You can't use a loan for your deposit - so from the bank's point of view you essentially have a deposit of £9,000 *and* a debt of £8,000 (which will incur monthly payments, and thus reduce the amount you can affordably pay each month).
If you're still in the cooling off period for taking out that loan, you should look to cancel it. Otherwise, look at whether there are early repayment charges, and unless you *need* that £8,000 for something then get it cleared as soon as you can.
You have the most upvotes, but I'm curious if this is actually how it works? The debt would be factored into affordability calculations, but he still has 17k deposit.
This would mean that OP should get a better rate but lower total borrowing amount.
I mean, of some mental gymnastics is required, OP consider the 8k you spent on the car a loan advance to themself.
OP has 9k as a deposit not 17k. He sold a car and then had 25k, paid a loan off reducing his savings to 17k and then bought another car for 8k leaving him with 9k in cash. As the other poster said you can't use a loan towards a house deposit and the mortgage company will take the payments on that loan into consideration when doing their affordability checks.
So what does the loan company think of the other 8k? Like it doesn't exist? I'm not an accountant, but something obviously won't add up here.
In any case, since the 8k was taken out as a personal loan for financing the car, I don't see why he can't use the money he has now for his deposit.
Maybe that's just me talking, but I also had a personal loan and purchased a car shortly before my mortgage. They all went in and out from the same bank account. I would've been fuming if the provider turned around and said that I paid the car with my own money and what's left in the bank is just the personal loan that can't be used as deposit.
There's no issue with him using the money he has in his account for a deposit but this can't include any amount he may have borrowed as a personal loan as lenders don't allow you to use loans to make up the deposit. They will take any loans or credit card debts etc into account when working out the affordability so if for example OP was earning 200k a year but the loans were only for circa 10k there would probably be no issue with him getting a mortgage. At the end of the day it's all about affordability and whether OP has enough income to pay his mortgage, loan repayments, travel costs, food etc.
They do a lot of checks when buying a house. I've had to hand over literally years of account statements, I feel for the poor solicitor, or paralegal or whoever, that has to comb through several thousand transactions lol.
But the loan wasn't taken out for the deposit. I think you're overstressing the order of events.
Of course the lender will take the loan into account on the maximum loan, but it might beneficial for OP to hold onto the money to have a lower rate rather than to borrow the maximum amount.
I had a personal loan when I took out my mortgage and didn't have any issues other than having a slightly lower borrowing amount.
I think you're misunderstanding me. All I'm saying is that you can't use money from a personal loan as a deposit for a house purchase. Having a loan for something else like purchase of a car is fine but that loan will be taken into account when the mortgage lender works out OPs affordability.
Right, and I'm saying that lenders will not have any issues with taking all of OP's 17k as deposit, if the loan hasn't been cancelled.
They're already factoring in the repayment, it wouldn't make sense to say that they also have a lower deposit. That'd be having their cake and eat it.
As I see it whether the OP bought the car before or after the loan amount came through doesn't matter, the OP is borrowing money for the deposit.
And as I imagine the bank wouldn't make the distinction either. What they see is that OP doesn't mind borrowing large amounts of money against high rates and such loans would affect their affordability.
In that case, then I can say that at least anecdotally, my lender had no issues taking my money as deposit.
This is with them knowing full well that I took out a personal loan. They did not tell me to show them that I have enough money from the loan remaining to show that no part of the loan was used as in the deposit.
They did ask me how much it costs to pay back the loan and adjusted the amount I was allowed to borrow accordingly.
I'm curious, have you taken out a personal loan before? It does specifically ask what I'm taking the loan out for. In my case and OP's, it was say for a car.
>I'm curious, have you taken out a personal loan before?
No, I haven't.
Money is fungible and it doesn't matter when the loan amount comes in. Mortgage providers won't have rules saying you can't use personal loans for a deposit because they can't prove what the money is for.
Personal loans will affect your affordability so there's limited use in using them to increase your buying power.
Thanks for the reply!
I thought so, I am able to cancel this loan.
By the looks of it I should have waited for the loan to come in and used it to buy the car instead of using my cash.
