Mark has an existing mortgage and has agreed to exchange contracts on the sale at £150k. His current mortgage is with The Mortgage Business (TMB) for £125k. Renate has never had a mortgage and has credit card debts of £15,750, a personal loan for £4,500 and she also has a CCJ for £497 that was settled 18 months ago. Mark’s income is £50k pa and Renate’s income is £18k pa, both are permanently employed. What are their mortgage options, especially as Renate wants to join the mortgage?
Jim Cook is director at Packaging House
“Currently the couple can obviously obtain the mortgage at near-prime rates, but the majority of lenders will penalise Renate for her CCJ. In order to obtain prime rate we recommend that Mark take the mortgage in his own name for the next two years, during which time Renate can clear the adverse, some of her debt and even save some deposit.
By taking this option Mark can take advantage of some of the very low rates, for instance Portman Building Society’s 4.19 per cent two-year tracker. The Portman deal will allow Mark to borrow up to 90 per cent of the property value, which may even allow him to assist Renate with her repayments. In Mark and Renate’s case, we would need to offer a full debt counselling service, making them aware of the concerns in swapping short-term debt to a long term mortgage.”
Daniel O’Connell is practice principal at Ashley Law (Newport)
“Mark and Renate have a multitude of options for the new purchase, although Mark needs to be aware that the capital he solely puts into the new property will form part of their joint assets. Mark’s current property has been sold and once agent’s fees are paid on the sale, and Stamp Duty and other fees are paid on the purchase, the couple will probably be looking at a 90 per cent mortgage. Although Renate’s monthly debt repayments will have to be taken into account when assessing her income, their joint income should be enough to satisfy most mainstream lenders.
One option might be to see if Mark’s current mortgage is portable – his current lender may allow him to transfer the mortgage onto the new property and lend him the extra amount he needs to complete the purchase. In this case though, Mark would also need to check if the lender would allow Renate to become a party to the mortgage and the necessary legal work such as Transfer of Equity would also have to be completed.
If this was not a viable option for them, then the couple would have a host of competitive deals to consider in terms of new mortgages. Although CCJ’s are always significant, the fact that Renate’s was satisfied a long time ago means that a lot of mainstream lenders would consider their application. Halifax is currently offering a two-year tracker with an initial rate of 4.39 per cent, which might be attractive to Mark and Renate, particularly with Halifax’s proposed retention strategy of offering existing clients the same deals as new clients in the future.”
Tim Robinson is from Pearson Jones
“Despite the fact that Renate wishes to be party to the mortgage, my initial advice would be to apply for the mortgage in Mark’s sole name.
It appears that the deposit for the purchase, £25,000 is coming from the equity in Mark’s current property, resulting in a loan-to-value (LTV) on the new purchase of 87.5 per cent.
Based on his income there is no doubt that any high-street lender is going to offer him a mortgage.
There is little point in having to resort to a non-conforming lender just because Renate wishes to be added to the mortgage.
With the new LTV, and despite the mortgage application being in a position that it can be processed on a full status basis, they would have to pay a higher interest rate by having Renate on the mortgage, as opposed to keeping the mortgage in Mark’s sole name and there taking advantage of the more competitive mainstream deals.
We would have to discuss the pro’s and con’s of the options and allow the clients to make their own decision.
The point must be made that by the time you have deducted Renate’s current commitments the remaining income adds little to the quality of the application, because the CCJ dilutes the quality of the case.
If there is an insistence that the mortgage be taken out in joint names we would have to investigate the reason that Renate has a CCJ. Some lenders will take a view if the debt has been caused by a third party, for example, an ex-partner not clearing a joint debt from a previous relationship. We would have to speak to lenders on an individual basis.
Because the debt was satisfied 18 months ago and her income is not specifically required to support the application, a small number of lenders may offer them a mainstream rate but they would be limiting their choice in the market. This must be made clear.
I would recommend Renate concentrates on clearing her unsecured borrowing as quickly as possible.
There is nothing to stop her being added to the mortgage in the future once her credit rating has improved, though the potential costs should be discussed, for example, the transfer of equity costs.”
