First Time Buyer - Deposit - Possibly a Stupid question....
Discussion
This may not be possible/best advised so please bear with me....
I am likely to be moving jobs within the next month or so (far better paid) and have been wanting to get a foot onto the housing ladder, currently living with my girlfriend in a rented 2 bed flat, although I have no deposit currently.
We currently pay £800 a month in rent for a property worth c.£150k on a good day (well after £5k is spent on a kitchen, more on re-plumbing/heating and the damp issues are sorted) and as it's unfirnished I have enough furniture to get by.
From playing around with mortgage calculators etc i have worked out that:
A 90% LTV mortgage for a purchase of £200k (£180k borrowed) would result in a monthly payment of just over £820 a month (a house like this would rent for about £1,100 a month).
The new job would see a post-tax pay increase of about £600 a month
I already manage to save £250 a month and could scramble about £5k currently.
A personal loan of £15k paid off over 30 months would see the remainder of the 10% deposit, and result in payments of about £530 per month (5.5%) which, with the new salaray, could be absorbed without me noticing to the current status-quo.
Of course I would only contemplate this upon expiry of my probationary period (current tenancy expires in Jan 2014 anyway).
Is there any merit in my madness?
ETA. My credit score is to my knowledge very good. All purchases made on cashback cards and settled in full at the end of most months. Never missed a payment on anything and have had a few cars on finance (most was £20k) dispite being quite young (23).
I am likely to be moving jobs within the next month or so (far better paid) and have been wanting to get a foot onto the housing ladder, currently living with my girlfriend in a rented 2 bed flat, although I have no deposit currently.
We currently pay £800 a month in rent for a property worth c.£150k on a good day (well after £5k is spent on a kitchen, more on re-plumbing/heating and the damp issues are sorted) and as it's unfirnished I have enough furniture to get by.
From playing around with mortgage calculators etc i have worked out that:
A 90% LTV mortgage for a purchase of £200k (£180k borrowed) would result in a monthly payment of just over £820 a month (a house like this would rent for about £1,100 a month).
The new job would see a post-tax pay increase of about £600 a month
I already manage to save £250 a month and could scramble about £5k currently.
A personal loan of £15k paid off over 30 months would see the remainder of the 10% deposit, and result in payments of about £530 per month (5.5%) which, with the new salaray, could be absorbed without me noticing to the current status-quo.
Of course I would only contemplate this upon expiry of my probationary period (current tenancy expires in Jan 2014 anyway).
Is there any merit in my madness?
ETA. My credit score is to my knowledge very good. All purchases made on cashback cards and settled in full at the end of most months. Never missed a payment on anything and have had a few cars on finance (most was £20k) dispite being quite young (23).
Edited by kiethton on Tuesday 12th February 16:58
Have to say not a good idea for a many reasons....some below.
Sounds like you are thinking of purchasing with a Residential Mortgage with a view to Letting the property?
If you ask for permission to Let the Property a Lender can increase the rate to accommodate the let status of the property. This will eat into your rental yield. If you dont ask permission you are in breach of the agreement for the Residential Mortgage. Lenders are very aware of back door Buy to Lets these days and often decline requests to let.
Lenders can ask for proof of deposit, some do on every application, at any time.
A lot of Lenders instruct acting Solicitors to verify the source of deposit, ie Savings, Gifted or borrowed.
A good Broker will require proof your deposit before the application is submitted and ask where the deposit is from.
The personal loan monthly payment is a commitment and reduces the amount of borrowing available dramatically.
Up your savings when you start your new job and save your deposit. It will save you a lot of hassle and heart ache.
Sounds like you are thinking of purchasing with a Residential Mortgage with a view to Letting the property?
If you ask for permission to Let the Property a Lender can increase the rate to accommodate the let status of the property. This will eat into your rental yield. If you dont ask permission you are in breach of the agreement for the Residential Mortgage. Lenders are very aware of back door Buy to Lets these days and often decline requests to let.
Lenders can ask for proof of deposit, some do on every application, at any time.
A lot of Lenders instruct acting Solicitors to verify the source of deposit, ie Savings, Gifted or borrowed.
