Can you keep some of your mortgage funds to put towards work on the property?

Bphil104

Hi, I am buying my first property and want to take advantage of the new tax year and the allowance on a LISA. I already have savings in a LISA and have started the process of buying a property - mortgage has been agreed and I have a solicitor working on the purchase. What happens if my savings from my LISA are now more than the agreed deposit amount? Can I put all of this deposit towards my property and ask for some of the funds from my mortgage to be given to me to put towards the property? For example, the property value is £90,000. Mortgage is agreed at £75,000 with a £15,000 deposit. If my deposit increased to £17,000, but was all in a  LISA, could I withdraw the full £17,000 from my LISA to put towards the purchase, still drawdown the £75,000 from the mortgage and get £2,000 in return to spend on the property (replacing the kitchen etc.)? 

thaddy

Depending on how much your solictors fee is you could request to withdraw the full LISA amount and use the difference towards that or it can be withdrawn separately before 31 March with a 20% penalty fee i.e. minus the Government bonus. I don't think you can have the mortgage funds given to you directly.

Capri84

Thing is, that £2000 over the time of the mortgage would be very expensive surely. Could you not just get the mortgage sorted and then arrange a cheap £2k loan? 

grumiofoundation

Bphil104 said:

Hi, I am buying my first property and want to take advantage of the new tax year and the allowance on a LISA. I already have savings in a LISA and have started the process of buying a property - mortgage has been agreed and I have a solicitor working on the purchase. What happens if my savings from my LISA are now more than the agreed deposit amount? Can I put all of this deposit towards my property and ask for some of the funds from my mortgage to be given to me to put towards the property? For example, the property value is £90,000. Mortgage is agreed at £75,000 with a £15,000 deposit. If my deposit increased to £17,000, but was all in a  LISA, could I withdraw the full £17,000 from my LISA to put towards the purchase, still drawdown the £75,000 from the mortgage and get £2,000 in return to spend on the property (replacing the kitchen etc.)? 

You could use the LISA fees to pay solicitor fees and then that cash can be used towards kitchen etc. Edit: see post below and link don't think this is correct. https://www.youinvest.co.uk/faq/how-do-i-use-my-lifetime-isa-buy-my-first-home

The LISA bonus will not be paid until the end of may. Will you have completed by then?

If you complete before bonus is paid make sure you ask your solicitor to ask keep the LISA open.

When bonus is paid you can withdraw (25% penalty) or leave for retirement (in which case a transfer to a stocks and shares LISA would be sensible). 

Capri84 said:

Thing is, that £2000 over the time of the mortgage would be very expensive surely. Could you not just get the mortgage sorted and then arrange a cheap £2k loan? 

If the interest rate on the mortgage is less than the interest rate on the loan* it won't be the case that the mortgage will be more expensive.
*Assuming of course you can get a loan so soon after taking out the mortgage.

Mahsroh

grumiofoundation said:
If the interest rate on the mortgage is less than the interest rate on the loan* it won't be the case that the mortgage will be more expensive.

Not necessarily.

A 1 year loan with an interest rate of 3% will cost significantly less over the life of a loan than a 25 year loan (i.e. the sums added to the Mortgage) with a rate of 2%. 

grumiofoundation

Mahsroh said:

grumiofoundation said:
If the interest rate on the mortgage is less than the interest rate on the loan* it won't be the case that the mortgage will be more expensive.

Not necessarily.

A 1 year loan with an interest rate of 3% will cost significantly less over the life of a loan than a 25 year loan (i.e. the sums added to the Mortgage) with a rate of 2%. 

Yes obviously. That looking at 3% over 1 year versus 2% over 25 years. 

A common mistake people make when looking at mortgages versus loans is ignore the length of the loan. 

What you should compare is 3% over 1 year versus 2% over 1 year.
or compare 3% over 1 year, then 24 years of 2% versus 25 years of 2%.

Option A - Say you have a £2000 smaller mortgage and borrow £2,000 loan for 1 year at 3%. For simplicity assume you pay it all back at the end  of the year-> £2,060.

Option B - you have an extra £2,000 on mortgage versus Option A. Over the same time period (1 year) you pay £40 in interest (2% of £2000). 

At the end of the year you have net £2020 (the same £2060 you would have used to pay off loan - £40 in interest) and owe £2000 more on the mortgage (versus option A). 

If you then pay £2000 off the mortgage.

So you are £20 up. 

Unsurprisingly the lower interest loan (option B ) is cheaper. 
 

MWT

grumiofoundation said:

Unsurprisingly the lower interest loan (option B ) is cheaper.

... as long as you have the discipline to actually do it (... and no ERC of course).

The danger is that you don't set aside the money each month and you let it run as you are not obliged to pay it off,  and that is where it gets expensive...