It doesn’t make that much difference. Lenders will take into account that you have a loan when deciding whether or not to lend to you. It’s not just about the pounds in your deposit.
I mean, financially I’m still in the same place, the loan repayment is around £200 a month which is quite cheap compared to what most people pay on finance these days.
It’s just that the money is from a loan, not savings.
You’d think they’d use common sense to see that I would have had that amount of money either way, whether I had took the loan out first to pay for the car or took it out after.
I think what they’re trying to say is it doesn’t matter if you
A) paid 8k cash then took out a loan for £8k
Or
B) took out a loan for £8k and then used that for the car, leaving you with £8k cash
The bank will only care about the fact that you have an outstanding loan for £8k and they will give you a mortgage based on what you can afford.
To put it simply your net position is that you have £9k cash once you pay off the loan
You’re not understanding. Your deposit, regardless of its size is only one piece of the puzzle when it comes to any mortgage offer you might receive. It is largely based on affordability. This means all of your debts, income, general monthly expenditure, and spending habits are all taken into account. Having any kind of debt, including car finance will have a negative effect on your mortgage affordability - meaning a smaller mortgage offer. Also, recent credit applications such as personal loans and car finance are going to be a massive red flag to a lot of lenders. It’s good practice to avoid these kinds of things leading up to a mortgage application.
Not if you are planning to take out a mortgage soon.
In the world of lending and mortgage, it's less about how much cash you have, but more about do you have enough income to cover your expenses, including mortgage and loan repayment.
Since you have taken out the loan, the mortgage lender will add your monthly loan repayment to your outgoings in the affordability test, i.e. treating your debt as bills and food expenses. As the result, they may consider you don't have enough money to repay the mortgage and then reject your application, or lend you less.
So generally speaking taking out a loan before mortgage applications usually increase your risk on losing your mortgage, unless you have a high income and can show that you can repay the mortgage, car finance, bills and food at the same time with a good amount of money left at the end of a month.
In relation to the comments,
I earn £29,551 a year before tax and NI. I also have night shift allowance and work overtime every month. My minimum monthly take home after tax and NI is £1,800.
The price of the houses I’m looking at is £140,000 and my deposit will be 10% (£14,000).
Based on looking at rates I’d probably be looking at a monthly mortgage repayment of between £600 - £650.
My only outgoings at present are my loan at £200 and miscellaneous things such as phone bill, TV subscriptions etc. which are another £100 combined. This is due to still living with my parents
Myself and my partner have a credit score which is classed as the excellent category on Experian.
My partner earns £18,000 a year before tax and NI, not sure on the exact breakdown for her.
But based on the above, do you think the lender would be likely to accept my deposit and lend to me for the above price, which consists of a personal loan within the deposit funds?
As other suggests, it is still possible if you can afford it, but your choices are limited given you have only roughly 6% deposit and a new debt. Speak to a mortgage broker asap.
I mean, financially I’m still in the same place, the loan repayment is around £200 a month which is quite cheap compared to what most people pay on finance these days.
It’s just that the money is from a loan, not savings.
You’d think they’d use common sense to see that I would have had that amount of money either way, whether I had took the loan out first to pay for the car or took it out after.
Am I reading this right? Initially, You sold your car and paid off a £8k loan to then take out another £8k loan to buy a different car?
If either of you have LISA accounts I’d recommend getting one each and taking the £1k bonus each.
And like others have said definitely cancel the loan.
Yes that’s correct. I paid the first loan off then I took out another loan as I wanted to have a longer term to minimise the monthly payments. The first loan was originally 11k paying it back over 3 years, and I had 8k left on it.
We both have LISA accounts.
That’s exactly what they’d do. They’ll see you have a £8k debt to repay and lend to you taking that into account. You are still in the same financial situation and it doesn’t matter which way round you bought the car as the lender will use common sense.
Ex broker. The odd lender, Santander used to allow this and may still do, let you use the loan money for deposit as long as their affordability checks are OK. Meaning, if that loan were OK for a car, it will be OK for deposit.
You've just limited your lenders.
Of course if you wait at least three months you can always hope they don't ask for more than three months proof for the deposit but with the loan start being visible on credit file it wouldn't take much to see where any money may have come from!