A good Broker will require proof your deposit before the application is submitted and ask where the deposit is from.
The personal loan monthly payment is a commitment and reduces the amount of borrowing available dramatically.
Up your savings when you start your new job and save your deposit. It will save you a lot of hassle and heart ache.
BlueNGT said:
Have to say not a good idea for a many reasons....some below.
Sounds like you are thinking of purchasing with a Residential Mortgage with a view to Letting the property?
If you ask for permission to Let the Property a Lender can increase the rate to accommodate the let status of the property. This will eat into your rental yield. If you dont ask permission you are in breach of the agreement for the Residential Mortgage. Lenders are very aware of back door Buy to Lets these days and often decline requests to let.
Lenders can ask for proof of deposit, some do on every application, at any time.
A lot of Lenders instruct acting Solicitors to verify the source of deposit, ie Savings, Gifted or borrowed.
A good Broker will require proof your deposit before the application is submitted and ask where the deposit is from.
The personal loan monthly payment is a commitment and reduces the amount of borrowing available dramatically.
Up your savings when you start your new job and save your deposit. It will save you a lot of hassle and heart ache.
Thanks for that, I thought it would be the case (although cant see the difference between it and a car PCP payment). Sounds like you are thinking of purchasing with a Residential Mortgage with a view to Letting the property?
If you ask for permission to Let the Property a Lender can increase the rate to accommodate the let status of the property. This will eat into your rental yield. If you dont ask permission you are in breach of the agreement for the Residential Mortgage. Lenders are very aware of back door Buy to Lets these days and often decline requests to let.
Lenders can ask for proof of deposit, some do on every application, at any time.
A lot of Lenders instruct acting Solicitors to verify the source of deposit, ie Savings, Gifted or borrowed.
A good Broker will require proof your deposit before the application is submitted and ask where the deposit is from.
The personal loan monthly payment is a commitment and reduces the amount of borrowing available dramatically.
Up your savings when you start your new job and save your deposit. It will save you a lot of hassle and heart ache.
It would not be for rent, but for my own occupation but if done the way above my total outgoing costs would be reduced, even with the effect of paying interest. I guess it's the equivalent of mezz finance but on a personal level. (the 200k indicative cost would be less than 4x income so should be within borrowing limits even with any loan) although maybe not the best idea if searches are conducted.
kiethton said:
Thanks for that, I thought it would be the case (although cant see the difference between it and a car PCP payment).
It would not be for rent, but for my own occupation but if done the way above my total outgoing costs would be reduced, even with the effect of paying interest. I guess it's the equivalent of mezz finance but on a personal level. (the 200k indicative cost would be less than 4x income so should be within borrowing limits even with any loan) although maybe not the best idea if searches are conducted.
Main difference is you are only puting 2.5% deposit into the property and the rest is borrowed. Heading back to Northern Rock model of old there It would not be for rent, but for my own occupation but if done the way above my total outgoing costs would be reduced, even with the effect of paying interest. I guess it's the equivalent of mezz finance but on a personal level. (the 200k indicative cost would be less than 4x income so should be within borrowing limits even with any loan) although maybe not the best idea if searches are conducted.
The loan payment will be multiplied by 12, so minus £6,360 from your income. There are many different afforability calculators out there and can also factor in living expenses which will have a further impact...some might result in a reduction of around £25k in borrowing just for the loan. Score also sits in the background.
PCP, HP, Loan, Credit Cards (3% to 5% of outstabding balance), Buy Now pay Later...anything like that are all deducted from income as a commitment.
BlueNGT said:
Main difference is you are only puting 2.5% deposit into the property and the rest is borrowed. Heading back to Northern Rock model of old there
The loan payment will be multiplied by 12, so minus £6,360 from your income. There are many different afforability calculators out there and can also factor in living expenses which will have a further impact...some might result in a reduction of around £25k in borrowing just for the loan. Score also sits in the background.
PCP, HP, Loan, Credit Cards (3% to 5% of outstabding balance), Buy Now pay Later...anything like that are all deducted from income as a commitment.
