Impact of Dependent on Mortgage

Gopes

Hi,
My better half and I are thinking of buying a place of our own soon. We have decided to buy just in my name (she works as temp/contractor). Also, we figure that I will be able to borrow enough on my own to buy the type of place we want. Obviously, we will need to figure out an agreement to reflect her contribution.

She is currently 5 months pregnant, which is another reason, why we would like to just depend on my income - which would give us more flexibility, when she finishes maternity.

I will probably be looking to borrow circa £213k (which is circa 4-4.5x salary). This would be based on a £250k purchase price (so 85% LTV), which I am reasonably confident I could currently get.

However, I think we will wait until after the little 'un has arrived, before embarking on this particular journey.

If I apply for a mortgage (after the baby has arrived), how much is the existence of a "dependent" likely to affect how much I can borrow?

Obviously, we think we are being conservative - i.e. just depending on my earnings, means that any income that the wife (to be) makes is a bonus...

Thanks
Gopes

Thrugelmir

Over 4 times salary is pushing the boundaries of affordability even without a dependent. Affordability is understated by many when considering mortgage repayments. A rise in interest rates even in 5 years time will significantly increase your outgoings.

I assume that your partner will want the security of being on the title deeds of the property so will need to be named on the mortgage. Even if her income is zero.

michaels

HSBC will lend me 4.25x if I say it is just me but only 2.5x if I put my wife and 3 kids in to the calculator - try the calc on their website.

HappyMJ

michaels wrote: »

HSBC will lend me 4.25x if I say it is just me but only 2.5x if I put my wife and 3 kids in to the calculator - try the calc on their website.

Agreed but 4.25x IS pushing the limits of affordability. Lets say you earn £50k and can therefore borrow £212,500. After tax you therefore earn £2984 per month. Interest rates will rise at some point lets guess at 7.99% which is possible. The repayment would then be £1659 per month which is 55% of your net pay. It's unaffordable.

When I did the calculator using your details it says the most you can borrow is £175,000 at no more than 82% LVR. That's affordable.

Burridge60

Michaels wrote: »

HSBC will lend me 4.25x if I say it is just me but only 2.5x if I put my wife and 3 kids in to the calculator - try the calc on their website.

That's just what they do tell you what you want to hear when you put what you want to in.

To incorrectly state your dependents on a mortgage application would be not only foolhardy but bordering on (if not) illegal.

To rely on a lender's affordability calculator and not your own budget reflecting YOUR lifestyle would be incredibly trusting of a Lender and would be no defence in the fullness of time when you complain as you cant afford your mortgage.

Gopes

Thank you for your responses. To be clear, my partner will continue to work - but we feel that rather than try and push the limits of affordability, by borrowing the maximum across both our incomes - by relying solely on what we can borrow based on the higher (my) income, means that hopefully we will come under less pressure, once interest rates return to a more normal number.

I will also have significant savings (£20k) to give us an additional buffer.

Whilst my partner will not be on the deeds, we intend to enter into a legal agreement, which will protect any monies she pays towards the mortgage, and (hopefully) mean that if for any reason, things don't work out, we can sort out our finances cleanly and efficiently.

Regards
Gopes

Burridge60

Gopes wrote: »

..... but we feel that rather than try and push the limits of affordability, by borrowing the maximum across both our incomes - by relying solely on what we can borrow based on the higher (my) income, means that hopefully we will come under less pressure, once interest rates return to a more normal number.

But the lender equally is entitled to assess your ability to afford the mortgage that you apply based on your true situation not what you choose to tell them.

If your partner is not a party to the mortgage none of her income can be taken into account on the income side of your budget but she and your child will be dependents for calculating your affordability and outgoings.

property.advert

You could tell them anything you want and they can only prove that which they have on their systems and on other systems which have collated data about you. At the moment, I don't think that includes tapping into the local hospital anti natal clinic database.

As to the legality of not mentioning a pregnancy then you may also want to mention the fact that you might spend money on a new car in the future or splash out on a holiday. An unborn child does not exist in legal terms so do not let the doom-sayers worry you unduly that the mortgage police will be hanging you out to dry for an advance purchase of nappies !

As with all these things, KISS (keep it simple stupid) applies and you answer their myriad of questions imparting the least information whilst adequately answering their questions.

Wh05apk

You are building up problems for the future here, you say "your better half" are you married? if so "most" lenders will insist the mortgage is in joint names.

As a first time buyer most lenders will also need to see proof of deposit - in your name!

Why can you not include your partners income? does she temp through an agency, or has she been a long term contractor, some lenders will accept her income, also not all will reduce the lending so significantly for joint names.

With regards affordability, everyone always says there partner will return to work, but what if they don't? in which case you will just be living on your money, could you do that, if for any reason she could not return to work?

Gopes

Thanks for your additional responses.

We are not currently married - wedding scheduled for 2012 (wanted to get baby and house out of the way first).

Proof of deposit is not a problem - I have circa £70k saved up. Partner has maybe £2k - but we won't be using that.

I take the point that partner may not return to work - but that will be a choice we make - if money is tight, then she will have to go back to work (which is what she wants).

We returned from 4 months travelling in December, (with her now pregnant) - hence, was unable to go back to old job on a permanent basis, and so is temping (Early Years Educator) - hence the fact that I do not believe that a lender will consider her earnings - and for reasons cited above, we want to be more conservative and just go on what we can afford based on my salary.

Despite some of the questions being posed, I am not looking to stretch the limits of affordability, or trying to conceal material information from the lender. At the moment, my salary works out at about £55k (including a £10k bonus - which I know that the lender will not fully consider), and her "temping" salary comes in about £17k - although clearly that will drop to £125 per week when she goes on maternity.

Plugging those figures into the HSBC mortgage calculator with 1 dependent, gives a maximum borrowing of £225k. If we just go by my salary data, that goes down to £192k. Interestingly, neither of those figures change, if we put 0 dependents - or indeed 2 dependents if I go for a mortgage on my own.

Surely borrowing £225k across 2 of our incomes is less affordable than borrowing a lesser amount across just my income (all other things being equal)...

Gopes

Wh05apk

Affordability calculators are not 100%, they act as a guide.

I would encourage you to do this properly, by putting in joints names, other lenders will lend what you are looking for based on your salary - HSBC are notorious for taking a long while to "consider" (aka sit in a queue!) and then decline, they advertise good rates, but really cherry pick applications.