Wednesday, July 22, 2009

Good idea?….I don’t think so!

First-time buyers taking out loans to afford deposits

More than one in 10 (13%) 18 to 34-year-olds are considering buying property for the first time in the next year, but of those 16% are considering taking out a loan to cover the cost of the downpayment they need, according to a study by moneysupermarket.com.

Posted by novice pete @ 03:28 PM (1683 views)
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18 thoughts on “Good idea?….I don’t think so!

  • Or an alternative headline

    87% of First Time Buyers had no Intention of Stepping on the Housing Snake in the Next Year.

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  • They may be considering taking out a loan for the deposit, but will a mortgage company be willing to lend to such an individual at the moment?!

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  • novice pete says:

    [email protected] The article contains this warning, so no probably not.

    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

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  • mark wadsworth says:

    666, they’ll just take a leaf out of Mandelson’s book and “forget” to declare it.

    This whole phenomenom goes much further back than we realise – a colleague of mine ten years ago admitted that he and his wife sometimes used their credit card to pay the mortgage payment at the end of the month!

    PS, he was an accountant as well, and quite a good one at that. So if even people like this do it, what hope is there for the sheeple?

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  • Forget about the stupidity of taking out a 8% – 9% loan to pay a 5 -6 % mortgage for a moment, my fear is that those naive FTBs probably think that if they don’t tell the lenders about that, they are “cleverly” playing the system and short cut the lenders.

    They are not. They need to disclose any outstanding debts when they mortgage. If they hide it, they will get in to troubles not just financially, but with the law as well. An undisclosed loaned deposite is basically a mortgage fraud.

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  • This is why we so desperately need genuine deposits of at least 10%.

    No bank of mum & dad, no credit cards, no loans from friends, no vendor gifted deposit, no nothing.

    If you cannot prove that you have the financial acumen to save a 10% deposit then you should be shown the bank managers door.

    It takes quite a lot of effort to accumulate and not spend such an amount, which is an essential pre-requisite to successfully managing mortgage payments and the commitment that goes along with house ownership.

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  • I don’t think you can take out a loan now without the mortgage lenders knowing. (Unless it’s done in another name or something).

    All details of borrowings I think are fairly instantly known/available through Experian etc.

    Anyway, we’re only talking about 13% of FTB that would contemplate buying a place in the next year and 16% of those that would borrow a deposit. So we’re only talking about 1 in 50 potential FTB’s.

    Or in other words of the 13% that are daft enough to buy in the next year, 98% would not be taking out a loan to fund the deposit.

    I therefore conclude that the remaining 2% are either incredibly daft or addicted gamblers that don’t know when to leave the table.

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  • mark wadsworth says:

    Mr Flib, to be fair, it’s difficult to save for a mortgage when you’re paying rent.

    So what a sensible bank would expect, if a couple wants a mortgage costing (say) £800 a month, is proof that for at least (say) two years, their total rental expense plus amount put towards deposit each month is £800 plus 25% margin of error = £1,000.

    So, if their rent is £750 and they’ve been paying it regularly for years, plus they’ve also paid £250 a month into a savings account with that bank fpr two or more years, then you an assume these are reasonably reliable borrowers.

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  • @8. mark wadsworth

    Damn good point. I guess there is a big difference between FTB’s who have been renting for a while and FTB’s who are just crashing out of Mum & Dad’s, having lazily paid a bit of house keep now and then. It would be good to see the former get a better LTV too as they are less risky and more conditioned to the real world of bill paying. Off course the ultimate solution would be housing that people could afford and BTL’ers kicked to the curb – we can but dream *lol*

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  • ontheotherhand says:

    16% of the 13% are considering taking out a loan = 2%. Non story really. I’m sure 2% of 18-34 year olds can be found to declare they are considering anything if it’s put in a multiple choice questionnaire

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  • novice pete says:

    My apologies, not a great posting from me. Does seem a bit of a drop in the ocean. Though anyone who may have been contemplating
    such action, stirred up by the recent media stories of house price rises and fear of missing the boat etc. may be put off doing so if they read this site. Mind you that would probably be a drop in the ocean too!

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  • brickormortis says:

    “More than one in ten (13%)”

    Surely that should read: “More than one in 8 (13%)”???????

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  • brickormortis

    Or “nearly one in seven”!!!!!

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  • As I’ve mentioned before, I’m a voluntary Debt Advisor, working for a charity.

    Yes, lots and lots of people have done this in past years. 90% from the building society and 10% borrowed from elsewhere, often family. The game that was played in the past is to wait till the house price goes up, then take out an equity loan against the house and repay the borrowed 10% (cards, family, pre-existing personal loan, etc).

    House prices do not always go up (contrary to popular belief in 2005/06). As you can imagine, the sudden drop in house prices has upset many borrower’s calculations and all sorts of problems are kicking off.

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  • Lenders usually had a good idea that borrowers were leveraging in this way. They didn’t care because they themselves were leveraging and securitising. Now the game’s changed and all the checks on borrowers’ resources will be stringent.

    ontheotherhand @10 – yes, it’s a non-story, especially as we don’t know what the considerations of the 2% would be – maybe they’d consider borrowing the deposit only if the highly unlikely happened……a house became available at a ridiculously low price….the economy magically turned around….etc. etc.

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  • So 2% are ‘considering’ taking a loan out for a deposit, which means that the other 98% realise that doing that will reduce their maximum mortgage available to them.

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  • More easy debt…….

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  • george monsoon says:

    Stupidity at it’s finest..

    So.. hypothetically, I take out a 20k loan say… for a deposit on a 120k house (the rest is used to pay for moving costs.. etc)
    I move in.. then what..

    I will watch my asset depreciate steadily over the next 5 to 10 years as rampant uneployment forces house prices down further enslaving me with a mountain of negative equity..

    Inflation will start to run away with itself, and periodic interest rate rises will be the norm to keep this in check. This will push up my repayments adding to my misery.

    Taxes will be hiked to pay for the bank bailout, coming straight out of my pocket.

    Wages will remain frozen in an effort for companies to stay afloat so spending power decreases.

    Yes, … Even if only half of the above actually comes true, I would be in the DooDoo pretty quickly….

    Why can’t people see this?

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