On the note of money, first time buyers and borrowing - pie in the sky idea's.

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On the note of money, first time buyers and borrowing - pie in the sky idea's.

60 posts & 25 voices | Started 10 months ago by jontawn | Latest reply from trail_rat

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jontawn - Member

Hi All,

Me and the soon-to-be Mrs are currently renting a property, paying a reasonable sum to the landlord/letting agent. All of that I have no problem with, except I don't want it to be a long-term solution.

Anyway, one idea we discussed was borrowing for a deposit and then getting a mortgage some time later.

My reasoning for posing such a far stretched notion was that if we borrow £15k or so, spread the payments over 8 years at 7% gives us just £200 a month, then after several months (12-18) we start the ball rolling with buying a house, so speak to an IFA etc etc etc.... it means we can be paying a mortgage instead of a landlord and offers us some financial security/an asset.

Could having such a large loan commitment pose great concerns? I appreciate every lender is different, but as an idea, is it completely flawed or potentially OK?

Any thoughts/comments?

cheers,
JT

Posted 10 months ago #
jam bo - Member

they will knock the loan payments off your available income and reduce the amount of mortage offered accordingly.

Posted 10 months ago #
meehaja - Member

You might struggle as you have to prove where large sums of money have come from (over 3k I think), and mortgage companies don't like you getting loans to pay the deposit as then if you default on the loan, the loan company have (I believe) some ownership over the house, which the mortgage company (who own most of it) wont want.

A common trick is to get a relative to take out a loan for say, £20k, give it to you as a "wedding gift" then you repay the loan via them. Bit dodgy though!

Posted 10 months ago #
molgrips - Member

Plus £15k unsecured loan will cost you a lot nowadays I think.

Posted 10 months ago #
thisisnotaspoon - Member

Seems like a daft idea to me, the first few years of a mortgage 90% of the money is paying for interest anyway, you'd be better off renting somewhere cheeper and putting the difference in a savings account.

Say your current rent is £700, find somewhere for £500, thats £200/month, and you've got another £200 your not spending on the interest on a loan so thats £400, one less holliday a year thats another £1000.

So that's ~£6000 a year, couple of other savings and youve got the £15k in 2 years with no loan. Most people talk about saving up for a deposit, not taking a loan out for one!

Posted 10 months ago #
trail_rat - Member

i share your pain .....

least you have somewhere to rent - current rental markets up here and im sure offshore europe coming to town(5k a week for a decent house during OE) have backed me into a corner where i now need to look at 95% LTV mortgages to get somewhere that isnt top dollar for a hole in the ground (stoner the one i asked about rent .... i wouldnt have given them 500 for it)! - buying in aberdeenshire actually represents far better value for money atm looking at it - market for sales is swamped compared to rentals !

one thing - i certainly wouldnt entertain borrowing for a deposit !

Posted 10 months ago #
5lab - Member

if you have a monthly outgoing (such as a loan payment) this will be deducted from your income before the mortgauge is offered.

However, if you only need one person's income to qualify for the mortgauge (is 4x one of your saleries enough??) there's nothing to stop the other person borrowing the deposit.

there's also nothing to stop one of your parents lending you the cash as a 'long term loan' with no fixed pay back date. so if they got the load out on your behalf, and you officially just pay them whenever, that'd also work.

Posted 10 months ago #
bigyinn - Member

jontawn, you still planning on moving down here???

Posted 10 months ago #
trail_rat - Member

oh and devils advocate while your paying back this loan and your mortgage - what happens if the boiler goes tits up/windows need replacing/a leak in the - where does the money to repair that come from if you are strugling to save up 10-15k ?

Posted 10 months ago #
Trimix - Member

Use a broker - they are incentivised to get you a mortage. It usually works. Try London & Country.

Ive used them many times in many situations and they have always found something.

Posted 10 months ago #
sobriety - Member

What me & my ex did was to move to a shoddy part of town with cheap rent and save like crazy for a year or two..

Posted 10 months ago #
philconsequence - Member

i dont have any useful advice to add unfortunately but i will ask a couple of extra questions if the OP doesnt mind

You might struggle as you have to prove where large sums of money have come from (over 3k I think)

what if you cant remember where all your money has come from? i've been saving since i was 11 and there's no way i could remember where i got the money for my premium bonds or the individual sources of the total sum i have in an ISA.... apart from saying "i saved money every month, lived below my means, and any money coming in on top of my wages went straight into savings"... that doesnt explain where its come from?, should i start going through all my statements in preparation or am i being silly and worrying about nuffink?

cheers

i wish we didnt rent!

