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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 [b]long-term[/b] 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
they will knock the loan payments off your available income and reduce the amount of mortage offered accordingly.
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!
Plus £15k unsecured loan will cost you a lot nowadays I think.
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!
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 !
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.
jontawn, you still planning on moving down here???
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 ?
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.
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..
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!
We gave our eldest £22k in a bankers draft as part of her deposit
no questions were asked
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!
What about living in a tent for a year, to save for the deposit? Someone on here has done that.
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.
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!
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
Are there no part rent/part buy schemes around that suit?
Borrowing the deposit would mean we pay 4 years off of our mortgage making it 21 years
Eh?
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.
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.
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?
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.
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 !
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.
"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 !
anyone know how favourably banks are looking at people in areas going through constant massive cuts? think nursing, probation, prison service type jobs
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????
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
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 !
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?
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 !
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. 😥
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!
I'm a bit scared of going below 75% LTV cos it's so bloody expensive. I wouldn't even countenance the idea of trying to borrow a deposit on an unsecured loan. I seriously doubt anyone would lend you money if they had an inkling that was what you were doing too. Effectively that is a 100% mortgage, with part of the borrrowing on a much higher interest rate and much riskier lending as it is unsecured.
Madness, imho.
This is a useful calculator - you can work out all sorts of combinations...
http://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator
There was a time not that long ago everyone was borrowing 110% of the home value to cover all the associated buying costs, then fitting the house out on the credit card too.
Madness.
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
So your landlord's a cheapskate with his properties and you think that's lucky?
Philc - we met with a financial advisor last week (first house buying). The size of deposit makes a huge difference. At 75% LTV you are looking at 2.19% interest on a two year tracker, as the LTV goes up the rates get progressively worse until you are looking at approx 6%, thats with a base rate of 0.5%!!
On the same loan (approx £300k), that is a monthly outgoing difference of about a grand iirc.
Renting and getting a decent deposit together has to be the way to go. Sucks short term, but your long term prospects are much better (earlier repayment, lower monthly mortgage payments, equity position etc)
we're lucky in that we've got a place to live, and considering the going rate locally for similar properties we're lucky that he hasnt put the price up accordingly. smaller places in worse condition cost more than our current place.
the energy bills should go down by a fair old percentage when housemate moves out as he's rubbish at turning things off, leaving the oven on, leaving the hob on and such.
I get your point though flaperon, but in our current situation and sense of job security we're just happy to have the place we've got and a landlord that likes us/knows we're not trouble 🙂
Renting and getting a decent deposit together has to be the way to go. Sucks short term, but your long term prospects are much better (earlier repayment, lower monthly mortgage payments, equity position etc)
you need to rent smart though ..... my missus wanted to rent a house that was 25 miles from my work and 25 miles from her work = 500 quid a month in fuel ..... took alot to swing her round she really hadnt thought about the future at all - said if we move here its financial suicide. Bit gutted to be leaving our current rental though - its a dream house !
every now and then i get myself down thinking about money, renting and all that stuff.... thank you everyone who's commented on here, feel much more positive now 🙂
sorry JT for crowbarring a few extra questions into your thread!
JT - not a good idea to get a load for deposit and the banks just won't go for it. They need to know your depts (including loan and Credit cards) and will see straight through what you are trying to do.
I would save or borrow from M&D (the banks like this), the housing market isn't going anywhere for the next few years so you've got some breathing space whilst house prices stay the same.
I brought my first house a few months after the crash and its worth the same now as it was then. I'm going to sell soon and go back to renting. Gonna save some more money and then wait for the ideal project/rebuild property.
Just a thought....
If you don't have to live down south (some people take more convinceing of this than others) then the cheeper housing 'oop north can be used to your advantage.
eg........
For the cost of an interest only mortgage on a flat in Wokingham, I can get a 10 year repayment mortgage on a 3 bed house in North Yorkshire. In 10 years I've got a 3bed house worth something (hopefully more than i paid for it) whereas darn' sarf' I'd still only own what the deposit bought me.
Just a thought....If you don't have to live down south (some people take more convinceing of this than others) then the cheeper housing 'oop north can be used to your advantage.
eg........
For the cost of an interest only mortgage on a flat in Wokingham, I can get a 10 year repayment mortgage on a 3 bed house in North Yorkshire. In 10 years I've got a 3bed house worth something (hopefully more than i paid for it) whereas darn' sarf' I'd still only own what the deposit bought me.
quite, although, with asset appreciation, the figures can be turned around.
lets say 10 years interest only @2% @ £1000 pcm gets you a house worth 600k - yet a 10 year repayment mortgauge @ 2% @ 1000pcm = £108k. if over your 10 year period prices go up 25% (not an unreasonable amount, given past performance), the houses will be worth 750k and 135k. If you sold both houses, you'd have £150k from the southern house, but £135k from the northern house.
Obviously, low interest rates skew the figures somewhat, as does capital appreciation, but interest only can make sense. You also get to live in a 600k house for 10 years instead of a 108k house 🙂
I can get a 10 year repayment mortgage on a 3 bed house in North Yorkshire.
Where in North Yorkshire would that be? *Most* of it is as expensive and most places outside of central London.
Our 2 bed end terrace (with extra loft room that can't be classed as a room for some stupid legal reason) is valued at £300k.
Edit - flats in Harrogate.... :-O
http://www.rightmove.co.uk/property-for-sale/property-30274537.html
http://www.rightmove.co.uk/property-for-sale/property-16055160.html?premiumA=true
If you live somewhere like we do where house prices are fairly cheap then saving whilst renting can be really hard. We're in the process of buying and our mortgage payment (repayment mortgage) will be 75% of our monthly rental so it'll be much easier to save once we've bought!
