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neon tetra

Loans To Fund Deposits?

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These people need to forget the economics of the 'noughties' and get real. You're supposed to SAVE for a deposit. If you can't afford it, you can't afford the house yet! :rolleyes:

http://www.myfinances.co.uk/news/mortgages...036;1312094.htm

1 in 6 first-time buyers look at loans for a deposit

Friday, 17 Jul 2009 11:22

Some 16 per cent of first-time buyers would are considering taking a personal loan to cover their deposit.

A poll by moneysupermarket.com shows despite recent overstretched buyers willing to putting themselves in negative equity, some one in six of those looking to buy in the coming 12 months are willing to get further into debt to fund a purchase.

Some seven per cent of those buying in last 12 months said they took a loan to cover their deposit. But only 13 per cent of the under 35s are now looking to buy.

Louise Cuming, head of mortgages at moneysupermarket, said: "Taking out a loan to pay for a mortgage deposit is a dangerous move, and must be avoided even if it means you have to delay buying your first home.

"Anyone who takes a loan is effectively taking out a 100 per cent mortgage through the back door. Not only will the mortgage lender decline the application if it discovers this is the source of the deposit but it is also a huge risk to the borrower - your monthly outgoings will be higher which means there is a greater chance of you finding yourself unable to keep up with repayments."

However, the majority of prospective first-time buyers are saving for a deposit. Some 52 per cent of those looking to buy said they have or will save enough for a deposit.

A total of 18 per cent said they would turn to the Bank of Mum and Dad for funds. The poll also found six per cent were waiting for 100 per cent mortgages to return – the same number as turning to the lottery.

Falling house prices were the hope of some. Currently the mortgage market is very risk averse – given the threat of recession increasing unemployment and falling house prices.

As a result there are no mortgages for those seeking to put down less than a five per cent and very limited choice for those with less than ten per cent.

Ms Cuming said: "Lenders need to concentrate more on assessing the affordability of the mortgage on a case by case basis and less on the size of the deposit if they are serious about improving the mortgage market."

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of course, the Government wouldnt condone this sort of dangerous behaviour...oh......except the various homebuy loan top up schemes which of course, are government sponsored.

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I just wish people could get over the oft-quoted mantra of "you must get on the housing ladder before it's too late". I've heard that from both friends and family, and I don't understand it.

So long as you're squirrelling away a good deposit, what's the problem with going in on the "second rung" of the ladder?

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Without sounding too harsh, let the 7% of people referred to in the article eat their cake while they can.

When they start choking and turning blue after interest rates rise, then the more prudent FTB's will inevitably benefit from their misery and rightly so.

At least one plus point is that the article states that more than 50% of 'prospective' FTB's are still smart enough to realise you have to save the deposit in the first place. The majority should be applauded for their prudence ( © Gordon Brown)

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There are times and circumstances when this isn't a bad idea. For example, when I bought in 1997 a variant of this worked out pretty well for me as follows:

- Found a 6% cash-back mortgage, with the money to be paid at completion (try finding one of those today!)

- Took out a 2 year unsecured loan for the 5% deposit from my bank.

- On completion of the mortgage, repaid the unsecured loan (with a small interest penalty) using the cashback.

The reasons I bought then were :

Prices had been slowly meandering upwards after the 80s/90s crash for a couple of years

My employer was owned by a bank so I had a mortgage subsidy to cushion against interest rate rises.

It had a second bedroom that I could rent out in the event of a financial emergency.

It's true that the mortgage rate was a bit higher than standard, and there was a 5 yr tie-in, but at that time, and under those circumstances it wasn't a bad overall deal.

Of course, things are very different now.

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I just wish people could get over the oft-quoted mantra of "you must get on the housing ladder before it's too late". I've heard that from both friends and family, and I don't understand it.

....

Its easy to understand.

House price rise quicker than inflation and wages and will do so for ever. They always have (well apart from ..oh no lets not look at that) and always will (apart from last year... oh no lets not look at that)

So its obvious. I've made a packet and you will if you buy one.

No need to work or to create value just buy a house and retire 2 years later on the wodge you will make.

See.

If you argue you're saying that I haven't made a packet then?

How dare you? How very dare you?

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House price rise quicker than inflation and wages and will do so for ever.

...it's all about timing...just now they are falling faster than inflation...therefore your statement is not accurate....it depends when you enter and when you leave the market....in your case ...only you know... <_<

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You could also say that 1 in 6 are committing financial suicide; unless of course massive HPI returns.

I have my doubts, and, I find it morally reprehensible that a bank would give a mortgage on the basis of a borrowed down payment.

Oh well, just another example of idiot, delusional Britons.

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The reasons I bought then were :

...

Dude, the reason you bought then was than the average house was about 2.8x the average wage. I bought a nice 30s 3 bed semi for 60K in '98, and sold it for 160K 7 years later. Madness.

Edited by tahoma

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Dude, the reason you bought then was than the average house was about 2.8x the average wage. I bought a nice 30s 3 bed semi for 60K in '98, and sold it for 160K 7 years later. Madness.

There was that too. The mortgage was about 2.5x my salary.

As said, things are very different now.

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Makes perfect sense, provided the following apply:

(a) you believe house prices are on the up

and

(B) you are happy to prioritise "getting on the ladder" over lifestyle spending

(a) makes it a good investment; (B) makes it affordable - bearing in mind what government pays if you lose your job.

EDIT: (B) got turned into stupid smiley (B) by the bb software.

Edited by porca misèria

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Banks should be checking where the deposit has come from, if it's from a loan they should wave bye bye.

Call me naive (I haven't had a mortgage in a while), but surely these people must be lying on their forms? :blink:

Unless this includes people borrowing money from their parents...then it would make sense :unsure:

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This might help explain recent rise in unsecured lending.

IR's for personal loans are comparitively onerous at the mo, I suppose the expectation is that HPI continues and when sufficent equity has been achieved they can shift the deposit debt onto the mortgage.

I expect thats what the EA's are telling them.

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I have never understood this logic, surely all you have to be able to do is service the loan, why must you save for a deposit ?

To show that you are at least able to put money aside for a period of time as proof that you could actually service a loan over a period of time and act responsibly. :(

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So long as you're squirrelling away a good deposit, what's the problem with going in on the "second rung" of the ladder?

Or maybe even dropping the belief in the wage inflation fairy, realising the "ladder" doesn't actually exist and in terms of "inflation pays my mortgage" hasn't for a fair few years, and adjusting your plans accordingly.

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Okay so its only to prove to a lender that you could pay it back then ?

Well also to give them a margin of safety from a capital loss if you sell the house for less than its worth ;)

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I have seen evidence of this from someone at work....

Couldnt get a 25% deposit so used a CC cheque instead.

Of course, his Mortgage lender wasnt made aware of this as at the time he arranged his mortgage, the credit card lending didnt exist.

It did as soon as they agreed his mortgage though.

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This might help explain recent rise in unsecured lending.

IR's for personal loans are comparitively onerous at the mo, I suppose the expectation is that HPI continues and when sufficent equity has been achieved they can shift the deposit debt onto the mortgage.

I expect thats what the EA's are telling them.

Why have a deposit at all? Why not just give out 100% or 110% loans?

Oh, I remember, we tried that.... look where it got us.

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Well that is a fairly basic question I presume you are serious.

You work out the servicing costs at 2% higher than loan rate and make sure that you can afford it and preferanly have a buffer.

Deposit = buffer :rolleyes:

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No it isn't if you stop making payments you will find that your deposit is illiquid.

And if you've borrowed your deposit you'll find you're truly buggered because you'll default on that too.

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