Posted 10 months ago #
uplink - Member

We gave our eldest £22k in a bankers draft as part of her deposit
no questions were asked

Posted 10 months ago #
Matt24k - Member

The good old Bank of Mum and Dad where would we be without them!
If, like me, you didn't have that luxury then the only thing to do is to cut your outgoings and save like mad. Down sizing on your current rented property is a good way of doing this but what ever you do will cuase a downward change in life style for the next 3 years or so.
You have to take the long term view as in 30 years you will be mortgage free. If you continue to rent you will have this large out going for life and nothing to leave your kids. Ah, it's gone full circle back to Bank of Mum and Dad!

Posted 10 months ago #
richc - Member

What about living in a tent for a year, to save for the deposit? Someone on here has done that.

Posted 10 months ago #
mastiles_fanylion - Member

The good old Bank of Mum and Dad where would we be without them!
If, like me, you didn't have that luxury then the only thing to do is to cut your outgoings and save like mad.

Yeah, I stayed with my mum & dad (and paid them rent) but saved like a mentalist for about 3 years (when I was about 27 I think). Then moved into my own place (at a time a single person could still afford a house) and lived off rainwater and grass for about the next three years until it started to become a bot more affordable.

The crazy thing is that if I was on the first rung now I couldn't afford that same house even with two salaries and higher effective gross incomes.

Posted 10 months ago #
philconsequence - Member

living in a tent was torminalis, he was saving to pay off debts and generally sort himself out from what i understand. he's living in a proper house with fiance all happy and stuff now

no bank of mum and dad here, no inheritance of money or property when they die either, known that since i was a kid hence the saving.

kinda lucky with our landlord at the moment, in 3 years he only put the rent up 25pounds a month, could easily go up again at the end of our current contract but at present its cheaper than smaller places locally! hugely unefficient gas flow heating system thingy and a hot water tank we cant put ona timer so monthly energy bills make up the difference annoyingly haha!

Posted 10 months ago #
jontawn - Member

Bank of mum and dad is not an option what so ever.

It's down south so living in somewhere 'cheap' at <£650 a month isn't really an option (we have just downsized to save over £100 a month on rent alone)

We're going to stick in Southsea/Eastney area, if we move further afield we'll incur costs for commuting (and time)

it's not that we are struggling to save, it's just that saving enough for a deposit could take 4 years or so, which isn't a long time really, but it means 4 years of paying a landlord and after this 4 year time (or whatever) we are left with just a deposit. Borrowing the deposit would mean we pay 4 years off of our mortgage making it 21 years to go and we have an asset which will have at the least, hopefully! remained at the same value if not increased (we don't want somewhere 'new' and finished (shudder!)).

my question was merely about speeding the process up of buying and having an asset sooner, and whether it was an absolute 'no way'.

jt

Posted 10 months ago #
uplink - Member

Are there no part rent/part buy schemes around that suit?

Posted 10 months ago #
molgrips - Member

Borrowing the deposit would mean we pay 4 years off of our mortgage making it 21 years

Eh?

Posted 10 months ago #
philconsequence - Member

i feel your pain JT, wish there was a way of speeding up the process here too! how long have you been saving for? i should definitely have more than my current balance states but having to move 5 times in the past 6-7 years, replacing cars and other unexpected costs all took big chunks out of my savings, wiping out anything built up in an ISA each time.

its only by having a housemate for 3 years that i've been able to build up my savings again. it'll be interesting to see if my savings increase or decrease when he moves out at the end of the year.

Posted 10 months ago #
toby1 - Member

It's a tough place to be, I spent a while paying rent and saving hard, any loan repayments would have made a dent in our mortgage attractiveness for sure, our low outgoings and relatively high salary hooked us a 90% LTV in the end and an offer of far more than we could sensibly pay back from the dumb ass at the branch.

We saved 17k in about 3 years, it's surely a better option than a high interest loan if you can manage it? outgoings were cut right back in this time though, less fun, more saving I'm affraid.

Posted 10 months ago #
jontawn - Member

@molgrips.

If we buy a house now (using a loan for a deposit) we would also start paying a mortgage.