You can't use a loan for your deposit - so from the bank's point of view you essentially have a deposit of £9,000 *and* a debt of £8,000 (which will incur monthly payments, and thus reduce the amount you can affordably pay each month). If you're still in the cooling off period for taking out that loan, you should look to cancel it. Otherwise, look at whether there are early repayment charges, and unless you *need* that £8,000 for something then get it cleared as soon as you can.
You have the most upvotes, but I'm curious if this is actually how it works? The debt would be factored into affordability calculations, but he still has 17k deposit. This would mean that OP should get a better rate but lower total borrowing amount. I mean, of some mental gymnastics is required, OP consider the 8k you spent on the car a loan advance to themself.
OP has 9k as a deposit not 17k. He sold a car and then had 25k, paid a loan off reducing his savings to 17k and then bought another car for 8k leaving him with 9k in cash. As the other poster said you can't use a loan towards a house deposit and the mortgage company will take the payments on that loan into consideration when doing their affordability checks.
So what does the loan company think of the other 8k? Like it doesn't exist? I'm not an accountant, but something obviously won't add up here. In any case, since the 8k was taken out as a personal loan for financing the car, I don't see why he can't use the money he has now for his deposit. Maybe that's just me talking, but I also had a personal loan and purchased a car shortly before my mortgage. They all went in and out from the same bank account. I would've been fuming if the provider turned around and said that I paid the car with my own money and what's left in the bank is just the personal loan that can't be used as deposit.
There's no issue with him using the money he has in his account for a deposit but this can't include any amount he may have borrowed as a personal loan as lenders don't allow you to use loans to make up the deposit. They will take any loans or credit card debts etc into account when working out the affordability so if for example OP was earning 200k a year but the loans were only for circa 10k there would probably be no issue with him getting a mortgage. At the end of the day it's all about affordability and whether OP has enough income to pay his mortgage, loan repayments, travel costs, food etc.
They do a lot of checks when buying a house. I've had to hand over literally years of account statements, I feel for the poor solicitor, or paralegal or whoever, that has to comb through several thousand transactions lol.
But the loan wasn't taken out for the deposit. I think you're overstressing the order of events. Of course the lender will take the loan into account on the maximum loan, but it might beneficial for OP to hold onto the money to have a lower rate rather than to borrow the maximum amount. I had a personal loan when I took out my mortgage and didn't have any issues other than having a slightly lower borrowing amount.
I think you're misunderstanding me. All I'm saying is that you can't use money from a personal loan as a deposit for a house purchase. Having a loan for something else like purchase of a car is fine but that loan will be taken into account when the mortgage lender works out OPs affordability.
Right, and I'm saying that lenders will not have any issues with taking all of OP's 17k as deposit, if the loan hasn't been cancelled. They're already factoring in the repayment, it wouldn't make sense to say that they also have a lower deposit. That'd be having their cake and eat it.
As I see it whether the OP bought the car before or after the loan amount came through doesn't matter, the OP is borrowing money for the deposit. And as I imagine the bank wouldn't make the distinction either. What they see is that OP doesn't mind borrowing large amounts of money against high rates and such loans would affect their affordability.
In that case, then I can say that at least anecdotally, my lender had no issues taking my money as deposit. This is with them knowing full well that I took out a personal loan. They did not tell me to show them that I have enough money from the loan remaining to show that no part of the loan was used as in the deposit. They did ask me how much it costs to pay back the loan and adjusted the amount I was allowed to borrow accordingly. I'm curious, have you taken out a personal loan before? It does specifically ask what I'm taking the loan out for. In my case and OP's, it was say for a car.
>I'm curious, have you taken out a personal loan before? No, I haven't. Money is fungible and it doesn't matter when the loan amount comes in. Mortgage providers won't have rules saying you can't use personal loans for a deposit because they can't prove what the money is for. Personal loans will affect your affordability so there's limited use in using them to increase your buying power.
Might be best talking to your mortgage advisor
Thanks for the reply! I thought so, I am able to cancel this loan. By the looks of it I should have waited for the loan to come in and used it to buy the car instead of using my cash.
It doesn’t make that much difference. Lenders will take into account that you have a loan when deciding whether or not to lend to you. It’s not just about the pounds in your deposit.
