FTBs warned not to use loans to fund deposits

Using a bank loan to fund a deposit on a property purchase is effectively taking out a 100 per cent mortgage 'through the back door' and will not be accepted by lenders, a mortgage expert has warned.

Louise Cuming, Head of Mortgages at price comparison website moneysupermarket.com, urged prospective first-time buyers (FTBs) to save up their deposit, even if it means delaying their first property purchase.

"Not only will the mortgage lender decline the application if it discovers this [a loan] is the source of the deposit but it is also a huge risk to the borrower - your monthly outgoings will be higher which means there is a greater chance of you finding yourself unable to keep up with repayments," she said.

Research by the price comparison site found that 25 per cent of prospective FTBs aged 18-34 had already saved a deposit, while 13 per cent revealed they were intending to get on to the housing ladder in the next 12 months.

However, after the number of mortgage deals on the market has fallen by 60 per cent over the last year, and with the average FTB deposit at £32,000, some 29 per cent said they were planning to rent until they could afford a deposit.

"The obsession with equity that has gripped mortgage lenders over the last couple of years has hit FTBs hardest," Ms Cuming added.

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