Mortgage deposit idea

Pixie5740

The difference between what you want to do OP and what Stu_N_ does it that you plan to spend the money you borrow whereas Stu_N_ is stoozing and doesn't plan to spend the money, he just wants to earn interest on it.

Once your 36 months is up you'll need to BT again so that's another fee to pay, and at the end of that 0% period you'll need to BT again....and again....and again....until you finally need to repay the money you borrowed. The BT fees might wipe out any interest you make from saving the money in a high interest current account whilst you drip feed the HTB ISA. Furthermore, this outstanding CC balance will impact your mortgage affordability. Ideally you want to start life as a home owner with as little debt as possible because inevitably something will go wrong, usually not long after you get the keys.

We've started off on this thread aiming for a deposit of £29k but now we're at £32k for a £450k 1 bedroom leasehold property. Then there's SDLT of £12,500 plus surveys plus solicitors fee plus removal costs, it all adds up. Also, if property prices in London continue to rise as you seem to hope they will (and if things keep going the way they are then it's quite likely they will) in one of your posts then in 5 years time that 1 bedroom £450k property will be worth a lot more than £450k. Will you and your wife still want/need a 1 bedroom flat in Central London in 5 years time? Do you or will you earn enough to get a £400k+ mortgage (that's rhetorical).

One of the best ways to boost your savings is to reduce your outgoings. I don't know if you're doing this already but if not get hold of your last 12 months bank and credit card statements. Look at how much you spend on groceries, going out, Sky TV, clothes, mobile phones, utilities, absolutely everything. Then work out what you can cut back on. From little acorns...

Cornucopia

To be fair, it's not entirely clear what the OP wants to do.

The original idea of a loan implied that the borrowed amount would be progressively repaid, and a period of 36 months was suggested. This got slightly confused by other posters talking about declaring that loan on the mortgage application, which obviously isn't relevant as the loan would have been repaid by then.

I THINK what we're talking about is effectively Stoozing - borrowing (from somewhere) to save into the HTB ISA, with the complication that the ISA funds can only go forward into a house purchase, and so the borrowed funds have to be paid off in some other way. If in the original scenario, there was enough income left to pay the loan off AND take the ISA funds forward as a deposit, then there should be no issue paying off the 0% Credit Card borrowing.

Personally, I still think that 0% on Purchases works best for this, mainly because it's completely free. I'm not sure I understand the OP's desire for a lump sum (either through CC Funds Transfer or a Loan) since the ISA only accepts £400 per month, and savings rates are otherwise very poor.

This still (3 pages in) has the feel of one of those threads where advice is being sought whilst not disclosing all the relevant facts. This could be variability of income, other commitments, or just that the OP does not know yet how much deposit will be required. Personally, I think the OP and his OH should be looking to buy sooner rather than later, cheaper rather than better, as no amount of creative Stoozing will make up for HPI over the next 5 years if things carry on as they are.

Cornucopia

Chrisubank wrote: »

No desire for a lump sum. Just wasn't aware of being able to drip feed the ISA any other way. I also must of misunderstood the "60 day transfer window" on some of the cards I was researching.

It's a common enough question: what does Balance Transfer actually mean? Generally (apart from Funds Transfer offers) you are transferring an outstanding (i.e. negative) balance from one card to another. Therefore, although it may allow you to redirect money elsewhere, it's not usually possible to access the BT lump sum directly. The 60-day window is simply the time limit the bank sets for a BT offer to be taken up and completed. Having said that, I've had cards which pretty much have continuously refreshed BT offers, and I've also had 0% Purchases offers on existing cards too.

The advantage of the 0% Purchases offer is that there are no fees. However, your redirected funds will only be available as a trickle (equivalent to what you spend each month, less the minimum payment), but since that's what you need for the HTB ISA...

Feel free to ask anything. I'm new here so haven't been completely worn down by the irrelevant drivel of some of the posters!
I have said many times with the wife actually. If we considered moving to a cheaper borough, we could be in our own place in a year or so.

The only real questions I had were about income variability and the desire for a lump sum.

Personally, I would be using RightMove (or equiv) to seek out possible purchase options using broad but challenging search criteria, such as "Within 30 miles of London, 1-2 beds, less than £120k (or whatever "cheap" means to you), not retirement, not shared ownership". Otherwise, your rent over the next 5 years is only detracting from your eventual purchase.

Pixie5740

I clearly am missing something. If you go with Corucopia's suggestion of using a 0% on purchases card rather than a money transfer card (because then you avoid the money transfer fee) to drip feed your HTB ISA, when does the credit card balance get paid off and with what money?

You might find financial planning dull but believe me it would be a lot more grim sitting in the freezing cold with no hot water because your boiler has packed in and you have no means of getting it fixed or replaced.

TheDebtinator

Here is one potential flaw. If the properties you are looking at currently are £450,000, as mentioned, how much will they be in X years time?

I also aren't sure many lenders allow a 7.1% deposit, surely it has to be a 5% deposit at minimum, with most lenders wanting at least 10%.

Then there is the other issue which you may have over looked. If you are looking at purchasing a similar style of property that is currently worth £450,000, knowing that there is the probability of the value of similar properties increasing in value by the time you are in a position to buy it, your HTB ISA will no longer be valid, as you can only get Government assistance on properties up to a value of £450,000 if in the London area. You can only earn a maximum of £3,000 per HTB, so if you and your wife each have a HTB ISA then you each save £24,000, earning £6,000 from the Government as a result.