Which means that the time (4 years) it would take to save while renting would instead be time paying the mortgage off.

Makes sense?

Posted 10 months ago #
cranberry - Member

What you are in fact after, in wanting to borrow the deposit, is a 100% mortgage - you want to buy a place without putting in any money of your own. Banks have been burned by this sort of lending in the past, and in the UK at least I understand they will sadly be extremely hard/impossible to get hold of.

Posted 10 months ago #
trail_rat - Member

ive only been saving a couple years really. i spent all my younger days savings on my van when i got my first "real" job .... and built up again from there

we are in the 650 is cheap rent bracket without moving to somewhere id be living in constant fear! - to save 100quid - i can buy a 2 bed rural semi detatched with a garage on a 95% LTV for that kinda money and furnish it with the remains of my deposit or go 90% LTV - and furnish it gradually. its the same rate on both mortgages i just pay 1000 more over for the privalage of 95% over 5 years .... - hopefully id be out of there when the 2 year fixed ended ! thats at 5.99%

its swings and rounabouts and trying to convince the missus that buying a house is a better idea than a wedding at the moment ! - i currently rent at 650 - save 500 that doesnt leave me a huge ammount for the rest...by buying we would effectively double our income !

Posted 10 months ago #
molgrips - Member

Not really. Your mortgage pay-off date will be closer but you'll have paid more money than if you saved.

A better option would be to save and then over-pay your mortgage or just arrange a 21 year one in the first place.

Posted 10 months ago #
trail_rat - Member

"A better option would be to save and then over-pay your mortgage"

- once i can get on to a mortgage that doesnt penalise for it that is my plan !

Posted 10 months ago #
philconsequence - Member

anyone know how favourably banks are looking at people in areas going through constant massive cuts? think nursing, probation, prison service type jobs

Posted 10 months ago #
mastiles_fanylion - Member

A better option would be to save and then over-pay your mortgage or just arrange a 21 year one in the first place.

Struggling with this - if you have money at the start of the mortgage you aren't overpaying surely, just have a bigger deposit? Or do you mean have a flexible mortgage so money can be withdrawn again????

Posted 10 months ago #
5lab - Member

most mortgauges allow you to overpay by a reasonable amount (up to 10% of the remaining balance or so) without penalty.

The first 4 years of a mortgauge you pay off pennies. on a 200k mortgauge @ 7% you would pay £61,200 in the first 4 years, but only pay off £16k of the money outstanding (leaving £184k still owed). Essentially if you sold the house after 4 years (assuming prices were flat) it'd cost you £41k\10,250 per year\£855 per month to 'rent' the house. You can pull the figures down for whatever your interest rate/amount required are, but getting on the ladder 'early' isn't the boon you might have thought

Posted 10 months ago #
trail_rat - Member

5lab is right - more so with a 10k deposit on a 130k house .... going to 15k saves you 30000 over 25 years and going to 20k saves you 40k .....

hope this house im going to look at next friday for rent is a winner - location is right we have first viewing - should easily be able to save another 300 a month living there !

Posted 10 months ago #
mastiles_fanylion - Member

But having a larger deposit in the first place would mean a smaller mortgage and less capital to pay interest on????? I can't get my head around applying for (say) a £200k mortgage when you have (again say) £20k in savings that you are then going to pay off capital with.

Surely if you only need to borrow £180k you borrow £180k? You may have more choice of mortgage products due to a higher deposit and lower borrowings and be able to get a better deal too.

Or am I missing something?

Posted 10 months ago #
trail_rat - Member

mastiles i think he means once you have established a mortgage plow more into it rather than paying off a loan at the same time ...

btw rental on a house at 650 for a year is 7800 so the maths says your plan would be crazy ! - it wont take me more than a year to save up to 150% or even 200% my current deposit so in the interests of 30/40 grand i think ill stay renting if at all possible - even if i do end up in a dump !

Posted 10 months ago #
mastiles_fanylion - Member

mastiles i think he means once you have established a mortgage plow more into it rather than paying off a loan at the same time ...

I see now. Yes that makes sense. I try to do that. My wife tries not to.

Posted 10 months ago #
philconsequence - Member

wow.... size of deposit makes a huge difference! new it would make a difference but didnt realise it was going to be those kinda figures... will keep renting and saving for now then.

thank you chaps for making me feel better about renting!

Posted 10 months ago #

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