This year promises to be interesting in the mortgage and housing market. The help to buy scheme has made buying a home possible for many people. Now there are many more products available which can enable you to buy a home with just a 5% deposit.
Most lenders specify that you must gather the deposit from none repayable means such as savings, a gift from family or inheritance. There is one lender however, who will allow you to borrow 95% on a mortgage, and the other 5% from a personal loan, effectively meaning you don’t need to save for a deposit.
So, let’s say you are looking at buying a house for £100,000. You could borrow £5,000 over 5 years for around £100 per month with some lenders. Then the mortgage would be for £95,000, and if you could stretch this over 35 years, you may be paying around £530 per month for that. So in total, the package for borrowing would cost you £630 per month.
Now looking at affordability for the loan. Because you are borrowing £5,000 as an unsecured loan, this brings down the amount you are able to lend for mortgage purposes, so this needs to be factored in. Assuming you have no other debts, you don’t have any children and your credit score was good, this idea could be an option for you if you earned £24,000 or more as a single person. If you were doing this as a couple with no children, your combined income would need to be around £24,000 to £28,000 between you.
Likewise, you may have started saving and nearly have the 5% deposit you need, and you have seen your dream home for sale, only to think your going to miss out. Again, as long as your income is sufficient to support it, you may be able to bridge the gap with a personal loan.
The cost of buying a property in this way can be more expensive; you should ensure that you will be able to meet the monthly repayments for both loans. That the mortgage lender and unsecured loan provider will also need to be happy that you can afford the repayments.
These types of loans require specialist advise to ensure you don’t end up taking out a loan, only to find out you can’t get the mortgage you wanted anymore, then being stuck with thousands of pounds of debt.
This arrangement may disappear tomorrow, with only one lender currently allowing you to buy a house in this way we are at the mercy of their policy, and if it changes, the opportunity is lost.
Kieron Bassett Financial Services has two Independent Financial Advisers who specialise in mortgages and investment advice. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or visit www.kieronbassett.com.
Jason Hinde DipPFS
20th January 2014
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