Sue Cox is business manager at Bananas Inc
“April’s position is an all-too-familiar situation. She has a regular job on reasonable pay and has savings, but is not up to the restrictive income multiples that are still demanded by many lenders.
Unfortunately, the standard of four times single income is really a hangover from the past when incomes represented a higher proportion of a property’s value. The current average income of £25,000 or so represents a much smaller fraction of the average property, which is now worth more than £200,000.
Fortunately, there are products that will fit her circumstances. Bananas Inc is currently targeting first-time buyers with a 95 per cent loan-to-value (LTV) mortgage that has an affordability calculation easily allowing her £20,000p.a to meet the requirements needed for a loan of £117,000 or thereabouts, providing she does not have large amounts of credit card or hire purchase debt.
The three-year fixed rate mortgage, at 5.94 per cent, is purpose-designed to encourage budding first-time buyers to make their first purchase. There are no extended tie-ins beyond the three-year fixed period, but within the three years a 6 per cent early repayment charge (ERC) applies. There is an arrangement fee of £599 and a higher lending charge (HLC) from 80 per cent, both of which can be added to the loan. This mortgage would, of course, be subject to a full income and expenditure breakdown to ensure that the mortgage was affordable and the best advice for the client’s needs.
As a full-status product, the mortgage requires the normal payslip and employment verification proofs.”
Kim Barrett is proprietor at KS Barrett & Associates
“In this case the property being purchased will cost £123,000 and I am assuming that the small deposit available will be sufficient to allow the applicants to restrict the new mortgage sought to 95 per cent loan of purchase price/valuation, meaning an advance of £116,850. A salary multiplier of 5.84 will, therefore, need to be sought. This is very high and may render the applicant with very little money, after paying her mortgage, on which to live.
If this applicant is currently in rented accommodation, and any tenancy has been operating for a reasonable period of time, I would like to know what rent the applicant is paying as an ‘interest only’ mortgage payment at 4.89 per cent, which could be achievable on a five-year fixed rate product, would cost £476.16 per calendar month. If the rent currently being paid is in excess of this a case could be made, and supplemented with an income and expenditure analysis, on affordability grounds.
As the applicant’s employer is a local authority it would be considered a reliable type of employer to support the applicant’s case. The employment history of one year would be considered adequate for the purpose of any mortgage application. However her salary may not necessary be increased year-to-year by anything only than inflationary rises, so it would be imperative to encourage the applicant towards a fixed rate product with a fix for as long a period as the applicants was prepared to stomach.
Overall, I am sure a mortgage lender could be found to accommodate the application presented but I, personally, would need to ensure that this applicant could sustain mortgage repayments before committing myself to offering any assistance.”
Mike Pendergast is an IFA at Zen Financial Services
“April is looking for a mortgage in the region of 5.5 times income, which is in excess of many lenders income criteria. Some lenders will allow her to borrow up to this level as long as she has a guarantor available, and a couple of lenders, such as Bristol & West, will take parental income into account when looking at income multiples, so if she has a willing parent who is happy to get involved, this may be a useful solution for her. Self-cert is not an option as she would still have to certify income to a higher level. She really needs to find a guarantor or parent who will be happy to help her out. Failing this, she will need to maybe look for a lower-valued property to get on the housing ladder, build up equity in this for a couple of years and then look to trade up when her income is slightly higher and she has a larger deposit available. Perhaps shared-ownership may also be a useful route, allowing her to buy a share of the property and therefore requiring a smaller mortgage. She should approach the seller to see if this is an option, or contact local housing associations.
