Are My Calculations Wrong? Mortgage Advice.

Mr_Vincent

Here's the situation,
My friend earns £20 000 per year with regular bonuses and overtime all inclusive, £12 500 without all the perks of line rental, London weighting, shoe allowance, bonuses and overtime.

He pays about £400 per month for his apartment.

He is a single guy, no dependants and few friends likely to be able or willing to give him a top up hand.
The most a lot of lenders will lend him is 5 times his wages - £100 000 with main banks saying £74 000 taking into account personal expenditures.

He wants a one bedroom flat (2 if he can get away with it) within the North-West London areas. Flats around here cost £120 000 upwards.
To cover this he needs to take into account interest repayments typically about 5% with a deposit or 6% without a deposit.

He's made calculations that if he paid the same £400 per month over a 30 year period this would amount to £144 000.
He is prepared to repay at the rate of £450 per month over a 30 year period equal to £162 000.
Yet all the lenders he's approached so far including brokers have said they want repayments of over £500 per month with a deposit or up to £800 without.
He takes home near enough £1200 per month.
Take into account he owns a car, council tax and other bills, he doesn't exactly want to suffer by the time he retires.
He is 34 years old and would be interested in a repayment mortgage only.
He is only looking for the best possible mortage provider at the moment before doing the physical - viewing properties.

A broker he gave his sums to said the companies would only get 2 - 3 % interest out of his calculations.
Is he doing anything wrong or is there a mortgage broker that can do things at his repayment requirements?
£400pm with 6.25% interest would equal £425 per month. Over a 30 year period equal £153 000.
He needs up to £140 000 for his flat but would settle for £120 000 if nobody is prepared to stump up to 7 times his wages.
Is he doing anything wrong?
He has found a keen mortgage broker ready to do him a deal but only with a deposit of £6000 and repayments of about £500pm.
He has £10 000 cash savings but is a renegade individual who doesn't want to take any chances and needs his savings to furnish his place.

He has lived in a variety of rented accomadation and has been advised to buy his own - advice he now believes to be correct having been in his present job for nearly 7 years.

Any ideas or can anybody direct hime to a more suitable mortgage broker?
He is a first time buyer.

I have not looked at other threads to see if anything similar exists.

silvercar

Shoe allowance - wow!

You really need to look at it from the point of view of the amount you want and how much that costs. At 5.5% (and you have to budget for that amount), £120,000 will cost you £550 on interest only. If that is too high, then you need to look at taking a lower mortgage. For payments of £450 a month you would be looking at just under £100,000.

If that doesn't buy you what you want then you need to look in a cheaper area or for a cheaper property.

Those mortgage figures are based on interest only; you would also consider how you repay the capital amount, possibly by changing to a repayment mortgage when your salary increases.

Miss_Penny_Pincher_2

Try using a mortgage calculator to see how much your friend can afford to borrow such as this basic one:

http://www.fool.co.uk/mortgages/CalculatorRepay.aspx

If your friend can only afford repayments of £450, assuming a mortgage offer of 5.5% is obtained he would only be able to borrow £79,500 as monthly repayments on a 30 year term would be £451.39.

Using the same calculator shows that to borrow £140,000 would cost your friend £794.90 a month if a 30 year term is taken out, increasing to £859.72 on a 25 year term.

What silver car says is correct. Unfortunately I feel that the mortgage brokers were being honest with you. To check if there could be better interest rates out there, reducing the monthly repayment costs, input your friends details here:

http://www.moneysupermarket.com/mortgages/quickmortgage.asp

moneysupermarket compares around 8,500 mortgages but be careful not to just go off the headline rate as there can be other costs. The benefits of moneysupermarket though is that it does add on fees and works out the total costs over the length of the loan (for example if choosing a 2 fixed rate it compares the cost of setting up and total payments for that 2 years).

UK007BullDog

If he wants a £120K mortgage over 30 yrs then he will have to pay the sum quoted to him by lenders and banks. It does not work the way he thinks how much he is willing to pay the lender.

So either he goes:
1. pays the sum required.
2. Find a cheaper property elsewhere.
3. Wait and save up for a deposit
4. Find a 100% mortgage and drag the term out until he retires at 65 or later by the time he is pensioner might be 68 or 70.
5. Do a gamble and go interest only for a while or the full term and hope some sort of investment vehicle will pay his mortgage off when he retires.

Robert_Sterling

Mr_Vincent wrote:

Here's the situation,

I think a lot of us start off knowing what we want.
Then we discover in due course what we can have.

Mr_Vincent

Thanks everybody for your advice.

