Bank Loan as Deposit

BeneficialB · 31 July 2017 at 1:21AM

Hello,

This is my first time posting. I took out a bank loan a few months ago that was going to be used for house renovations - this was to be a last ditch attempt to build a future with my partner. Sadly my (now ex) and I have decided to go separate ways so I will be moving out with our 3 year old.

He owns his house but I have no savings, just this loan.. I have worked to pay off various debts, have a clear credit file and have earnings of circa £70,000. I am wondering can I use the loan as a deposit on a house or should I pay it back, move out and rent and begin the process of saving for a deposit.

All advice gratefully received!

ProudDad · 31 July 2017 at 5:58AM

So firstly taking a loan to fund a house deposit is a massive no no. I know this isn't how why you originally obtained the loan and that it is only through circumstances you still have the money.

The biggest thing in any mortgage app(alongside the credit search of course) is the affordability especially after MMR(mortgage market review). This loan you have will be seen as a committed expense alongside any other borrowing you have as well as other things which will include any childcare you pay for your little one.

It's certainly an option however on an income such as yours the other option may be better if you can repay the loan. Rent or live with family for a time if this is an option and save a deposit which shouldn't take long. You'll then walk in to get your mortgage with a bigger deposit (potentially) and less committed expenditure.

One more important thing is that no doubt your MA/Broker and any underwriter will have quite a few questions about said loan and why you have still got the money. So even if the credit score is good and affordability assessment is passed you might fall at the final hurdle if they are not happy with what they hear/see.

Hope this helps and everything works out for the pair of you

.