A friend bought a house in her name only and her partner got an unsecured loan for the deposit, last year so not in the crazy lending rules period.
I do think there are certain circumstances where a loan for a deposit is not as crazy as you might think.
There are plenty of 2 bed terraced houses for sale in Derbyshire for a good chunk less than 100k.
Easy access to Derby and Nottingham and loads of industry in the area.
eg...
http://www.rightmove.co.uk/property-for-sale/property-34107818.html?premiumA=true
lets say 10 years interest only @2% @ £1000 pcm gets you a house worth 600k - yet a 10 year repayment mortgauge @ 2% @ 1000pcm = £108k. if over your 10 year period prices go up 25% (not an unreasonable amount, given past performance), the houses will be worth 750k and 135k. If you sold both houses, you'd have £150k from the southern house, but £135k from the northern house.
I'd re-phrase that to this.....
if over your 10 year period prices go DOWN 25% (not an unreasonable amount, given past performance), the houses will be worth 450k and 75k.
Meaning the northern one owes me nothing as I'd have circa £25k as a deposit on either house, the one down south I'm now in £125k of negitive equity!
And, I'd bet money on prices down south falling a lot further than northern ones over the next 10 years, up here there's a stock of afordable housing, in Wokingham I think the cheepest houses are £160k for 2bed flats, unless you count static caravans.
I think Age has alot to do with it . Id be in mre of a hurry to
Get my hands on some property if i was in my late 30s how ever im only 25 !
And yes interest only mortgages are just silly at the moment ! I
Certainly wouldnt bank on prices going up an infact they have probably contributed to the stagnant buyers market atm as folk cant shift them at what they need to clear their debt !
We borrowed 5% on a three-year unsecured loan and 95% on a mortgage for our first house. This was 1994 and 5% was £3500. As I recall, we were open and honest with the bank, but they weren't bothered either way. It could have been for a car. Paying off £15K in three years is a more substantial commitment, however mortgage rates are lower now, so total repayments may be manageable.
if over your 10 year period prices go DOWN 25% (not an unreasonable amount, given past performance), the houses will be worth 450k and 75k.
You think houses will drop 25% nominal value (ie not including inflation adjustments) over 10 years? I don't think house prices have ever been negative over a 10 year window, they can head that way on a temporary basis, and I'm not excluding the fact that they *could* drop by that much, but I'd imagine a 25% raise (which is only 2.1% per year for 10 years) would be much more likely - even that would be an inflation adjusted drop of approx 20%
wrt wokingham - within the town limits there are some one bed places for £125k. this is fairly pricey, but if you have a 20% deposit, a 4x mortgauge would be available to a couple earning 12.5k each - barely above minimum wage. I don't think places like that have a huge distance to fall unless mass unemployment hits home (at which point everything gets a bit 'tin foil hat')
ah when i were a lad we borrowed the 500 quid for the deposit for the 24500 mortgage on the 25000 house, i was only clearing 76 quid a week at the time and the monthly payments for the mortgage were 225 i think.. the rent on our bedsit was 61 a month.
How about buying a house on an interest only mortgage and over paying every month?
You dont pay any fees at all to over pay on interest only..ever.
Providing you are okay with the structure of it...it can work in your favour
Hi All, thanks so much for a wealth (!) of information.
Living anywhere else is not an option, my fiance's field of work is quite specialist and not only does she love her job, moving up north to save £25k over some random amount of time doesn't make sense. I'm from Sheffield and she is from Ontario, plans are ultimately to head out to her home turf. Anyway, I digress.
I think what we'll be doing, given the current financial climate among other factors, we'll be living 'cheap' and saving what we can. We're in our early 30's and after much, much deliberation, borrowing to 'speed up the process' doesn't really, looking beyond the financial asset, make much sense. Assuming we start a family and either of us takes time out of work, pa/maternity pay doesn't go on forever and we have to take that into account in our planning for the future.
We did some regular savings type calculations last night, each of us putting £200 a month into an account over 4 years means we can have over £20k in the bank. Which assuming we put a 5% deposit down means we can quite reasonably afford a house without getting too much hassle.
Yes it's a major inconvenience and not particularly enjoyable to be paying off the mortgage for mr/mrs property owner, however, it means that when we are ready to move we will be in debt to just the mortgage company - and that's got to hopefully not only make us more attractive to the lender, but also offer us peace of mind knowing that we have one large fiscal commitment and not 2.
jt
good plan .
we have found a pair of houses in places we would actually like to live - oddly according to the landlords they have had very little interest in either - perhaps it is because we like shitstick no where 😀 - accessable by landrover most of the year round haha
- both within cycling distance of my work and 1 in cycling distance of her work - we are fighting again haha... she likes the one furthest from her work but i think its small and overpriced due to its size - feels like a holiday home.
gives us a chance to top up the deposit to get on the better rates - saves us so much more long term - 8k in rent this year provided we save 5k aswell would save us 30k over the mortgage term ! - what i need to avoid is the missus trying to convince me to overstretch us on the house returning us to a 5%/10% deposit !
sounds sensible 🙂 good luck JT!
if you're planning to move to canada in the medium term (lets say in <5 years) you're probably financially better off not buying a house anyway. Once you factor in stamp duty (you might be able not to pay that), solicitors fees, moving costs, then estate agent fees when you come to sell etc, its probably better value to rent in the short term. Buying also diminishes the ability to leave the country at short notice, should you so desire
dunno what rental prices in canada are like but in ABZ the way things are at the moment you could buy a house - go to canada and get tennents to cover your mortgage and some pretty easy if you buy sensible(hence although i rent in no where ville i wouldnt buy in nowhere ville) .... given there are very little new builds going on i cant see that changing anytime soon. thats my justification to my self as due to my job i could be moving regularly once qualified