David Mead is managing director at Flexible-mortgage.net
“The main issues with most first-time buyers would be affordability and the size of the deposit available, as well as spare savings, which will be needed to cover additional costs such as Stamp Duty tax and legal fees.
Many mortgage lenders will only consider two incomes. However Abbey would lend based on all three applicant’s earnings. 3.6 times the two main earners plus the lowest income. Dusty on £25,000 and Ned on £16,000 plus £12,000 in regular commission.
Abbey would probably use 100 per cent of the commission if it could be proved as regular on payslips. Then Lucky’s income would be added. Using this calculation, the maximum loan is likely to be £210,800 up to a maximum of 95 per cent loan-to-value (LTV). This would obviously mean the three amigos should probably take a more realistic view and look for a property value of around £220,000. The down side of a 95 per cent LTV loan with Abbey would be a higher lending charge (HLC) of £4,000.
The clients need to consider three other issues carefully.
Affordability is one such issue, as is the potential for future legal problems if they all fall out. As Dusty and Lucky have £7,000 each to bring to the party, and Ned has no savings, I would also suggest that these clients take legal advice as it maybe wise to arrange a tenancy in common agreement. Finally critical illness with life cover and income protection should be considered.”
Michael Brill is director at Baronworth Investment Services
“Initially, it would be ideal if all the applicants could add equal savings towards the deposit, and they could then have equal shares of the equity. This would simplify the division of the property when it is sold. As Ned does not have any savings, this could cause a problem.
Not all lenders will allow three individuals to obtain a mortgage together, and if they do, very few will utilise more than two of their incomes, when calculating the maximum amount of mortgage available to them. With this in mind, the friends are very short on income, so they need to find a lender who offers very high income multiples. So the chances of obtaining a competitive interest rate are reduced.
With only £14,000 deposit, they are reducing the number of lenders still further.
I cannot think of anywhere that they could obtain the mortgage finance they need.
However, if they did manage to find a lender who would allow them the mortgage arrangement with the three incomes being taken into account, they are tying themselves into a long-term arrangement. If one of them wanted to get married and have a mortgage of their own, they would need to sell their share in the property. One may become unemployed or be off sick, and unable to pay their share of the mortgage, in which case the remaining two would become liable for the whole mortgage.”
Jonathan Burridge is managing director at Quantum Mortgage Brokers
“Regardless of the number of borrowers, most lenders would only take the main two incomes into account and at best add the third. This would mean their target purchase price is probably out of their reach and they need to reassess their aims. Bearing in mind the clients’ concerns about affordability, it would also probably be in their best interests.
I would probably look to Halifax to place the case. Using its affordability calculator, we managed to get to an expected loan agreed of £209,000 with £3,000 held back to cover their costs. This would give the trio a purchase price of £220,000. Being mindful of their concerns about affordability and the current expectations of further interest rate rises, we would recommend a fixed rate. As three applicants are buying together it is likely to be a purchase of convenience and probable that one or more will want to exit and buy a property elsewhere. As such we would recommend a two-year deal.
Finally, again for reasons of affordability, we would recommend the mortgage arrangement was taken out initially on an interest only basis and made sure that the clients had adequate financial planning in place in event of unemployment, death or critical illness.”
