bigger deposit.

Thrugelmir

idkwhattosay wrote: »

how would they know those 30% or so is a loan? Can someone explain please?

Enquiries made on your credit report would disclose your activity.

You need to declare all debts on your application form. Not to do so is application fraud.

Don't you think that lenders factor such activity into any decision they make? Technology has enabled lenders to have a very clear understanding of you as a potential borrower. That's without meeting you either.

idkwhattosay

Thank you both, I always appreciate help.

You too are contradicting each other, so that kicks me back to the starting point.

I took out a loan in Dec, so it's only been two months. What's done is done, I have a loan which I need to pay off and those payments will be deducted from my borrowing power; I knew that before I applied for it. I could pay it off before applying for a mortgage but that's just wasting money.

I know I have to declare my debts on the application, but do they really go through years of my transaction history to check if I actually spent that money or not?

bearcat16

They know by the smell of the money you send them. For example, if you borrow from Tesco finance or Sainsburys bank, the money smells slightly of groceries (eg fresh bread, asparagus etc)

In the same way that everyone's house has a certain smell, banks have one too. They can tell if you've borrowed it from Halifax, because it smells slightly of pan cakes, whereas if money comes from Barclays it has hint of spearmint. Etc etc. Banks don't try to hide this as it's useful to the system as a whole. If a sum of money has a slightly suspicious history, they sometimes add a coffee smell to it artificially, so that others in the industry know to treat it with a little more scrutiny. Coffee has such a strong and distinctive smell that even if the money is divided up or mixed with, for example, spearmint-smelling money, the coffee aroma will linger, and alert the experts.

All the big banks and finance companies have experts that give the cash a little sniff to see its original source. (This is the origin of the expression "sniff test")

idkwhattosay

^^ I get the hint and I apologise for asking silly questions but things aren't as clear to me as they are to most of you and MSE is my primary source of information because it contains valuable knowledge from real life situations unlike generic Q&A sections on financial websites.

If you allow me to ask another question you can consider this problem resolved. Is it frown upon if my parents help me with deposit?

Thrugelmir

idkwhattosay wrote: »

I know I have to declare my debts on the application, but do they really go through years of my transaction history to check if I actually spent that money or not?

You owe money on a loan.

You have savings ( the deposit).

Therefore part of your deposit is borrowed money. Savings and debt don't sit in separate pots. Your net worth one minus the other.

Lenders will factor the amount of debt you owe into any decision they make. Debt doesn't exclude someone from obtaining a mortgage per se.

Thrugelmir

idkwhattosay wrote: »

If you allow me to ask another question you can consider this problem resolved. Is it frown upon if my parents help me with deposit?

No it's not frowned upon. The actual details of the "gift" do matter though. In order to be more precise in answering.

idkwhattosay

I'm not sure what you mean by that. Can you clarify or is it against the rules of MSE to discuss it?

Thrugelmir

idkwhattosay wrote: »

I'm not sure what you mean by that. Can you clarify or is it against the rules of MSE to discuss it?

Discuss what?

idkwhattosay

Thrugelmir wrote: »

The actual details of the "gift" do matter though. In order to be more precise in answering.

This is what I was referring to.