Mortgage deposit idea

Chrisubank

The aim is to move from renting to a mortgage. The wife and I are paying extortionate rent and struggling to save for a deposit. Its getting depressing seeing out savings increasing at an average rate. Perhaps I'm just lacking in patience.

So here is an idea, I'm sure there are flaws so I'm here for your advice.

What would stop me from taking out a personal loan for say 10k.

Then using the loan to pay into one of these help to buy ISAs for me and the wife. Where the government tops up 50 for every 200 you pay in. So for the wife and I, 400 each, 100 from the govt.

The interest on the loan, 4.9% for example, is minuscule compared to the return on the ISA.

We both have "excellent" credit ratings, credit cards paid in full each month. No outstanding loans etc.

Ultimately, the aim is to move from renting to mortgaging.
Right your turn, destroy my idea!

Gaz83

Chrisubank wrote: »

The aim is to move from renting to a mortgage. The wife and I are paying extortionate rent and struggling to save for a deposit. Its getting depressing seeing out savings increasing and average rate.

So here is an idea, I'm sure there are flaws so I'm here for your advice.

What would stop me from taking out a personal loan for say 10k.

Then using the loan to pay into one of these help to buy ISAs for me and the wife. Where the government tops up 50 for every 200 you pay in. So for the wife and I, 400 each, 100 from the govt.

The interest on the loan, 4.9% for example, is minuscule compared to the return on the ISA.

We both have "excellent" credit ratings, credit cards paid in full each month. No outstanding loans etc.

Ultimately, the aim is to move from renting to mortgaging.
Right your turn, destroy my idea!

Lenders will ask the source of the deposit.

You cannot use a personal loan for a deposit on a property.

[Deleted User]

Two main problems.

1) Few lenders will accept a borrowed deposit.

2) The loan will also impact on your borrowing capacity.

Chrisubank

Thanks guys,

I don't see how the bank will differentiate the loaned money which would just sit in our current account, then I transfer the money into the ISA online.

We also have our salaries paid into the same account. In reality I don't how the bank know the difference?

I've never been asked before when transfering money into an ISA, "Where is this money coming from"

Candyapple

The UK Government will pay a 25% bonus on your final balance (The minimum bonus of £400 is payable on closing balances of £1,600. The maximum bonus of £3,000 is paid on closing balances of £12,000 or more. No bonus will be paid on closing balances below £1,600).

You do realise that you can only pay £200 per month into your ISA each? And that to get the full government payout you'd have to wait 5 years?

Not forgetting that when you applied for your mortgage, the £10k loan would be taken into account under your affordability and deducted from any mortgage offer you would likely receive.

Also, who's to say you would even receive the headline rate?

[Deleted User]

When they ask for proof of funds, and you say that you have saved it, they will wonder why you happened to take a loan at the same time for the same amount.

And of course you will have made a fraudulent application, which may not be something you want permanently marked on your credit file.

Candyapple

Chrisubank wrote: »

Thanks guys,

I don't see how the bank will differentiate the loaned money which would just sit in our current account, then I transfer the money into the ISA online.

We also have our salaries paid into the same account. In reality I don't how the bank know the difference?

I've never been asked before when transfering money into an ISA, "Where is this money coming from"

When you apply for a mortgage they will want to see evidence of how you have built up your deposit (money laundering regs) so yes, they can ask to see where the source of money has come from.

Chrisubank

Candyapple wrote: »

You do realise that you can only pay £200 per month into your ISA each? And that to get the full government payout you'd have to wait 5 years?

Not forgetting that when you applied for your mortgage, the £10k loan would be taken into account under your affordability and deducted from any mortgage offer you would likely receive.

Also, who's to say you would even receive the headline rate?

Sorry, I may not have been clear. We are easily 4+ years away from a deposit at our current savings rate . I'm trying to shorten the gap.
I'm well aware its a £200 per month drip feed per person. So £400 each.

I'd only accept a fairly low rate, but even at a higher rate, its still "profitable" given the govt would pay in 100 for every 400 we pay in.

I suppose my real intention here is to speed up my deposit saving rate.

foxy-stoat

Why not just put £200 a month into the ISA for 50 months = £10,000.

Instead of borrowing £10,000 and paying in £180 over 60 months and paying £1130 for the privilege, assuming you get 4.9% interest.

Chrisubank

foxy-stoat wrote: »

Why not just put £200 a month into the ISA for 50 months = £10,000.

Instead of borrowing £10,000 and paying in £180 over 60 months and paying £1130 for the privilege, assuming you get 4.9% interest.

I struggling to see the harm in doing both.
The cost of borrowing the loan seems insignificant when faced with the fact the government give us a huge return on our "savings" AND we could be paying into our own mortgage rather than paying someone elses.

liveyoung

Do not take out a loan
Put the repayment value (if you had a loan that would need repaying) into help to buy ISA
Keep all of your money

Although I see where the idea has come from - I don't think you've looked at it logically.

Pay into an ISA instead of paying back a loan.