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Original poster

Taking a loan to buy a house (unmortgageable)

15 replies

unmortgageable56 · 13/02/2022 11:55

Hear me out before you think I'm totally mad.

We have the opportunity to buy a property but we are short by about £20k-£25k
The property is unmortgageable as it is a type 1 PRC (non-repaired) but otherwise in good condition

I know taking a loan is not recommended vs a mortgage due to interest rates etc but we don't have the mortgage option, I have found a few lenders that may lend on them but we plan to renovate (nothing drastic just walls skimming, new kitchen, bathroom, floors, painting & decorating etc) then rent it out in a few years (it's not unliveable as is but it is very tired and hasn't been decorated properly since pre-2000. When we leave we wouldn't be able to convert to a buy to let mortgage.

Obviously would get a full structural survey

Is this legal? Can people do this?

In terms of repaying I don't see any issues. We live quite frugally, own our cars outright, nothing on finance/credit at the moment. Take home around £3700 a month with fixed costs of around £1000 so will do renovations room by room

I know we would struggle to sell the property, although the whole street is the same and in a very nice area and they've been selling just fine but to cash buyers. We can look to repair the PRC in a few years too once we've moved out if necessary

OP posts:
SeekingSpace · 13/02/2022 12:04

I looked to do something similar, but every loan option I looked at explicitly prohibited purchasing property as a permissible reason. They're fine with you using the funds to 'renovate' a property but not for the actual purchase itself.

Now, we could just give 'home renovation' as the loan reason but then it worried me if the conveyancer would need to see loan documentation that will show what the loan is for, and what it explicitly prohibits as the banks seem to make a point of flagging that the money cannot be used for property purchases.

Original poster
unmortgageable56 · 13/02/2022 12:19

@SeekingSpace ah yes I hadn't considered that it might be spotted at conveyancing

OP posts:
Ligglepiggle · 13/02/2022 17:50

The conveyancer won’t care as long as the funds are there, you would at worst need to show a bank statement with the money in, provided the statement didn’t say ‘loan money’ I doubt they would even notice.
All banks prohibit doing loans for this reason but I’ve no doubt people do it regardless.

senua · 13/02/2022 18:33

I don't understand.
This appears to be a commercial enterprise - renting out - so why choose something so uncommercial eg you can't sell it on afterwards. Isn't there some other, more sensible property out there?

SpidersAreShitheads · 13/02/2022 19:23

@senua

I don't understand. This appears to be a commercial enterprise - renting out - so why choose something so uncommercial eg you can't sell it on afterwards. Isn't there some other, more sensible property out there?
@senua - obviously I don't know where OP lives but in my area these types of non-mortgageable houses are HUGELY cheaper. Probably a third to a half less for the same size property.

There was a non-standard house I looked at which has been underpinned and repaired, and that was going for the same as a standard construction now, but it took a long time to sell as I think buyers were still nervous.

senua · 13/02/2022 20:55

I don't know where OP lives but in my area these types of non-mortgageable houses are HUGELY cheaper. Probably a third to a half less for the same size property.
And yet OP still can't afford it; they are £20-25k short. Why not go for a more conventional property on which they can get a mortgage? OP said, "I know we would struggle to sell the property" - why put your whole life into an unsaleable property. OP further said, "the whole street is the same ... they've been selling just fine but to cash buyers." - have you not noticed that the market is crazy at the moment, anything sells. What about in a few years' time when it's a buyers' market?

You have a healthy take-home. Why not get a mortgage?

Original poster
unmortgageable56 · 13/02/2022 21:53

A conventional property is my preferred option but we would struggle to afford that too.
With our deposit plus mortgage we can't afford anything to suit our needs (not high needs - 3 bedrooms is literally our only essential criteria due to DC), nothing within a 15 mile radius that we need to stay in for family childcare purposes - moving further away would mean one of us has to leave our job and then we'd have half the income

We earn perfectly average incomes and are lucky that we have 2 coming into the household but we cannot afford a perfectly average home, it's very frustrating

This is just one option we are considering and getting all the facts on so we can make a good decision. I am grateful for peoples comments but I feel people need to understand how difficult it is for first time buyers at the moment. We're no where near London or any city either. I'm not doing it for commercial reasons, that is just an option for when we need to move on. I want to get on the ladder and have a secure home for my children

OP posts:
Original poster
unmortgageable56 · 13/02/2022 21:55

Also, the houses that I mentioned never struggled to sell have been 3-7 years ago, nothing has been for sale since 2018 so not to do with the current market madness

OP posts:
senua · 13/02/2022 22:27

You mentioned 'family childcare'. Is there any possible chance that they can borrow the £20-25k against the value of their house (assuming that they have one) and lend it to you?

PigletJohn · 14/02/2022 12:40

You aren't ever going to want to sell the house in your lifetime, are you?

Or leave it to anyone as an inheritance?

PeeAche · 14/02/2022 12:49

"Unmortgagable" houses can be sold. They just take a bit longer to do so. If this option offers you security at a price you can afford, why not?

Your conveyancing solicitor (and the estate agent) will ask you where the funds came from / for proof of funds. If you declare that you're a cash buyer, this will just be in the form of bank statements, showing that amount in your account.

The only person that actually queried where a lump sum in my bank account had come from was my mortgage broker. (It had been transferred from our savings and I had to demonstrate this.) Since you will not have a mortgage, I cannot see this happening to you.

People do use loans for this purpose all the time. It is against the terms of the loan so it's not legal. Nobody here can offer you financial advice, but with a wink and a nudge I can tell you that I personally know one couple that did exactly this in order to afford a pre fab home near the seaside.
It took them 5 years to clear the loan.

The sold the house last year and it took them around 14 months to receive a proceedable offer.xxx

PigletJohn · 14/02/2022 12:52

""Unmortgagable" houses can be sold. They just take a bit longer to do so."

and fetch a much lower price.

PeeAche · 14/02/2022 13:28

Well, obviously! 😅 OP is buying it for less than a "normal house", I suspect she knows it would sell for less too!

2ndBorn · 14/02/2022 13:33

I don’t think they will let you, my dad had the same problem with his house (he was buying it from the council). In the end, he had to loan money from his mother as he couldn’t get a loan to purchase it - I think he needed something like 10-15k

mindutopia · 14/02/2022 17:21

I would speak to your conveyancer. We had to show very detailed evidence of source of funds, exactly where money came from and how/when. If it's no problem with your lender, I'm sure it's fine, but you will need to be really transparent about where the money is coming from and what you intend to use it for.

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