95% mortgage for a single first time buyer?

Jaunty_One

Hi all

I'm single PAYE employee attempting to buy my first London house under £250,000. I want to know if anyone else in my position has had any luck, or if anyone has any advice for me (on buying a house, not being single ).

My basic salary is £33,500. I also earn £1,680 in nightly shift allowances and (on average) another £7,000 in overtime.

While doing these calculations, I've been told to half all income outside of basic salary, so £33,500 + [0.5 X (£1,680 + £7,000)] = £37840.

I've also been told I should expect 5 times this amount as an agreement in principle

£37,840 X 5 = £189,200

Adding my deposit (over 10%), I'd then have £215,200 to spend; not ideal. I would love for a bank to give me 6 times my salary, given I'm buying by myself and I have excellent credit; well that's what Experian says :undecided.

My previous agreement in principle was £170,000. I made an application with L&C over 6 months ago, (I've since been promoted and earn a little more money). Is it fair to assume that an application for an agreement in principle should yield a greater amount now (up to £225,000)?

My questions for now are about these 95% mortgages, or in my case, a 90% mortgage. I've been told that agreement in principles are solely based on my salary and credit score.

I don't understand how a bank would ask for a 5/10% deposit without offering 95/90% of the house value. Surely the help to buy scheme has a bearing on the amount I can borrow? Is it because of the total house price? It's around the nation's average but is it still too high?

Hope I'm making sense, if not, I can try to be clearer! Thank you for your time.

R_P_W

Two things matter, your income and your deposit.

You could have 250k deposit to put down on a 500k house, you would need to earn 50k minimum really for the mortgage.

So for the 250k range you will need a bigger deposit or need to increase your income

kingstreet

Help To Buy - Mortgage Guarantee may see the amount you can borrow reduce, rather than increase. This is because lenders "stress test" 95% lending at a higher rate, reducing the affordable amount you can borrow.

HTB - MG is designed to increase the amount of 95% borrowing available in the market, not to increase what people can borrow.

If you are using every penny of your income, 5x (that's net of credit commitments, dependents etc) is about as much as should be available, IMHO.

Why not stress test this yourself? Do yourself a budget with mortgage payments based on a 5x income mortgage, assuming a rate of 5% per annum, then 7% per annum. Is it affordable?

maninthestreet

What is your current take home pay? Have you factored in costs such as council tax and water rates?

opinions4u

I would love for a bank to give me 6 times my salary, given I'm buying by myself and I have excellent credit; well that's what Experian says

Ask Experian then.

A mortgage typically lasts 25 years. We've had mainstream mortgage rates of 15.4% in the last 25 years. Price up £226k at 15.4% over 25 and comment on how affordable it is.

Doshwaster

maninthestreet wrote: »

What is your current take home pay? Have you factored in costs such as council tax and water rates?

Also factor in the one-off moving costs such as mortgage/solicitor fees, removal costs, new furniture/appliances, repairs, redecoration, contingency fund etc. As a rule of thumb I'd say you'd want a minimum of £5k in cash on top of your deposit to cover this.

Jaunty_One

Thanks for your responses. All of your points cross over a bit so I'll try to reply as I initially did in my head as I read your posts.

R P W: in four lines, you've just logically brought me back to reality. It's all relative isn't it.

kingstreet: Thanks for the explanation, I understand the purpose of these mortgages now. As far as my understanding of fixed rate mortgages goes, I'd pay a fixed rate for 2-5 years, then it would turn into a tracker mortgage. This is the point where people remortgage to get a better deal right?

Having paid of a number of year's worth of mortgage, they now owe less and would need to borrow less against a house that could potentially increase in value, compared to the price at which it was bought.

Would it be dangerous to assume that getting on the property ladder as soon as possible would be beneficial for me, in order to take advantage of these low interest rates?

