How much can i borrow

Daveyb

Hi there.

I have been saving for the last few years for a big deposit for a flat. I have managed to save £50,000, and my parents have said they will lend me around £25,000, so i should have a deposit of £75K.

The problem i am facing is that i want to buy a flat which are generally selling for upto £200,000 - i would need a mortgage of £125,000 ish.

unfortunatly my bank has said that they will only guarantee me 4 times my salary (only £25,000) which would give me £100,000 to borrow.

So my questions are.

1)given i have a large deposit (75/200 is nearly 40%) and no debts apart from student loan, what are the chances of getting a mortgage of 5 times my salary. Might i be a case where a broker could get me a bigger loan?

2)My plan has always been to buy a 2 bed flat and let out the second room to help pay the mortgage. Unfortunatly i can;t find any info. on any mortgages that allow for aditional rental income when calculating how much you can borrow.

3)Is it worth waiting before buying. after the general election taxes will go up, unemployment looks like it will go up and intrest rates can only go one way. Are house prices in london likely to stay flat or even fall in the next year or two?

Any help would be much appreciated

VIGILANT22

You have no chance of obtaining a mortgage 5 x your salary..............before or after the election!

CLAPTON

try santander

princeofpounds

1)given i have a large deposit (75/200 is nearly 40%) and no debts apart from student loan, what are the chances of getting a mortgage of 5 times my salary. Might i be a case where a broker could get me a bigger loan?

Your chances are now quite low, but a broker will have a view of the whole market and will be able to tell you if there are any products available.

Unfortunately a large deposit only helps so much, because it covers a different sort of risk for the bank. A large deposit ensures there will always be collateral because the property can always be repossessed and sold for the value of the loan at a minimum.

However, in no way (apart from the obvious of having a smaller mortgage) does it assist you with servicing the ongoing interest costs which are what salary multiples (or similar affordability metrics) are designed to measure.

What is the point in lending to you if you can't pay the mortgage a few months down the line? Especially if rates ever rise. They'll jusy have the hassle of a repo and terminating the whole agreement.

2)My plan has always been to buy a 2 bed flat and let out the second room to help pay the mortgage. Unfortunatly i can;t find any info. on any mortgages that allow for aditional rental income when calculating how much you can borrow.

Depends on the lender. Some will look at crude salary multiples, but most look at a system of affordability calculations to see how much you can afford at a greater level of detail. In the old days of loose lending, they might have been more generous about such things. Now they are not, but again a good broker will have some idea.

3)Is it worth waiting before buying. after the general election taxes will go up, unemployment looks like it will go up and intrest rates can only go one way. Are house prices in london likely to stay flat or even fall in the next year or two?

Probably best discussing this on the sister board for house prices here as it is an inflammatory topic. My personal opinion is that all the points you mention (apart from unemployment) would seem to indicate waiting is a better idea, but that's up to you.

Daveyb

Thanks for your reply.

Just a question about the first point.

With a larger deposit, the intrest rate is generally lower.
For example Barclays website says that a 2 year fixed rate mortgage has an intrest rate of:

5.49% for a 20% deposit
3.39% for a 30% deposit

So it seems to me that my ability to pay the intrest is higher if i have a larger deposit and so a lwer intrest rate. Another way to reduce monthly payments is to have a longer term on the mortgage, say 30 years instead of 25.

So if you have a large deposit and are willing to take a longer mortgage isn;t it reasonable that you could be leant more money and have the same monthly repayments? (obviously i understand that over the life of the mortgage a 30 year one will be more expensive).

Cissi

Daveyb wrote: »

Thanks for your reply.

Just a question about the first point.

With a larger deposit, the intrest rate is generally lower.
For example Barclays website says that a 2 year fixed rate mortgage has an intrest rate of:

5.49% for a 20% deposit
3.39% for a 30% deposit

So it seems to me that my ability to pay the intrest is higher if i have a larger deposit and so a lwer intrest rate. Another way to reduce monthly payments is to have a longer term on the mortgage, say 30 years instead of 25.

So if you have a large deposit and are willing to take a longer mortgage isn;t it reasonable that you could be leant more money and have the same monthly repayments? (obviously i understand that over the life of the mortgage a 30 year one will be more expensive).

What you're failing to take into account are potential substantial interest rate rises. The lenders have to consider this - their failure to do so was one of the causes of what we now refer to as the Credit Crunch...

mbga9pgf

If you can't get a loan off the bank, take it as read that it's a bad idea to buy. Why not haggle and see if you can get a 12.5% discount on the property? Not many ftb are proceedable at the mo so this would be my next move.

Fire_Fox

Any debts you have (loan from parents) will be subtracted from your total deposit by most lenders. Any additional rental income is not guaranteed, you will find taking in a lodger increases your contents insurance premiums. If the worst happens and you fall ill and cannot work or get made redundant the loan from your parents will not be paid and any rental income may be taken off your potential benefits entitlement.

Daveyb

Thanks for the replies guys, useful stuff.

Think my best plan is to hold off for now. My colnclusion from your comments and from other reading is that house prices (for 1/2 bedroom flats in South London at least) are still very overvalued. I guess this mini boom in the last year (prices up 10%ish) has been fueled by cash buyers as there can;t be many people out there with a big enough deposit and high enough salary to afford a £200,000 property. Once these buyers have spent their cash is, surely there is going to be a massive shortage of demand as the majority will be priced out of the market.

Hopefully intrest rates will rise to a 'normal' level, house prices will become sensible and FTB will be given a chance of buying a home.

mbga9pgf

Daveyb wrote: »

Thanks for the replies guys, useful stuff.

Think my best plan is to hold off for now. My colnclusion from your comments and from other reading is that house prices (for 1/2 bedroom flats in South London at least) are still very overvalued. I guess this mini boom in the last year (prices up 10%ish) has been fueled by cash buyers as there can;t be many people out there with a big enough deposit and high enough salary to afford a £200,000 property. Once these buyers have spent their cash is, surely there is going to be a massive shortage of demand as the majority will be priced out of the market.

Hopefully intrest rates will rise to a 'normal' level, house prices will become sensible and FTB will be given a chance of buying a home.

http://www.greenenergyinvestors.com/index.php?showtopic=9306

Worth a read.

poppysarah

How will you pay your parents back? Do they need that money or are they rolling in it?