Have 35% deposit but low income

pimlico_2

Hi,

First time on this forum and new to this so here goes.
We want to buy an investment property to get some kind of foothold in the property market. We have 35% deposit but are on a low income (SE, although this will improve soon) although we do get significant tax credits etc.
Our broker has told us that with 35% deposit, income level is not a problem. We have no debts, no history of arrears as all payments paid on time, but have not had a mortgage before. The investment property is renting for (and has been for some time) at least 3x the interest payments needed for the loan based on 4% as quoted by broker.
Is our broker being too optimistic?
If our application in priciple is rejected will it affect future applications, especially since I will be statring a new job soon improving our income situation?

Any help apprecaited,
thanks Pimlico

G_M

If you have any doubts about the broker, visit another one for a 2nd opinion!

Dom3663

What happens if you can't get a tennant?
How long can you afford to be without tennant on your income?

pimlico_2

Dom3663 wrote: »

What happens if you can't get a tennant?
How long can you afford to be without tennant on your income?

Hi, Thanks for your replies.

Even though we are currently on a low income we can fund all of the cost of the house empty if necessary for six months as have allowed for contingencies plus new job starting soon.
Even with a slightly lower than market rent (for the size, facilities, condition and location) it would still cover the costs.

I didn't mention the new job to the broker as I don't start for a couple of weeks otherwise it may have helped with our AIP application.

Thanks

Fire_Fox

Benefits do not count as income, and having income from a tenant may affect your benefits.

princeofpounds

It is incorrect to say that a high deposit means income is irrelevant.

A deposit protects the bank from loss on their collateral - if an house in 90% mortgaged and goes down 15% the bank will lose money. If it is 65% mortgaged the bank will not lose money (and there might be some equity left over for the owner).

It has no impact whatsoever on the costs of servicing the debt. You might own 90% of a property but if you have no income you simply couldn't pay the interest on the remaining 10%.

Capacity to pay is not the same thing as collateral. (banks, simplistically, assess debt on a number of 'Cs' - http://www.business.gov.vn/advice.aspx?id=130&LangType=1033)

However, over-collateralisation does mean that the bank can take a higher risk on the other factors, the common sense view being that if you have protection on the downside through collateral you can take more risks on the upside. So you might be able to get a higher income multiple than otherwise, and a lower cost. But there will still be a limit.

As this is an investment property, the bank might look at income from both the personal income and rental income perspectives, but it will have its own formulas for assessing those.

jonewer

Maybe you should just buy yourselves a home?

Running_Horse

Agreed. Work hard to improve your income and buy for yourselves.

princeofpounds

The above posters make a good point. If you don't already own your own home there is little point buying one to rent out in most circumstances. It's like eating out at a restaurant and then going home to have to cook someone else's dinner.