Thomas Reeh is chief executive at blackand white.co.uk
“Jamie and Louise want to purchase the house of their dreams for £330,000. They enjoy 40 per cent equity on £160,000 flat which equals £64,000, plus £4,500 savings. They have a total deposit, including the equity in their flat, of £68,500.
To make the purchase they will need to pay £9,900 Stamp Duty and allow at least £5,000 for costs, which totals £14,900. They also want to spend £25,000 on home improvements. If they do this, they will need a loan of £301,500 which is a hefty six times their joint income of £52,000.
There is no mention of rental income from the flat which could help with the income calculations. Norwich and Peterborough will offer a maximum of 90 per cent loan-to-value (LTV) which would give the couple £297,000 – about £4,000 less than they wanted.
N&P uses an affordability calculation so the couple should fit a five-year fix at 5.58 per cent with no tie in fees, £315 valuation fee and £395 arrangement fee.”
Compare mortgages
Roy New is a sole-broker, based in London
“Like the majority of my clients, Jamie and Louise are looking slightly beyond their means.
The problem – property value, deposit, renovation costs, other associated costs and small savings.
I recommend that the couple go back to the seller’s agent and renegotiate the asking price with the renovation costs in mind. Let’s then assume the asking price is dropped to £310,000.
I’d suggest the couple let out their flat on a let-to-buy basis. SPML has a 90 per cent LTV, with 100 per cent rental income multiplier. This is applicable as long as the flat can produce significant rental income.
The advice of a reputable letting agent is an absolute must. They should also speak to an accountant to get a better understanding of their tax position with regards to the rental payments.
The property at £310,000 can be purchased via a 5 per cent deposit and using lenders who will use affordability as the income calculation.”
CAtch up on the industry buzz
Darren Pescod is managing director of The Mortgage Broker Ltd
“Assuming Jamie and Louise sell their one-bed flat, keep back £25,000 for the renovation, and use their savings for their moving costs, this will leave them requiring a £291,000 mortgage – 88 per cent LTV. There are not many lenders in the market that will stretch to 5.6 times joint income.
Advantage will lend to them on an interest only basis. It is currently offering an exclusive via Enterprise Group, which is a near-prime plus product on a 6.04 per cent two-year fix, with no extended lock-ins, free valuation and arrangement fee of £799 that can be added to the loan. There are other deals available from Advantage that have lower interest rates but are variable and stepped, which may also appeal.
I would also advise Jamie and Louise that if they could bring the required mortgage down to £280,500 – 85 per cent LTV – there will be other alternatives available to them.
Get the daily news delivered to your inbox