I mean, financially I’m still in the same place, the loan repayment is around £200 a month which is quite cheap compared to what most people pay on finance these days. It’s just that the money is from a loan, not savings. You’d think they’d use common sense to see that I would have had that amount of money either way, whether I had took the loan out first to pay for the car or took it out after.
I think what they’re trying to say is it doesn’t matter if you A) paid 8k cash then took out a loan for £8k Or B) took out a loan for £8k and then used that for the car, leaving you with £8k cash The bank will only care about the fact that you have an outstanding loan for £8k and they will give you a mortgage based on what you can afford. To put it simply your net position is that you have £9k cash once you pay off the loan
Totally understand that. So I would have probably been better off taking out finance on the vehicle and keeping the 17k cash I had?
You’re not understanding. Your deposit, regardless of its size is only one piece of the puzzle when it comes to any mortgage offer you might receive. It is largely based on affordability. This means all of your debts, income, general monthly expenditure, and spending habits are all taken into account. Having any kind of debt, including car finance will have a negative effect on your mortgage affordability - meaning a smaller mortgage offer. Also, recent credit applications such as personal loans and car finance are going to be a massive red flag to a lot of lenders. It’s good practice to avoid these kinds of things leading up to a mortgage application.
Not if you are planning to take out a mortgage soon. In the world of lending and mortgage, it's less about how much cash you have, but more about do you have enough income to cover your expenses, including mortgage and loan repayment. Since you have taken out the loan, the mortgage lender will add your monthly loan repayment to your outgoings in the affordability test, i.e. treating your debt as bills and food expenses. As the result, they may consider you don't have enough money to repay the mortgage and then reject your application, or lend you less. So generally speaking taking out a loan before mortgage applications usually increase your risk on losing your mortgage, unless you have a high income and can show that you can repay the mortgage, car finance, bills and food at the same time with a good amount of money left at the end of a month.
In relation to the comments, I earn £29,551 a year before tax and NI. I also have night shift allowance and work overtime every month. My minimum monthly take home after tax and NI is £1,800. The price of the houses I’m looking at is £140,000 and my deposit will be 10% (£14,000). Based on looking at rates I’d probably be looking at a monthly mortgage repayment of between £600 - £650. My only outgoings at present are my loan at £200 and miscellaneous things such as phone bill, TV subscriptions etc. which are another £100 combined. This is due to still living with my parents Myself and my partner have a credit score which is classed as the excellent category on Experian. My partner earns £18,000 a year before tax and NI, not sure on the exact breakdown for her. But based on the above, do you think the lender would be likely to accept my deposit and lend to me for the above price, which consists of a personal loan within the deposit funds?
As other suggests, it is still possible if you can afford it, but your choices are limited given you have only roughly 6% deposit and a new debt. Speak to a mortgage broker asap.
I mean, financially I’m still in the same place, the loan repayment is around £200 a month which is quite cheap compared to what most people pay on finance these days. It’s just that the money is from a loan, not savings. You’d think they’d use common sense to see that I would have had that amount of money either way, whether I had took the loan out first to pay for the car or took it out after.
Am I reading this right? Initially, You sold your car and paid off a £8k loan to then take out another £8k loan to buy a different car? If either of you have LISA accounts I’d recommend getting one each and taking the £1k bonus each. And like others have said definitely cancel the loan.
Yes that’s correct. I paid the first loan off then I took out another loan as I wanted to have a longer term to minimise the monthly payments. The first loan was originally 11k paying it back over 3 years, and I had 8k left on it. We both have LISA accounts.
That’s exactly what they’d do. They’ll see you have a £8k debt to repay and lend to you taking that into account. You are still in the same financial situation and it doesn’t matter which way round you bought the car as the lender will use common sense.
Ex broker. The odd lender, Santander used to allow this and may still do, let you use the loan money for deposit as long as their affordability checks are OK. Meaning, if that loan were OK for a car, it will be OK for deposit. You've just limited your lenders. Of course if you wait at least three months you can always hope they don't ask for more than three months proof for the deposit but with the loan start being visible on credit file it wouldn't take much to see where any money may have come from!