Should you take out a loan to buy property in the UK?

1.  Are you interested in buying property from probate or repossessions? If YES, Click here Property Classifieds The Home Of UK Property Resources Contact Hello, Sign in Register Home / Blog / Should you take out a loan to buy property in the UK? Search Website Blog Keyword (Optional)  Select Category Search Now Back to search results  LIKE Posted on 28/09/2020 in For Buyers by Property Classifieds Press Should you take out a loan to buy property in the UK?

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3. The mortgage is a great thing. It’s a loan, generally a large one, but weighted to be paid back over a long time. It gives buyers access to large sums that could take a lifetime to save and it gives the lender a healthy return in the form of interest and the added security of being tied to an asset. It’s a win-win situation in most cases.  However, more and more people are asking whether there are other ways to fund a house purchase. Specifically, if a short term loan is a good idea. These are loans, generally of smaller amounts, borrowed at a higher rate of interest and to be paid back over a much shorter time frame. Many people in the UK dream of being a homeowner. Renting just seems like money down the drain for many people, so doing anything to get a foot on the property ladder just seems like a good idea. But is getting a loan to do this a good idea? Many financial experts think not, but are they right? Short term finance There is no doubt that people are looking for different ways of getting on the property ladder. This is often regardless of their financial circumstances. In the past, it was all about saving up for a deposit, building your credit rating, and soberly applying to a bank for a safe and steady mortgage. But the way it works is changing. Lenders are approving people with a less than ideal credit score and the short term finance industry is growing exponentially here in the UK. The idea of a loan over a short term worries some people, but the fact is that most people pay these back on time, and lenders are still doing the due diligence to risk assess the loans and avoiding too many defaulted payments. So, why not use this kind of finance for a home purchase? Bridging loans In the UK, it is possible to take out what is known as a bridging loan. This is a loan product designed specifically to fund the purchase of a flat or house. Essentially it is a loan intended to be set for only a short period but is designed in a slightly different way. Usually, the borrower has some means of making a capital gain in the short term in order to pay back the loan. This could be the sale or resale of a property. For example, if there is a problem with the sale of your existing home but you are committed to making a payment on a new property, you may get a bridging loan to meet your commitments until your sale goes through. Banks are happy to do this, providing conditions are met, as they know they will get their money back relatively quickly. However, they do charge for the privilege and usually at a rate of around 18% APR or more. So, while it may be a necessary solution, it can be an expensive one. Home bridge financial Other short term solutions might be to raise the 5 or 10% needed for the deposit. In these circumstances, you can borrow the smaller amount (in addition to a mortgage for the balance) provided you can pay it back over a short period, such as six months or a year. Applicants will need to be 100% sure that they can pay the money back. It is a solution that works well for people expecting a lump sum in the near future, in the form of inheritance or similar. Again, the interest on these kinds of loans can be higher than conventional loans. It usually makes sense to keep the costs of borrowing down as much as possible. But some people believe it is better to get on the property ladder as soon as possible and are willing to take the risks. The dangers of a short term loan The main issue is that people who take out a loan find they become inundated with debt very quickly. In some cases, they can make the repayments but the lack of any contingency means one unexpected expense can throw a spanner in the works. While lenders have a responsibility to only lend in a sensible way, the onus of making the repayment calculations falls on the borrower. They need to be sure they can keep up with the financial repayments.

4. If they do not meet the repayments as agreed, then they can end up incurring charges which add to the financial burden. Late payment fees and even debt collection costs can soon add up, and the overall amount can spiral out of control. As many people take out multiple loans, this issue can be even further magnified.  As you can see, taking out a short-term loan to buy a house. is not always the best idea. Whether this is in the form of a bridging loan or a cash advance, it usually comes with big expenses that far outweigh those of other kinds of lending. It can be tempting to do whatever it takes to get on the ladder, but you need to measure the costs of borrowing against what you can afford to repay. You should always try and explore other options for borrowing before going down the loan option especially if it’s a short- term one. This could even be borrowing from family and friends. If you do decide to go for it and something goes wrong, the consequences can be huge. For example, if the money you need to repay does not come through on time, or you lose your job, it can lead to a bad credit rating for years to come. That can make future borrowing difficult or even impossible. For more information about ways and means of securing funding for a house purchase, get in touch with a member of our team. We can suggest the best ways to get on the property ladder without exposing yourself to too much risk.

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