Mahsroh

grumiofoundation said:

Mahsroh said:

grumiofoundation said:
If the interest rate on the mortgage is less than the interest rate on the loan* it won't be the case that the mortgage will be more expensive.

Not necessarily.

A 1 year loan with an interest rate of 3% will cost significantly less over the life of a loan than a 25 year loan (i.e. the sums added to the Mortgage) with a rate of 2%. 

Yes obviously. That looking at 3% over 1 year versus 2% over 25 years. 

A common mistake people make when looking at mortgages versus loans is ignore the length of the loan. 

What you should compare is 3% over 1 year versus 2% over 1 year.
or compare 3% over 1 year, then 24 years of 2% versus 25 years of 2%.

Option A - Say you have a £2000 smaller mortgage and borrow £2,000 loan for 1 year at 3%. For simplicity assume you pay it all back at the end  of the year-> £2,060.

Option B - you have an extra £2,000 on mortgage versus Option A. Over the same time period (1 year) you pay £40 in interest (2% of £2000). 

At the end of the year you have net £2020 (the same £2060 you would have used to pay off loan - £40 in interest) and owe £2000 more on the mortgage (versus option A). 

If you then pay £2000 off the mortgage.

So you are £20 up. 

Unsurprisingly the lower interest loan (option B ) is cheaper. 
 

Yes, I think we are the same page here.... your example is spot on, but of course it relies on the borrower making the £2000 overpayment by the end of year one. 

My comment was simply comparing taking out a loan at 3% vs adding to a long term mortgage at 2%, which in the context of this thread I think was the correct assumption, as unless I missed it there wasn't any talk of overpaying, simply just adding the money to the mortgage. 

Walesgirl

Can we use money in our LISA for solicitor fees? I was on the understanding we couldn't? I'll be keeping money back to make sure we have enough to cover solicitor fees etc and only our deposit is in the LISA

grumiofoundation

MWT said:

grumiofoundation said:

Unsurprisingly the lower interest loan (option B ) is cheaper.

... as long as you have the discipline to actually do it (... and no ERC of course).

The danger is that you don't set aside the money each month and you let it run as you are not obliged to pay it off,  and that is where it gets expensive...

Mahsroh said:

grumiofoundation said:

Mahsroh said:

grumiofoundation said:
If the interest rate on the mortgage is less than the interest rate on the loan* it won't be the case that the mortgage will be more expensive.

Not necessarily.

A 1 year loan with an interest rate of 3% will cost significantly less over the life of a loan than a 25 year loan (i.e. the sums added to the Mortgage) with a rate of 2%. 

Yes obviously. That looking at 3% over 1 year versus 2% over 25 years. 

A common mistake people make when looking at mortgages versus loans is ignore the length of the loan. 

What you should compare is 3% over 1 year versus 2% over 1 year.
or compare 3% over 1 year, then 24 years of 2% versus 25 years of 2%.

Option A - Say you have a £2000 smaller mortgage and borrow £2,000 loan for 1 year at 3%. For simplicity assume you pay it all back at the end  of the year-> £2,060.

Option B - you have an extra £2,000 on mortgage versus Option A. Over the same time period (1 year) you pay £40 in interest (2% of £2000). 

At the end of the year you have net £2020 (the same £2060 you would have used to pay off loan - £40 in interest) and owe £2000 more on the mortgage (versus option A). 

If you then pay £2000 off the mortgage.

So you are £20 up. 

Unsurprisingly the lower interest loan (option B ) is cheaper. 
 

Yes, I think we are the same page here.... your example is spot on, but of course it relies on the borrower making the £2000 overpayment by the end of year one. 

My comment was simply comparing taking out a loan at 3% vs adding to a long term mortgage at 2%, which in the context of this thread I think was the correct assumption, as unless I missed it there wasn't any talk of overpaying, simply just adding the money to the mortgage. 

Yes you are both  right (maybe should have clarified) I am talking in a idealised situation where the 'same money' is always used efficiently.  

grumiofoundation

Walesgirl said:

Can we use money in our LISA for solicitor fees? I was on the understanding we couldn't? I'll be keeping money back to make sure we have enough to cover solicitor fees etc and only our deposit is in the LISA

I think you may be right. 
I'll be honest I was confident I had seen somewhere but I am now struggling to find confirmation of that so I am not sure on this now.

If you can't use LISA for fees I suppose what you could do I suppose is deposit the £4000, bonus makes its £5000. Then use £4000 for deposit while withdrawing £1000 yourself (paying 25% penalty) receiving £750 to use towards solicitor fees. Still a 19% bonus. I think that would work?


Edit: found link from the guardian money pages (few years ago) that agrees with you that can't use, not sure where I got idea from? 
https://www.theguardian.com/money/2018/jul/24/lifetime-isa-legal-and-survey-fees-lose-bonus