Should I Borrow The Deposit to Buy a Property?

Getting on the property ladder is a dream many of us share.

No more Mr. or Mrs. Landlord, but our own home to live in, decorate, and do with what we wish.

However, with property prices rising in certain parts of the country, getting on the property ladder can be a dream that gets further and further away.

One of the main issues new want-to-be homeowners face is not getting a mortgage, but saving for the deposit.

Many people can qualify for a mortgage loan, they earn enough, and can afford the mortgage payments, but the majority of mortgage lenders want the borrowers to invest some of their own money in the property, in the form of a deposit.

Saving for a deposit on a property can take time, and can take a lot of money.

Many mortgage lenders want 10% or even 20% as a deposit on a property.

If you are seeking to buy a house or flat that is selling for £200,000, that means you can be required to have a deposit of £20,000 or even £40,000!

Saving £20,000 or more can prove difficult.

And mortgage lenders know this, so they have come up with some solutions as well.

Little or No Deposit Mortgages

Since saving up for a deposit is one of the great hurdles of getting on the property ladder, lender have looked at alternative ways to help those first-time buyers reach that first rung.

Things such as gifted equity, where a family member may sell a property for less than its current value, allowing the buyer to have a 10% or 20% stake in the property in the form of equity already.

There are also new mortgage loan programmes where a family member pledges 10% of the sale price of a property as a deposit, which means the borrower only needs a loan of 90% of the sale price.

The 10% pledged deposit is like an interest free loan, which has to be paid off in five (5) years. It is hoped that in that time the property will appreciate in value, and the buyer can re-mortgage into a new loan.

There are other variations on this loan theme, all involving a family member pledging equity in their own property as a deposit, and also being a co-owner of the new bought property.

Lloyds has expanded on this theme with their Lend a Hand Mortgage.

A buyer can get a mortgage for 100% of the sale price of a property if a family member opens an account and deposits 10% of the sale price in the account.

The new homeowner gets a mortgage loan for three (3) years at 2.99%, and the family member receives a 2.5% interest rate on the 10% they deposited in the account for the three years.

This not only gets the first-time buyer on the property ladder, but the family member who deposits the 10%, also gets a rate of return on their money.

Borrowing the Deposit For a Mortgage

One question that gets raised from time-to-time is, why not just borrow the deposit to buy a property and get a mortgage?

Take a personal loan for the 10% or 20%, and use the cash as a deposit.

There are a couple of schools of thought on this, and also a huge caveat.

The caveat is that with the high cost of property, if you needed £20,000 or more for a deposit, qualifying for such a large balance personal loan may prove difficult.

So that could stop the whole process there.

Secondly, many lenders do not like the idea of a borrowed deposit, and will not accept this and approve the mortgage loan.

There can be rare instances where a borrower may be able to show full affordability of both the personal loan for the deposit, and also the mortgage. But again, lenders like to see the deposit be saved, a gift from a family member, or using one of the alternative ways to buy a property with a little or minimal deposit.

The next question that comes up is, how will the mortgage company know?

There are ways they can find out, in addition, a question on a mortgage application may ask where the funds for the deposit originated from, how were they attained?

If they were borrowed, the loan can show on your credit history, thus prompting even more questions.

So in general, with all the alternative means available, and the fact mortgage lenders frown upon borrowing the deposit, it is not really an option, or make good financial sense to borrow a deposit to buy a property.

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<strong>What is Our Criteria For Applying?</strong> 
Every lender on our website has their own specific criteria by the basics are mentioned below and you must have a guarantor to be eligible. Simply select the lender of your choice and you will be taken directly to their website where you can apply. You will be required to submit your details including:<li style=”text-align: center;” data-mce-style=”text-align: center;”>Name (must be over 18 as the borrow, 21 or 25 as the guarantor)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Residence (your chances will improve if your guarantor is a homeowner)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Employment status (must be employed or on a pension)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Income (earning at least £600 per month and able to make repayments)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Monthly expenses (not have too many loans open or in major debt)</li>
You will then be asked to include the details of your guarantor and as mentioned above, this is usually someone who you know and trust and wants to help you with your personal finances. Ideally, a guarantor with good credit will maximise your chances of being approved based on the idea of ‘if someone with good credit trusts you, well we can too.'<strong>How Much Can I Borrow From Guarantor Loans?</strong>Guarantor Loans gives applicants the chance to borrow £500 to £15,000 depending on the lender. Some lenders we feature like Buddy Loans only have a maximum loan value of £7,500 and TFS Loans is the only lender that stretches up to £15,000.Factors that can influence the amount you can borrow revolve around having a good guarantor. One that is a homeowner, with solid employment, income and good credit rating will maximise your chances of borrowing the largest drawdown possible.The lenders featured on Guarantor Loans see a homeowner as someone who has already gone through the rigorous process of credit checking and affordability and if they can afford a house, they should be able to act as a guarantor for you.By comparison, having a guarantor that is not a homeowner offers slightly less security and means that amount you can borrow is slightly less too.Higher amounts may be available to those who already have a better than average credit rating, are homeowners themselves and a repeat customer with the lender who has already paid their loan on time. To apply directly with your lender of choice see <a href=”” data-mce-href=””>direct lenders</a>.<strong>What Does The Guarantor Have To Do?</strong>Upon completing an application, the lender will typically send you a <a href=”” data-mce-href=””>pre-contract loan agreement</a> and SECCI (Standard European Consumer Credit Information form) which will highlight the terms of your loan. You and your guarantor will be required to review the terms of the loan, including the loan drawdown, fees, repayment dates and responsibilities – and this can be signed via an online verification process using your email and mobile phone.The lender will usually carry out an individual phone call with you and your guarantor to ensure that you both understand the responsibilities and what is required of you – notably that if you cannot make repayment, your guarantor will be required to pay on your behalf. Further to some additional credit and affordability checks, funds can typically be transferred within 24 to 48 hours (or sometimes on the same day).<strong>Are Guarantor Loans Available For Bad Credit Customers?</strong>Yes, even if you have a history of adverse credit, <a href=”” data-mce-href=””>CCJs</a>, bankruptcy or IVAs several years ago, you can still be eligible. The idea is that you are using your guarantor and their financial history to ‘back you up’ and give your loan extra security. However, it is noted that your guarantor should have a good credit score and consent to co-signing your loan agreement.<strong>How Soon Can I Receive Funds?</strong>Guarantor Loans works with lenders that can facilitate funds within 24 to 48 hours of approval, or sometimes on the same day.When your funds are successfully transferred, most lenders working with Guarantor Loans will send the full amount to the guarantor’s debit account first. This is a standard security measure carried out by lenders to ensure that the funds are going to the right person and confirms the involvement of the guarantor. The guarantor usually has a ‘two week cooling off period’ where they can decide to pass on the money to the main borrower or they can change their mind and return the funds with no extra charges.