Maninthethestreet: My average pay this year, since I was promoted in July is around £2580 a month. I've factored in all bills/council tax except home building/contents insurance if I'm honest. Not sure what a reasonable amount would be so I made an assumption that it would be about £50 a month. Was supposed to get a realistic figure and return to that budget!

I plan to buy a 2 bedroom house and let one bedroom, but if for instance I couldn't find a tenant for a number of months, I'd seriously worry about making payments if rates increased over 6%.

opinions4u: As I read through these posts, it's becoming clear to me that I'm look at this process through rose tinted glasses. I also assumed that I could ask for a mortgage with a longer term on it (30-35 years) so the interest payments would be more manageable. I'd probably want to move house at some point and remortgage so I wasn't going to worry too much about paying more money overall in interest. Is this reasonable?

I'm scared by the prospect of 15.4% though. My comment: Ouch! Looks like I'd hate for a bank to give me 6 times my salary! Using Martin's mortgage calculator, £225K over 25 years would require payments of £2965 a month. Again, ouch!

Jaunty_One

Doshwaster wrote: »

Also factor in the one-off moving costs such as mortgage/solicitor fees, removal costs, new furniture/appliances, repairs, redecoration, contingency fund etc. As a rule of thumb I'd say you'd want a minimum of £5k in cash on top of your deposit to cover this.

Hi Doshwaster

I've put 4K aside for mortgage/solicitor fees. I thought this would be enough but I save £1K a month strictly for future house costs so that should cover the rest. Repairs etc will be covered by some extra money that'll be coming my way soon. I'm specifically looking for a cheap property that needs a bit of work.

Basically, my costs are covered, but now it seems I need to focus on the deposit

MallyGirl

Stamp duty is 1% so that is £2k right there.
I bought my first flat in the early 90s with an interest rate of 14%. My monthly interest payment on a £42,200 mortgage was over £400pcm - something to think about.

Doshwaster

Jaunty_One wrote: »

Hi Doshwaster

I've put 4K aside for mortgage/solicitor fees. I thought this would be enough but I save £1K a month strictly for future house costs so that should cover the rest. Repairs etc will be covered by some extra money that'll be coming my way soon. I'm specifically looking for a cheap property that needs a bit of work.

Basically, my costs are covered, but now it seems I need to focus on the deposit

Good, it sounds like you have thought that through. It's just that I've seen some people throw every last penny of their savings at the deposit then they find they cannot afford to do anything when they move in as they are now skint.

When you do buy your first place it's frightening how much cash you go through in the first few months. It is all worth it in the end though.

So yes, as long as you have the house moving fund ring-fenced, it does look like you need to concentrate on your deposit. An extra 5% can make a big difference on the cost of mortgages that will be available to you.

opinions4u

As I read through these posts, it's becoming clear to me that I'm look at this process through rose tinted glasses.

People do. You are not alone. They look at the house they want and there the thinking ends.

You'd already thought about affordability at today's rates and were probably fine. But affordability if our economy takes off and rate rocket up in a short period of time could be different.

I also assumed that I could ask for a mortgage with a longer term on it (30-35 years) so the interest payments would be more manageable.

My challenge to you here is to price up 25,30 and 35 years at 15.4%.

Then decide to borrow over less time that 25 years. Being mortgage free by the time your child (who may not yet be at conception stage) is a massive boost.[/quote]

I'm scared by the prospect of 15.4% though. My comment: Ouch! Looks like I'd hate for a bank to give me 6 times my salary! Using Martin's mortgage calculator, £225K over 25 years would require payments of £2965 a month. Again, ouch!

You may have heard a bit in the news about irresponsible lending over the last few years.

There are two sides to this coin though. The other side being stupidly wreckless borrowing.

Don't just think for today. Try to anticipate tomorrow and beyond. Budget for a worst scenario that you can withstand and save the gap between reality and budget.

A return to 15.4% rates is probably a long, long way away. It may never happen. But If you'd asked me in 1992 if I thought bank base rates would be down at 0.50% within 17 years I'd have suggested you had a form of temporary insanity.