FTB with a guarantor

olimain

My girlfriend and I are FTBs currently looking to buy in the next six months in the Greater London area and are hoping to take advantage of the drop in house prices. As we have never had a mortgage before I have a few questions which I hope you will be able to help me with.

We have a £50000 deposit and would like to buy a 2/3 bedroom house and have been looking at houses in the £250-£300k range. We currently earn £38000 between us.

My parents have offered to act as guarantors for the mortgage - my first question is how much difference will this make and in what ways?

Are we best to try and fix for as long a period as possible? If so what sort of rate can we expect?

Is this going to be possible working on the figures I have given or will we need a much bigger deposit?

Also, as I will be providing the vast majority of the deposit (though she earns more than I do), how do we go about ensuring if we did ever split up, the money would be divided accordingly?

Thanks for taking the time to read.

Oli

benjo

Well done on saving your deposit, some numbers.

If the property is 300k your 50k will give you a 16.6% deposit, Im not a mortgage advisor but most here seem to suggest saving for a 15%+ deposit.

You would need a mortgage of 250k that is just over 6.5 times your joint salary - thats alot, I dont know what banks etc are lending in terms of salary ratio now, but I would doubt it is that high and I dont know how the banks calculate your parents salary/status in terms of them being a guarantor, Im sure an advisor would know better than me though.

In terms of affordability - very roughly..., a 250k repayment mortgage over 25 years at 4% is £1333 per month, 5% £1478 and 6% is £1630 - the latter being over half your joint monthly income before deductions.

Im sure one of the mortgage advisors would know best what your options are - goodluck.

opinions4u

olimain wrote: »

We have a £50000 deposit and would like to buy a 2/3 bedroom house and have been looking at houses in the £250-£300k range. We currently earn £38000 between us.

You may wish to review your choice of area/property downwards.

My parents have offered to act as guarantors for the mortgage - my first question is how much difference will this make and in what ways?

This is where you need to see an experienced Mortgage Adviser. Some companies will require your parents' income to be good for the whole mortgage for the whole term. In other words, what happens when their income drops on retirement? If a particular lender isn't happy with this they may choose not to lend.

How do you intend to meet the payments? My view is you will also need help with this. What will happen if your parents help you with payments and then die? Will you inherit further, or would you struggle to pay?

Another option may be for your parents to raise money on their property and gift you a bigger deposit. This could allow you to buy a property without a guarantor and would also improve the mortgage deal that you get.

Other siblings may not be happy with this though.

Are we best to try and fix for as long a period as possible? If so what sort of rate can we expect?

4%-6%. Take a look at www.moneysupermarket.com/mortgages and play around with the site.

Is this going to be possible working on the figures I have given or will we need a much bigger deposit?

I think you AND your parents need to get an appointment with a professional to talk this through. Possible? Yes. A good thing to do? Maybe not.

Also, as I will be providing the vast majority of the deposit (though she earns more than I do), how do we go about ensuring if we did ever split up, the money would be divided accordingly?

A solicitor can arrange this for you. Do a double take on your doubts though. Are you being realistic that "these things happen" or do you have specific doubts about your relationship. If it's the latter, put your property plans on hold until you've dealt with them.

olimain

Thank you for your replies. I must clarify that we have no doubts at all with our relationship, this is certainly not something either of us forsee, it is just a case of being realistic/prepared. Some marriages break up after 50 years seemingly completely out of the blue, so who knows what could happen in the future.

I am very fortunate that my parents are well off (due to many years of hard graft) and when they come to retire/should something happen to them, this wouldn't affect my being able to keep up repayments or their status as guarantors. I am sure they would lend us money for a bigger deposit (or buy a house outright and sell it back to us when we could afford a mortgage), I just really wanted that not to be necessary. They have given me a fantastic upbringing and first class education and I didn't want to have to rely on them to keep paying out now I'm in my mid twenties - they deserve a bit of a break!

benjo

I am very fortunate that my parents are well off (due to many years of hard graft) and when they come to retire/should something happen to them, this wouldn't affect my being able to keep up repayments or their status as guarantors

As I said, Im not a mortgage advisor, but my understanding is that whoever acts as guarantor has their salary/income taken into consideration for the whole period of the loan agreement ie if your parents hit retirement age midway through the mortgage then that could be a problem but you seem to suggest that when your parents retire their income will remain the same as it is now which is great news.

In terms of your ability to repay the loan, only you know your limits, but Im guessing, at this moment in time the banks would say that you cannot afford to service such a loan since it is 6.5 times your income (hey I could be way out though in terms of multiples of income that banks will now lend but I thought it was back down to about 3x) - which is presumably why you would need a guarantor. I really wish you goodluck in finding your first home - an exciting time indeed.

Robert_Sterling_3

olimain wrote: »

Thank you for your replies. I must clarify that we have no doubts at all with our relationship!

Does anyone have any doubts?

olimain

Robert_Sterling wrote: »

Does anyone have any doubts?

Exactly, hence best to do things properly. Who knows what may happen