Mortgage v Personal Loan

DE_612183

Is there any difference / preference between say a £30k mortgage or a £30 personal loan?

I'm looking to buy a property ( small flat for me ), but the main residence will stay on Mortgage - it's not a buy to let.

Just wondering - loan would probably be easier to get, but not sure if the interest rate would be that much higher - any ideas / views?
Thanks

prettyandfluffy

Unlikely you will get a personal loan to buy property, I think.

CliveOfIndia

As above, the main difficulty will be getting a personal loan to buy property.  It's not disallowed as such (unlike the situation where you use a loan for the deposit and a mortgage for the rest), but most lenders won't lend for that purpose.  There may be some who will, but it might take a bit of digging around to find one.

A mortgage will usually have a lower interest rate than a personal loan, simply because it's secured against the property (so the lender can easily recoup their money if you default).  And if you are in a position to repay the mortgage early over 3 or 5 years (as you would with a personal loan) then it could save you quite a bit overall.

Things to factor in - there's usually an arrangement fee for a mortgage.  Also, if you take out the mortgage over 20 years then repay it early, there may be an early redemption penality (less likely if you're on an SVR mortgage, more likely if you go for a fixed-rate deal).

With a personal loan you'll usually have a fixed rate of interest over the term of the loan, so you know what you'll be paying each month - with the original caveat that you may not be able to get a personal loan anyway.

Final thought - what if your circumstances change and you can't afford the repayments?  Default on an unsecured loan and you'll wreck your credit record, but that's not the end of the world.  Default on a mortgage and the property could be repossessed.

So, some pros and cons to think about.  But yep, you may find it difficult to get a personal loan anyway, so a lot of these could well be moot points.

retiredbanker1

Traditionally mortgages have been cheaper long term than personal loans.
You could also stretch repayments over a longer time - personal loans normally 7 years is the maximum.

The question is rather irrelevant anyway as mainstream banks won't lend to you on a personal loan basis to purchase property.

MorningcoffeeIV

DE_612183 said:

Is there any difference / preference between say a £30k mortgage or a £30 personal loan?

About £29,970 difference.

Grumpy_chap

£30k is a large value for an unsecured personal loan.
As others have said, lenders rules often will not permit a personal loan to be used for property purchase.

£30k is a small value for a mortgage, typically minimum lending on a new mortgage is £50k.

If I have read the OP correctly, the OP has principal private residence which is mortgaged and requires a £30k loan to allow the OP to also buy a second residential property (which will not be BTL).  Has the OP considered whether it is possible to remortgage the PPR to an extra £30k and then use those funds released to make up the shortfall on the new flat that is proposed?

The OP also needs to consider the additional stamp duty and future CGT.

silvercar

I don't know why it would be that difficult to get a mortgage on the new property, particularly as it isn't rented out. Owning a second property for your own use isn't that unusual.

If that won't work for some reason, I would consider extending the main mortgage on the main property or getting a secured loan on the main property - effectively a second mortgage.

DE_612183

Thanks for the advice folks - all makes sense.