Get on the Property Ladder with an Unbolted Loan
An Unbolted Loan does not impact your mortgage affordability
Mention the ‘property ladder’ to a young professional or first time buyer and you will get a different answer to that of 25 years ago.
Getting on the property ladder used to be a major life goal for those young professionals and first time buyers. However, it is becoming increasingly harder to attain this life goal. If your friend says they have bought a house, most people would think you had won the lottery or come into money.
For most, then, it is an impossible goal and it is only getting harder with rising house prices.
The world is changing fast. According to Mariella Frostrup at the BBC: “Ten years ago 59% of 25 to 34 year-olds owned their own home in England - now it's 36%. What are they doing instead? They're renting from private landlords - 21% were doing that 10 years ago, now it's 48%.”
These numbers serve as an unappetising reminder of what we already know. For most young people today, getting on the property ladder is not an option anymore and for many others, financial support from friends and family is their only way to put together enough cash for the deposit. However, not everyone has a family “bank” called “Mum and Dad” or “My Favorite Rich Aunt”.
Rashi and John are one of those young couples. Their parents have worked hard and assisted them through school but now are on a fixed income during their retirement.Both Rashi and John have good jobs but are at the start of their careers. Naturally, like many people they approach their bank to see if they can get a personal loan to cover the deposit. But they then realise that if they take out £10,000 as a personal loan, the bank will reudce their mortgage amount by £50,000!
That is because the banks take into account all financial commitments when doing 'affordability calculations', before finally approving the mortgage. A personal loan of £10,000 at 8% interest rate for 5 years will require a monthly repayment of c£200, which is the same repayment required for a 30-year mortgage of £50,000 at 3.0% interest rate.
They consider borrowing on their credit cards or from another bank, but realize it will have the same effect as all such borrowings will show up on their credit records.
If only Rashi had John had understood the value of all their wedding gifts! Many of Rashi’s relatives gave her beautiful gold jewelry and Rashi had provided John with that beautiful luxury watch that he only wears on special occasions. Of course, they wouldn’t want to sell these memories on e-bay! Then there was John’s collection of Star Wars memorabilia. Rashi had wondered where she could get rid of it and had thought of e-bay or an auction house.
What they didn’t realize is that similar to mortgaging their house, other valuable assets can also be pledged in return for funds at affordable interest rates. Private banks have been providing similar services to their wealthy customers for years. Remember when only some cars had automatic windows? Or only one person on the street had a color television? Services that were once only available to the rich are now available to the common man.
This type of lending is known as secured asset lending or bridge lending. Private wealth managers arrange such financing for their high net worth clients everyday and now so can people like Rashi and John for their own use.
It is a logical option for those who did not win the “birth lottery” but do have valuables. Just as Uber has made taxi rides cheaper for everyone, and Airbnb has lowered the cost of travelling, there is one internet company who has made this privilege of the rich, more accessible to all. If you would like to learn more, please click here.