We had been hoping for something different by coming here.
Seems like our fears are being realised. There is no escape and we will have to abide by the brokers ways.
One thing is for certain, my friend will not go interest only and if he ever makes a lottery win, paying off his mortgage will be priority.
Due to work related operational reasons, he cannot afford to move away too far from where he works or he will get replaced by somebody who lives nearer. He has a regular round and staff turnover is reasonably high. Training another individual would not be too difficult.

He may have to rethink his current strategy but is unlikely to get put off from buying.

Miss Penny Pincher (what a name hehehehe),
we have used money savers guides and will be in touch with one of their recommended mortagage brokers.

UKBulldog,
my friend will have to pay the quoted sums unless he can find somebody who can do it for him at a rate of 3% repayment on non interest.

Silvercar,
Your comments are acknowledged.

R Sterling
That's life for us all.

UK007BullDog

Mr_Vincent wrote:

UKBulldog,
my friend will have to pay the quoted sums unless he can find somebody who can do it for him at a rate of 3% repayment on non interest.

Sorry confused moment here for me? I hope I understand you right.

Your friend is looking for a 3% deal? If he finds one please do let me know

There are deals like that out there. However they have very hefty tie ins and fees. :eek: He will be better off going for a 100% mortgage and a bog standard rate. Any of these cheapo rates come with very long and hefty tails. Buyer beware!!!!!!

Miss_Penny_Pincher_2

Good point UK007Bulldog!

Portman BS have a mortgage fixed for 2 years at 2.12% interest rate! Looks like tied in for 4 years after the 2 years have ended at the standard variable rate though :eek: and fees of £909 on top!

Mr_Vincent

Miss_Penny_Pincher wrote:

Good point UK007Bulldog!

Portman BS have a mortgage fixed for 2 years at 2.12% interest rate! Looks like tied in for 4 years after the 2 years have ended at the standard variable rate though :eek: and fees of £909 on top!

Can I have their website details please if you know of them. Most mortgage lenders are doing £500 application fees for fixed rate mortgages. What's another £400 to my friend for something he knows will be secure?

UK007BullDog wrote:

Sorry confused moment here for me? I hope I understand you right.

Your friend is looking for a 3% deal? If he finds one please do let me know

There are deals like that out there. However they have very hefty tie ins and fees. :eek: He will be better off going for a 100% mortgage and a bog standard rate. Any of these cheapo rates come with very long and hefty tails. Buyer beware!!!!!!

We are prepared for the hefty tie in's and await them. Nothing comes cheap without some kind of catch. He is looking at a 10year term to start with. Most are giving 5 year terms as standard.

Mr_Vincent

The best quote we have had so far has been a £125 000 mortgage offer either as 100% mortgage or with a deposit.

Problem we have are figures don't add up.

At £625pm for 35 years, we would be paying back £262 500 - that's more than double our borrowing amount.
Same for if my friend left a deposit reducing his repayments to £602pm.

Are our figures wrong?
He has an appointment with that mortgage broker this saturday and will bring this to his attention.

I don't doubt my mortgage brokers honesty as Miss Penny Pincher points out but caution is better for the future and my friend does not want to be seen as having been ripped off with a fat commision for the person who introduced us to his deal.

By the way, I found Portman BS group through searching.
Here's their link - http://uk.search.yahoo.com/search?p=portman+bs&ei=utf-8&fr=cb-max which gave me a list.
We may have to wait to be contacted as we have been through more than 2 addreses in the last 3 years.
At 5.9 times what my friend earns, I am sceptical about them too, not least when one figures there is a broker ready to do up to 6.5 times earnings.

Miss_Penny_Pincher_2

Mr Vincent please ask your friend to think very carefully before taking out the 2.12% mortgage with Portman. For the first 2 years payments would only be £422 per month on a 35 year mortgage of £125,000. After those 2 years were up you would then be tied in with Portman for on their standard variable interest rate for an extra 4 years. During that time Portman can put their standard variable interest rate where they like! This could probably be around the 7% mark unless the bank of england base rate rises which could make it even higher! Let's assume it will be charged at 7% - payments will jump from £422 to £800 a month and your friend will be tied in to paying them for 4 years!

This is a sneaky way of pulling people in using headline low interest rates!

Mr_Vincent wrote:

The best quote we have had so far has been a £125 000 mortgage offer either as 100% mortgage or with a deposit.

Problem we have are figures don't add up.

At £625pm for 35 years, we would be paying back £262 500 - that's more than double our borrowing amount.

To work out if the figures add up use a mortgage calculator such as this one:
http://money.guardian.co.uk/calculator/form/0,,603156,00.html

It looks like they have offered you an interest rate of 4.99% which appears very reasonable considering the bank of england rate is now 5.25% (dependent on tie in periods, fees etc).

When taking out a mortgage over a long time e.g. 35 years the effect of compounding interest, even when the interest rate we are being charged is low, can mean that we end up paying back to the bank more than double what we borrow!