Both are keen to get on the property ladder, and are looking at properties within the £140,000-£180,000 price bracket. Bert has student debts totalling £9,000, which is being paid off monthly at a rate of £40 a month, as student loans have very little interest.
What are their options?
Daniel O’Connell is practice principal at Ashley Law
“Bert and Ernie face an intrinsic problem that many first-time buyers face – having to stretch their income to find a suitable property with little or no deposit. They also have the added obstacle that Ernie is looking to start a new job, as some lenders require a minimum period in employment. However, with Bert’s income and Ernie’s average earnings from his coaching job, they should get a reasonable deal.
The lack of a 5 per cent deposit is significant, as the differential in offerings for pre and post-95 per cent loan-to-value can be high. For example, Alliance & Leicester is offering a five-year discounted product with an initial rate of 4.79 per cent up to 95 per cent with no redemption penalties. Clients can also borrow up to a generous four times joint income. However as they may only be able to put down around 3 per cent once fees are accounted for, they will have to pay a higher rate, with the added cost of a higher lending fee becoming a distinct possibility.
Nevertheless, careful research will prove there are still some good deals to be found, with Saffron Walden offering first-time buyers a three-year discounted product with an initial rate of 5.10 per cent. The income multiplier is 3.75 joint, for up to 100 per cent LTV. In this case though, the clients are required to be in employment for six months, which could cause a problem for Ernie if he changes job.
It may be advisable for them to increase their deposit by saving an extra few thousand pounds, which would enable them to qualify for the many products available up to 95 per cent.”
James Cotton is mortgage specialist at London & Country
“Ernie’s current income equates to around £13,200 per annum, giving them combined earnings of £37,200. While his employment is not full-time, if he has a contract and has been in his current role for some time, he and Bert should be in a pretty good position to borrow what they need – certainly at the lower end of their £140,000 to £180,000 budget.
Based on their earnings, they will need a lender that either uses affordability or has generous joint income multiples. If they buy for around £150,000 to £160,000, they will need to borrow about 4.25 joint income, which is quite high, but certainly not out of the question. Their other commitments will reduce their borrowing potential, but £40 per month towards student debts will have a minimal impact.
With savings of £6,000, they will also need a lender that lends above 95 per cent loan-to-value (LTV). Lenders that meet both these requirements include Northern Rock, Royal Bank of Scotland (RBS) and Standard Life (although its 100 per cent deals are for professionals only). Bert and Ernie should be aware of higher lending charges (HLCs) – out of these lenders, only RBS charges HLCs, although it does have an HLC-free product up to 100 per cent.
To give them an idea of cost, RBS has a two-year tracker at 5.64 per cent, which is available up to 100 per cent LTV with no HLC. This would cost £933 per month for a £150,000 loan over 25 years.
Out of the £6,000 savings that Bert has, they could put some of this down as a deposit, but they may be better off simply borrowing the full 100 per cent and holding the savings back to put towards costs such as Stamp Duty, legal fees and furniture, etc.
Another obvious option is to wait until Ernie has found a new, full-time job. He will have a full-time contract and probably more income, so it will put them in stronger position and may give them a bigger choice of mortgage deals.”
Alan Lakey is a senior partner at Highclere Financial Services
“While £6,000 has been saved, around £2,500 is likely to be used for the relevant fees leaving £3,500 deposit. This implies that unless further significant sums can be obtained, at least a further £2,500, the loan will fall into the 100 per cent category.
As a graduate, Bert will qualify for enhanced borrowing status with lenders such as Scottish Widows Bank. We do not know Bert’s occupation but if he qualifies as a ‘professional’ Standard Life Bank is even more useful – up to a loan size of £137,000.
A better option would appear to be RBS. It is potentially able to consider 4.9 x joint incomes, which equates to £181,300. At these borrowing levels it would be sensible for them to give careful consideration to a fixed rate, thereby ensuring that the mortgage loan remains affordable until Ernie’s income is higher.
Finally, another option could be to use a guarantor or a variation offered by Bank of Ireland/Bristol & West. This enables the borrowers borrowing capability to be extended using surplus income from a parent.”
