Donna earns £40,000 and Rudolph £45,000, but Donna enjoys the high-life and wants a £20,000 wedding. She has £2,000 savings but Rudolph has £7,000, and is expecting a bonus of £10,000. How should they approach this?
“Life is full of dilemmas as to what to spend money on. Clearly we hope Donna and Rudolph only get married once so they will obviously want to make the day very special, however the more of their savings and potential bonus they want to use on the wedding, the more their new mortgage will cost them.
While with their incomes they should be able to get a 100 per cent mortgage, the larger the deposit they pay the better the rate they would secure. With many lenders, if they borrow over 90 per cent they will have to pay a higher lending charge. Portman has an excellent two-year fixed rate at 4.99 per cent with no HLC and a £499 fee. A 25-year repayment mortgage of £142,500 would cost £842 per month. Donna and Rudolph should net about £5,000 per month between them and thus, they should be able to save a considerable amount each month towards the cost of the wedding, though Donna may have to rein in her expenditure.”
“The challenge with this case is making sure the selected product does more than just offer a low rate. The incomes would show good affordability, so they should be able to save money for their wedding and I would discourage the clients from securing this money against their home.
Initially an interest only mortgage would ensure the maximum amount is allocated to the wedding fund and this account needs to be flexible to allow additional payments, such as Rudolph’s bonus and gifts, and withdrawals to pay for the hotel and outfits. An offset vehicle may offer the best solution.
Donna and Rudolph will accumulate 15 per cent of their mortgage balance giving them effectively a 15 per cent discount on their rate. If they continue with the savings bug, it is likely they will be able to knock many years off their term, while still allowing access.The main downfall with offsets are the rates, which can be uncompetitive.”
“Working with the facts, Donna & Rudolph would have no problem with affordability and could borrow, if needed, 100 per cent of the purchase price.
The wedding costs of £20,000 are probably on the low side and therefore even with Rudolph’s bonus they will be short on the final amount. When we factor in moving expenses, lender fees and Stamp Duty then it is obvious that they are unlikely to be able to save sufficient money from their income in good time, particularly when taking into account Donna’s taste for the high-life.
One option is to concentrate on saving for the wedding, as to borrow for this event would be a more expensive option. Instead they could look at taking a 100 per cent deal to fund the cost of moving and then set in place an over payment on a monthly basis in the initial years in order to repay the excess borrowing quickly. It is possible to find a lender that would meet these criteria and not require a HLC.”
