Mortgage and guarantor

Alan_In_London

sophievenusdoom wrote: »

Where do you live?! Lol, I thought Exeter was expensive to buy in, but you could still get a very nice house for £300k!!

Anyway, I have to agree with the previous posters. Is it worth having to rely on your friend to make your mortgage payments should the unthinkable happen? I understand that you have buffered yourself with a sum of money so that this should not happen, but you have to think of all possibilities. What if something happened whereby you were not able to work for a year or so? Would your sum cover the mortgage repayments on a £500k house AS WELL AS your other monthly outgoings? I know how you feel not wanting to move out of the area you live in, and uprooting everyone else in the process (I was in a similar situation when we bought our house!) but sometimes it works OK, and things aren't as bad as you expect them to be.

Good luck

Hi. I live somewhere in North London (don't want to say exactly where).

All a matter of opinion of course, but yes, I do think that it is worth it to not have to live in a dodgy area, or add a lot of time to my commute and uproot the family.

I can't help but think that it is fairly common for people to take on mortgage with a 75% LTV and few savings, just because they have a job.

Well, very few jobs are secure these days, and most people are just two weeks and statutory redundancy away from losing their job.

The calculations I have given above do, aside from one off events, cover me for about 7 years for mortgage payments AND other expenses (by my calculations we spend £20,000 on top of our rent).

On that basis I feel that I am at significantly less risk of default, than somebody who is relying on the potential money from an ongoing job, rather than the actual money I have in the bank.

After years of working hard and saving, I don't think I am taking any significant risks, and just don't see why I would choose to make the family compromise so much, when I have almost 80% of the purchase price in cash.

Still, I do welcome all input you guys might have! Thanks again

Alan_In_London

Thrugelmir wrote: »

Except that you are looking for interest only mortgage. So will need to provide evidence to the lender of how you intend to repay the capital balance. A combination of rising interest rates and falling house prices will soon erode your capital.

A lender would prefer a borrower who opted to take a repayment mortgage from the outset.

Yes, no doubt you are correct. But comparing like for like, I'm in a more secure position than somebody who has to earn that money.

I already have 75% of the money for the house, compared to somebody who has perhaps 20-25%.

Even with a repayment mortgage, I likely have 5 years of repayments + all other living expenses, compared to somebody who may have little or no buffer, and with a job that they could potentially lose at any point.

Falling house prices wouldn't erode my capital (just my equity), but yes, rising interest rates would. That would, of course, impact those without a buffer more.

Given that my previous, 7 year, calculation was only 1/3 mortgage and 2/3, even a big hike in mortgage rates wouldn't have a massive impact on the burn rate (if mortgage rate doubles, my burn rate increases by 30%).

Remember too, that I am earning, it is just that I am self employed. I could always go back as a permanent employee. No guarantee how soon, but it would be very pessimistic to think that I couldn't get a new job in the next 7 years.

As for falling house prices, I certainly don't disagree that it is likely, but where I am, houses seem to be selling for about 10% more than the peak of the market.

Probably a poor time to buy, but then how long do you wait? If I wait another 5 years, I will have spent 10% of that £500K in surplus rent.

ILW

If this wealthy friend is prepared to guarantee the loan for you, why not just get him to lend you the money?

Thrugelmir

Alan_In_London wrote: »

Yes, no doubt you are correct. But comparing like for like, I'm in a more secure position than somebody who has to earn that money.

I already have 75% of the money for the house, compared to somebody who has perhaps 20-25%.

Even with a repayment mortgage, I likely have 5 years of repayments + all other living expenses, compared to somebody who may have little or no buffer, and with a job that they could potentially lose at any point.

Not necessarily as your current savings are of no interest to a lender. You could spend them the day after completing the purchase.

The onus is now on lenders to ensure that borrowers are in a position to repay mortgage debt. So a repayment vehicle will most likely be required.

Unfortunately you aren't in a position to dictate terms to mainstream lenders. With a constraint on available credit there's no need for them to take a risk on you. enders will advise you of the terms that they'll do business on.

Alan_In_London

ILW wrote: »

If this wealthy friend is prepared to guarantee the loan for you, why not just get him to lend you the money?

Because, as a guarantor he theoretically never needs to hand cash over, he gets to keep it invested instead.

Alan_In_London

Thrugelmir wrote: »

Not necessarily as your current savings are of no interest to a lender. You could spend them the day after completing the purchase.

The onus is now on lenders to ensure that borrowers are in a position to repay mortgage debt. So a repayment vehicle will most likely be required.

Unfortunately you aren't in a position to dictate terms to mainstream lenders. With a constraint on available credit there's no need for them to take a risk on you. enders will advise you of the terms that they'll do business on.

All true, but no different to somebody who is has to earn the money rather than already having it.

They could quit their job, get made redundant, or just decide to not pay the mortgage just as easily as I could suddenly decide to spend all of the money.

I have no doubt that I will not get a mortgage without a guarantor, because I fall foul of the lending criteria.

What I am answering is the suggestion that I am taking on a big risk or over-leveraging myself, which I certainly don't think I am, compared to the theoretical buyer I keep mentioning, who has the deposit, but whose repayments are dependent upon them staying employed.

I've never suggested that I can dictate terms to the lender, which is why my question was about a guarantor.

I do personally think that the lending criteria do not, in this case, make sense, because I am at much lower risk of default.

People are getting 75% LTV and 5 times earnings, in a time when there is a risk of house price falls and jobs and the economy are shaky to say the least.

And then there is poor old me, with 80% of the purchase price and, at current rates, 7 years of buffer

It wouldn't be the first time that the banks have got it wrong, and it probably won't be the last.

Mind you, I think that they wouldn't be lending at all if they weren't being pressurised to by the government...but that's a different story