They have £60,000 outstanding on credit cards. They have a combined income of £280,000 and are in their 30s and self-employed. They are able to confirm their income with accounts and are looking to purchase a new house at £900,000. A savings resource of £150,000 is available, but they wish to put in 25 per cent of the purchase price. What are their options?
Roy New, is a London-based sole broker
“Debbie and Harry require a deposit of £225,000 to purchase their new property at 75 per cent loan-to-value (LTV). Standard Life has a super product that is tailor-made for the couple. It is a two-year 2.07 per cent discount, giving a current rate of 4.69 per cent, with a Freestyle Cash Reserve. There is a £99 arrangement fee, £1,499 booking fee and early repayment charges of 152 days interest in the first two years.
"Their savings of £150,000 will realise the additional amount required to purchase their new home, plus costs. I’d recommend that they capital raise £125,000 on their present property on a buy-to-let basis, thus producing rental income and long-term capital growth.
get the daily news delivered to your inbox
"If the credit card situation is a problem, bearing in mind they are on a joint income of £280,000, I don’t agree in paying off credit cards using a long-term loan. I’d recommend that they pay these off over the short term, say two to five years.”
James Cotton is a mortgage specialist at London & Country
“Assuming Debbie and Harry sell their current home for £500,000, they should release more than enough equity to put down 25 per cent on their new home. A £225,000 deposit would leave them needing to borrow £675,000, which is less than 2.5 times their joint salary and well within normal affordability limits.
"With their remaining funds, they’ll need to pay Stamp Duty of £36,000 and they should also consider clearing their credit card balance, which is probably costing them a fortune in interest.
"This should leave them with at least £130,000 in savings. With this and the fact that they are both higher-rate taxpayers, they could be ideal candidates for an offset mortgage.
register for 'adviser finder' here
"It would give them a more effective return on their savings, while keeping them accessible. It would also give them the flexibility to make overpayments, which they could use to pay the credit card debt.”
Lenders such as Woolwich, Intelligent Finance and Standard Life have good offset deals for large loans.
Alex Carpignano is an adviser at Mortgage Minds
“For the purpose of this study we‘ll assume Debbie and Harry will remortgage on a let-to-buy basis to raise the further £75,000 they need to get to 25 per cent deposit. Northern Rock is best as it disregards credit card commitments and, subject to credit score, will fast-track up to 85 per cent LTV.
"Providing their current residential property can generate rental income of at least 125 per cent of the pay rate it will be regarded as self-funded. Rates vary from 5.19 per cent, 18 months fixed with a fee of £1,995 to 5.89 per cent with no fee. Similar deals can be obtained from Abbey or Halifax where clients would benefit from a free valuation and free legals. However they will take into account credit card commitments when assessing affordability. For the purchase, Halifax’s 5.19 two-year fixed seems the best option.”
compare mortgages