Not forgetting that the Government do not actually give you this money each month, you only receive it after you close the ISA and then instruct your solicitor to apply for it, which will currently cost up to £60, while not a massive amount, eats into your "profits".

Furthermore, the best ISA will pay 4% AER variable, so in the 4.5 years needed to earn the £3000 maximum government bonus, earning at most £1100 in interest over the period per ISA.

So then if you get a loan for £10,000 over 5 years, I would be amazed if you got it at a low APR. Looking at a typical loan from the Halifax, you would be looking at a rate of 9.9%, costing you £2595 in interest, so you have now made a loss on your savings. This doesnt change even if you keep the ISA's open for 5 years, you would still have a shortfall of at least £55 based on today's rates. This also of course does not and cannot take into account your paying off the loan before the end of the term.

The biggest issue though is that you get to the point of buying your property and you no longer qualify for the Government bonus, and that you have to wait 5 years to get the full amount if you do qualify. Too many variables for me to personally consider it a good idea.

Chrisubank

Cornucopia wrote: »

The only real questions I had were about income variability and the desire for a lump sum.

I take home just under 3500, the wife just under 2200 per month. So long as we don't lose our jobs (touch wood) its a regular income. As I said before, there is no desire for a lump sum. I just didn't have a better solution but this thread has come up with something better

Cornucopia wrote: »

Personally, I would be using RightMove (or equiv) to seek out possible purchase options using broad but challenging search criteria, such as "Within 30 miles of London, 1-2 beds, less than £120k (or whatever "cheap" means to you), not retirement, not shared ownership". Otherwise, your rent over the next 5 years is only detracting from your eventual purchase.

I completely understand what you are saying. The reality is, whilst I can 100% agree that would be beneficial, saving a fortune and paying into our own future not into my landlords. The thought of moving from what is currently out dream apartment (albeit outrageously expensive) to a cost effective apartment is objectionable! I would consider the idea then reject it, the wife would be completely opposed!

Pixie5740 wrote: »

I clearly am missing something. If you go with Corucopia's suggestion of using a 0% on purchases card rather than a money transfer card (because then you avoid the money transfer fee) to drip feed your HTB ISA, when does the credit card balance get paid off and with what money?

I'd pay it off from our current account just before its no longer "free" or a couple of months before my mortgage application. Whichever is sooner.
I'm not borrowing instead of saving. I'm doing both.
We are currently saving roughly 1100 per month.
If we continue saving 1100, plus borrow "free" money to pay into a HTB ISA.
Then repay the credit card(not from HTB ISA obviously)

Pixie5740 wrote: »

You might find financial planning dull but believe me it would be a lot more grim sitting in the freezing cold with no hot water because your boiler has packed in and you have no means of getting it fixed or replaced.

I don't find financial planning dull, I find this idea of borrowing free money and making money from it quite exciting actually. You give the impression of someone who is very negative, perhaps I've had a rather sheltered or a more privileged life than you as the thought of freezing without a boiler has never crossed my mind.

Chrisubank

EDIT: Pixie you just deleted your post I think!

---

Anyway, In response to Pixie...
The broker the missus and I saw in October gave us some figures along the lines of (Off the top of my head)

Could borrow up to: 455k

Via Barclays help to buy
35 Year mortgage
With a 32k deposit.
5 year fixed rate paying out 2100 per month.

At the time, he said whilst looking through ours records/statements he sees no reason at all why this wouldn't be a straight forward application. Especially given we've been paying substantially more in rent for the previous 2 years. Probably will have for 5 years by the time we get round to this.

I do appreciate given the HPI we are fighting a losing battle. At 1k per month we certainly aren't saving enough to keep up with prices in this area. Which is ultimately where we wish to stay!

Candyapple

Are children likely to feature in your lives in the next 5 years?

What part of London do you live in currently / are looking to buy in the future?

If you and your wife combined are bringing in circa £5,700 per month, assuming say £2,500 is your rent and you said you were saving £1,100; that leaves you with £2,100. How comes you are not managing to save more than £1,100?

TheDebtinator

You're still missing the point that if you buy a property for over £450k, you're not going to get a penny from the Government's HTB scheme.

Chrisubank

Candyapple wrote: »

Are children likely to feature in your lives in the next 5 years?

What part of London do you live in currently / are looking to buy in the future?

If you and your wife combined are bringing in circa £5,700 per month, assuming say £2,500 is your rent and you said you were saving £1,100; that leaves you with £2,100. How comes you are not managing to save more than £1,100?

Without giving you the complete ins and outs...

5700income

3250 rent
150 council tax
150, gas water electricity (nice round number)
75 phone, tv, internet
120 for 2x mobiles. Contracts end in march. Wont be renewing them.
220 Gym membership (this is cancelled as of march, it was a 1 year contract)
50 on various insurances.
500 restaurants, cabs, life and prostitutes
= 4515

Remainder we put into savings, which equals about 1100 every month since June, so my spreadsheet and bank balance confirm.

We both walk to work. Sold our cars (and my bikes).

I'm fairly satisfied we are scrimping on the parts of our lives that are possible. Whilst not becoming hermits!

Oh and kids? Jeez they are for old people.. 30+ haha No plans for them any time soon, if ever.

Part of London: Holland Park