True, although in this specific circumstance it will actually result in near reduced costs over renting (mortgage v rent difference of £350) which is the majority of the repayment which would have been over 30/36 months.The loan payment will be multiplied by 12, so minus £6,360 from your income. There are many different afforability calculators out there and can also factor in living expenses which will have a further impact...some might result in a reduction of around £25k in borrowing just for the loan. Score also sits in the background.
PCP, HP, Loan, Credit Cards (3% to 5% of outstabding balance), Buy Now pay Later...anything like that are all deducted from income as a commitment.
Based on the salary proposed for my new job the mortgage calculator online says that I should be good for up to £260k at 90% (excluding loan), only thinking of needing £180k (plus the £15k) whilst that also negated any bonuses.
Even with the loan and mortgage payments (and excluding any bonues) I would have about about £1,200 a month to live on after bills & tax and no dependants which is more than necessary?
As I've previously said I will be looking to save over the coming year but it does help to think that the idea (if practicable) what we currently pay in rent will be equal to the mortgage payment for a far larger/nicer house (as opposed to a small 2 bed, damp, flat) whilst the loan payments would account for a proportion of my pay increase but still leave some remaining for additional saving meaning I would in effect still be better off over the current status quo?
kiethton said:
True, although in this specific circumstance it will actually result in near reduced costs over renting (mortgage v rent difference of £350) which is the majority of the repayment which would have been over 30/36 months.
Based on the salary proposed for my new job the mortgage calculator online says that I should be good for up to £260k at 90% (excluding loan), only thinking of needing £180k (plus the £15k) whilst that also negated any bonuses.
Even with the loan and mortgage payments (and excluding any bonues) I would have about about £1,200 a month to live on after bills & tax and no dependants which is more than necessary?
As I've previously said I will be looking to save over the coming year but it does help to think that the idea (if practicable) what we currently pay in rent will be equal to the mortgage payment for a far larger/nicer house (as opposed to a small 2 bed, damp, flat) whilst the loan payments would account for a proportion of my pay increase but still leave some remaining for additional saving meaning I would in effect still be better off over the current status quo?
You need to think like a lender. They don't care if your mortgage is going to be less than the rent etc.If your figures fits their affordability calculator, it's a go-er. If not then you'd have to try another lender.Based on the salary proposed for my new job the mortgage calculator online says that I should be good for up to £260k at 90% (excluding loan), only thinking of needing £180k (plus the £15k) whilst that also negated any bonuses.
Even with the loan and mortgage payments (and excluding any bonues) I would have about about £1,200 a month to live on after bills & tax and no dependants which is more than necessary?
As I've previously said I will be looking to save over the coming year but it does help to think that the idea (if practicable) what we currently pay in rent will be equal to the mortgage payment for a far larger/nicer house (as opposed to a small 2 bed, damp, flat) whilst the loan payments would account for a proportion of my pay increase but still leave some remaining for additional saving meaning I would in effect still be better off over the current status quo?
Technically, it's possible to do this but I don't think many people would be pay saddling themselves with a £530 a month loan when they've just bought a house....
Genuinely cant see how anyone can afford a house at present. I remember in 1993 on the spur of the moment deciding I wanted to buy a house.
I just got a 1500 overdraft from the bank which equated to 5 % deposit, 5% cashback paid by mortgage company paid back the overdraft and a £260 a month mortgage.....those were the days....
I just got a 1500 overdraft from the bank which equated to 5 % deposit, 5% cashback paid by mortgage company paid back the overdraft and a £260 a month mortgage.....those were the days....
I did this for my first place. Would I do it again? Not a chance. I was far too naïve to understand the full risks and it was mainly luck that meant it worked out OK in the long term.
It looks great on paper based on fixed monthly earnings, but what nearly toppled me was when those earning suddenly stop. I was in what was seen as a very secure job (ha!) at the time, but a couple months after buying the place I was made redundant… Then due to the interest on the loan and mortgage your immediately in negative equity and that’s before any change in house price. You have absolutely no wiggle room as you have no equity.
What saved me was getting a new job, which was abroad. I could rent the place out and got free accommodation abroad. It meant I had to stay with friends/family whenever I came home which is a bit painful when you know you’ve got a nice flat! The rent I got covered the repayments pretty much exactly. After 5 years of that I have the loan paid off and now actually have some equity in the place and now make money off the rent. Plus I’ve been lucky with house prices in the area so now it actually looks like a great investment.
