beginners question about mortgages please

yepthatsmyemail

Hi all!

Me and my friend have decided that we would like to buy a property together next year (around July 2015). The idea is that we would get a mortgage to buy a 4 bedroom house - both live in the house and then rent the other 2 rooms out to help cover the mortgage repayments

My friend is in stable employment (over 4 years full time since graduation) as a risk analyst. He earns about £37000 a before tax

My circumstances are a little more complicated as I decided to become a self employed IT contractor last year - trading under my own limited company. My first year turnover was about £28000 - and I expect my second year turnover to be around £40000. By the time that we are looking to buy a house (July 2015) I will have 2 years worth of accounts as proof of income.

Together we think that we can get a deposit together of about £80000. And would probably be looking to buy a property anywhere from £350000 to £400000. We live around the London area so - while obviously not looking too centrally would like to find a place around one of London's suburbs (zone 3 or 4 maybe)

Me and my friend both have good credit history I believe - with no black marks against our names..

So on to my questions!

1. Please can you guys tell me if my above idea is realistic? I really don't know anything about mortgages so any insights, problems or advice you can give would be of interest

2. I understand securing a mortgage being self employed is quite tricky . I will only have 2 years accounts to show the banks - is this a problem? Also will it work in my favour doing this with a friend who is in more normal employment?

3. How much do you think we could borrow?

4. Will the fact we are planning to rent out rooms in the property change our mortgage prospects at all?

Many thanks for all the help and advice you can offer a newbie like me!!!

Thanks

kingstreet

Yes.

Use a lender which will take the day rate of your contract and you won't need to worry about accounts.

Borrowing power will depend on the income you can prove at the time and your outgoings.

Consult an independent broker a few months before you start to look seriously.

ethank

You will not be able to use the income you receive in rent as part of your income for mortgage purposes.

Annisele

yepthatsmyemail wrote: »

1. Please can you guys tell me if my above idea is realistic? I really don't know anything about mortgages so any insights, problems or advice you can give would be of interest

My personal opinion is that it's not a good idea at all (regardless of any mortgage issues) - but I know some people have managed to do things like that successfully. Some of my concerns would be:

• What's your exit plan? What happens if one of you wants to sell in two years, and the other doesn't?
• What happens if one of you loses their job / becomes too ill to work / dies / goes bankrupt / gets married and then divorced? You'd be astonishingly unluckly for all of those things to happen, but worth giving some thought to them before you buy.
• What if one of you meets a partner and wants to move them into the house? Or wants to buy a new house with their partner, and can't because they're already named on this mortgage and can't afford both?

mrginge

Do not buy a house with a friend.

RickyC_IFSWP

yepthatsmyemail wrote: »

Hi all!

Me and my friend have decided that we would like to buy a property together next year (around July 2015). The idea is that we would get a mortgage to buy a 4 bedroom house - both live in the house and then rent the other 2 rooms out to help cover the mortgage repayments

My friend is in stable employment (over 4 years full time since graduation) as a risk analyst. He earns about £37000 a before tax

My circumstances are a little more complicated as I decided to become a self employed IT contractor last year - trading under my own limited company. My first year turnover was about £28000 - and I expect my second year turnover to be around £40000. By the time that we are looking to buy a house (July 2015) I will have 2 years worth of accounts as proof of income.

Together we think that we can get a deposit together of about £80000. And would probably be looking to buy a property anywhere from £350000 to £400000. We live around the London area so - while obviously not looking too centrally would like to find a place around one of London's suburbs (zone 3 or 4 maybe)

Me and my friend both have good credit history I believe - with no black marks against our names..

So on to my questions!

1. Please can you guys tell me if my above idea is realistic? I really don't know anything about mortgages so any insights, problems or advice you can give would be of interest

2. I understand securing a mortgage being self employed is quite tricky . I will only have 2 years accounts to show the banks - is this a problem? Also will it work in my favour doing this with a friend who is in more normal employment?

3. How much do you think we could borrow?

4. Will the fact we are planning to rent out rooms in the property change our mortgage prospects at all?

Many thanks for all the help and advice you can offer a newbie like me!!!

Thanks

Others have raised some good points/concerns to be aware of when buying with friends. You need to be careful and have ways to resolve issues in advanced. Furthermore, you are jointly and severally liable for the mortgage, so if one doesn't pay, the other is still liable for the full amount.

1 + 3) As a self-employed person, the mortgage provider will assess your average "Net Profit" for the last 2 or 3 years and not your turnover. So, based on the figures given, it's likely that you may have to revise down the property prices you're looking at.

2) This should be ok, and if you worked in the same role/industry before going self-employed, it'll help your cause too. Some mortgage providers may require more information from your accountant.

4) Mortgage providers want to know who will be staying at the property and if they are not party to the mortgage, they will likely refuse to lend. Your best bet is to wait until you secure the mortgage, and later ask your mortgage provider for permission to take on lodgers. Please read up on your responsibilities as a landlord on the forums too.