However, I was very lucky. It could have so easily have gone the other way… a couple of months out of work, a 5% drop in house prices, a few % raise in interest rates... I would have been screwed.
My advice would be to save up for a couple of years or, do what I did for my last place and sell your car to fund the deposit (not very PH I know!).
Anyway, I am sure your mortgage company would want to see 3-6months of pay slips in your new job before they would be willing to offer you a mortgage based on it. Why not see if you can put £1k/month away during that time and you'll a) see if it's really doable and b) build a few more £k deposit!
It looks great on paper based on fixed monthly earnings, but what nearly toppled me was when those earning suddenly stop. I was in what was seen as a very secure job (ha!) at the time, but a couple months after buying the place I was made redundant… Then due to the interest on the loan and mortgage your immediately in negative equity and that’s before any change in house price. You have absolutely no wiggle room as you have no equity.
What saved me was getting a new job, which was abroad. I could rent the place out and got free accommodation abroad. It meant I had to stay with friends/family whenever I came home which is a bit painful when you know you’ve got a nice flat! The rent I got covered the repayments pretty much exactly. After 5 years of that I have the loan paid off and now actually have some equity in the place and now make money off the rent. Plus I’ve been lucky with house prices in the area so now it actually looks like a great investment.
However, I was very lucky. It could have so easily have gone the other way… a couple of months out of work, a 5% drop in house prices, a few % raise in interest rates... I would have been screwed.
My advice would be to save up for a couple of years or, do what I did for my last place and sell your car to fund the deposit (not very PH I know!).
Anyway, I am sure your mortgage company would want to see 3-6months of pay slips in your new job before they would be willing to offer you a mortgage based on it. Why not see if you can put £1k/month away during that time and you'll a) see if it's really doable and b) build a few more £k deposit!
You say you work in property finance yet are asking this question?
No getting a loan to fund a deposit isn't a good idea save like hell for 12 months you currently save 250 increase this to 500 sell the BMW unless that's on finance as well if it is sell it and use those finance repayment to add to your deposit pot.
No getting a loan to fund a deposit isn't a good idea save like hell for 12 months you currently save 250 increase this to 500 sell the BMW unless that's on finance as well if it is sell it and use those finance repayment to add to your deposit pot.
Yes I do currently do property finance but am on the asset recovery side of commercial property and am familiar with mezz/the debt stack and was trying to apply it in a different market.
The BMW went in the summer (car I'm running isn't worth anything), I'm now renting and the rent is the same as that the mortgage would be. I will hopefully be saving about 750 a month (proposed loan payment plus current saving) so will hopefully build something fairly quickly.
The BMW went in the summer (car I'm running isn't worth anything), I'm now renting and the rent is the same as that the mortgage would be. I will hopefully be saving about 750 a month (proposed loan payment plus current saving) so will hopefully build something fairly quickly.
Bought my first place this time last year.
You've got a great situation - what you need to do is take that extra earning, and for the next 12 months save like crazy. Consider ditching financed cars, and cutting down etc. Sounds hard, but a year flies by.
If you can get up to say 15grand deposit, you'll find the banks are rather more helpful and you are in a much better position to get a good rate.
My credit rating was theoretically non existence, because I'd never borrowed or financed a penny, but I did have cash in the bank. We looked at different combinations of more deposit, less to spend on doing house up vs lower deposit, keep more back for new kitchens etc. In the end, simply having the biggest deposit I could possibly muster was by far the best way to go.
You've got a great situation - what you need to do is take that extra earning, and for the next 12 months save like crazy. Consider ditching financed cars, and cutting down etc. Sounds hard, but a year flies by.
If you can get up to say 15grand deposit, you'll find the banks are rather more helpful and you are in a much better position to get a good rate.
My credit rating was theoretically non existence, because I'd never borrowed or financed a penny, but I did have cash in the bank. We looked at different combinations of more deposit, less to spend on doing house up vs lower deposit, keep more back for new kitchens etc. In the end, simply having the biggest deposit I could possibly muster was by far the best way to go.
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