Mortgage for student and worker - how?!

Complicated

My situation is apparently very complicated and I really need to know if there are any options available to me.

I've had a mortgage with the same lender for about 12 years. Two in fact. Both were graduate mortgages, the second was 7 years ago and a joint mortgage with my husband. We've never defaulted, have excellent credit ratings etc etc. We have about £40k capital (give or take depending on actual sale price) and want to relocate to a new region which is also (sadly) quite a lot more expensive.

I hoped to be able to keep the mortgage we have (it's 0.75% who wouldn't?!) and top up with a second one. This was an option when we last moved and would be an option now except that the relocation is in order for me to become a student again.

As a post grad student I'll have a bursary guaranteed for 3 or 4 years. It will be enough, together with my husband's salary, for us to pay a second mortgage about the same as and in addition to the one we have now. I've read about the mortgage changes and how everything is based on income and expenditure rather than salary multiples, except my bank didn't do that. They told me they would count a salary with a letter from the employer saying I would get it for the next year, but would entirely disregard the student bursary. I'm also self-employed (since being made redundant in April) and they won't count any earnings until I have two years' record. Well I'll only have one by next Sept and it will be considerably smaller than the bursary.

My bank were unfazed when I said I'd have to move my entire mortgage elsewhere. They also helpfully informed me that lenders in general don't accept a bursary as income. This seems barmy since one can't be sacked from FT education.

So does any lender take account of a bursary or is my £15k to be disposed of at my leisure while we live in a holiday caravan? Will a financial advisor help me? Is there any way of convincing my bank? With a second mortgage we'd be looking at 0.75 and 2.5% rates on the two mortgages. If I end up moving completely then we will be looking at more like 4-5% which will ironically then mean we may not be able to afford a house at all in the region we're looking.

Any advice at all?

Thanks!

Dave_Ham

Your position could actually be a bit worse than you are currently thinking.


Firstly, I will assume your current mortgage is with Woolwich although it would be useful to know who it is as this may well affect further answers I or anyone else provides.


Whether I, you or anyone else thinks it is barmy that a bursary is not included (and I do) if their criteria is bursary not accepted, then it is not accepted full stop I am afraid.


The potential bad news is that I am not clear what you are looking at achieving regards to 0.75% with a topup of a 2nd mortgage on 2.5% ish.


If you want to port your mortgage, you have to reapply and therefore your income/credit etc. will need to stack up.


If you can not achieve the desired amount from your existing provider, you will need an entire new mortgage from a new lender and clearly lose the attractive rate.

Complicated

Thanks for the reply. We're with HSBC.

With regards the two mortgage rates, when we bought our current house the bank gave us a choice of keeping the original mortgage (which would obviously be secured on the new house) and having a second mortgage on the new house to make up the difference, or clearing the original mortgage with the sale and taking out an entirely new one. At that time we paid for a new bank account that gave the very desirable tracker rate of 0.25% above the base rate so we took on a totally new mortgage. I asked about this when I met with the bank and they said the two options would hypothetically still be available to us. So our current mortgage would transfer properties with same value and terms and we would get a second mortgage for the difference which I was told would be around 2.5% for us (though thinking about it perhaps this is what the rates would average out at). This is obviously way more preferable than everything I have so far seen in terms of mortgage rates.

After posting here I did more searching and found very little information. I did happen across one post-graduate forum in which someone had celebrated getting Natwest to recognise the bursary and stressed that the problem with lenders had generally seemed to be that they didn't understand what the stipend was (it effectively being tax free pay guaranteed for 3-4 yrs). Within that thread someone else had said that HSBC, Santander and Halifax were hopeless for post grads. Someone else had said that they had part time work and a stipend that came to considerably more than when they were working full time but couldn't get their mortgage moved. The thread was 2010 though so before new regulations.

From what the bank quoted me we could well afford the mortgage repayments, they came to about £300 pm less than I was budgeting, but since my income is entirely discounted there is this enormous stumbling block.

Annisele

Complicated wrote: »

With regards the two mortgage rates, when we bought our current house the bank gave us a choice of keeping the original mortgage (which would obviously be secured on the new house) and having a second mortgage on the new house to make up the difference, or clearing the original mortgage with the sale and taking out an entirely new one.

I think there might be some confusion over terminology.

Although we say "port a mortgage", technically you're not porting the mortgage loan at all - you're just keeping the rate. If you want to secure the loan on a new (to you) house, then you have to have a brand new mortgage. Whether or not you can keep your existing terms is a separate issue; the actual mortgage application is a brand new application.

Similarly, we often use the terms "second mortgage" or "top up mortgage" to refer to something that isn't actually a separate mortgage - it's just part of the loan. If you have a mortgage with one lender, then that one lender has first charge over your property. The lender might offer you different rates for different parts (subaccounts) of your mortgage, but you still only have the one mortgage.

It sounds as though you're wanting to keep your HSBC rate, and then take another first-charge mortgage with a different lender. As Dave Ham says, that doesn't work. If HSBC declines your application, then you won't be able to keep the rate; you'll have to go elsewhere for the whole lot.

(It can sometimes be possible to take a mortgage from one lender, and then use a second-charge lender to make up the shortfall - but that won't work where the first lender's problem is affordability).

Complicated

No I don't want to split the mortgage between lenders. Whatever the terminology HSBC told me I would keep the terms and loan amount for the existing mortgage and have a second rate for the additional amount. Ideally what I want is to persuade them to acknowledge my income. If that's simply not going to happen then I want to know who will acknowledge the stipend and lend us money. The long and short is that without moving house I can't even do the degree.

Complicated

This second charge mortgage thing. Is it ever possible for someone else to take on the second charge mortgage? For example if family were willing to take on payments. So they would be part owners. A kind if private shared ownership arrangement.

Annisele

So you need to move house, but not necessarily sell your house? Any mileage in getting consent to let, and then renting yourself while you do the degree?

Are you prepared to post more details of the amount you want to borrow and your income? It worries me that you say you wouldn't be able to afford the mortgage on rates of 4% or 5% - do you mean you'd struggle, or that you actually wouldn't be able to afford to pay? I ask because when lenders calculate affordability, they often calculate on the assumption rates are 6%. If you honestly couldn't afford 5%, then they're going to say you can't afford the mortgage.

Once you start getting into unusual scenarios, like your family shared ownership thing, you need a good mortgage broker. I doubt your actual plan will work, but they may be other ways your family could help you, depending on your situation and theirs.

Good luck!

kingstreet

Complicated wrote: »

Will a financial advisor help me?

I would speak to an independent mortgage broker and establish your options. You can't create your own shared ownership situation; you have to work within accepted lending/borrowing parameters and a broker will give you a framework within which you can work and establish if any lender will take your "income" into account.

I can think of one lender which specifically mentions accepting bursary/stipend in its criteria, so I'd be surprised if there aren't more following research by a broker.

Dave_Ham

I now get what you want to do, Annisele articulated the port scenario well and hopefully this is all a bit clearer.


My understanding is that now you are able to port and top up the mortgage with a 2nd part loan from the same lender; HSBC.


HSBC have only recently come to the broker market and everyone is finding their feet with their criteria.


I suspect you will have 2 options;


Not move as if HSBC colleague is correct and they will not use Stipend payments, then your income will not satisfy that required


Lose the attractive rate and purchase with a lender that will accept this income (and there are a few) and then proceed with a less attractive (but probably still incredibly competitive in the bigger picture)


Good luck

Complicated

Thanks Kingstreet. Which is the lender you're thinking of?

Ok some details. We have an existing mortgage of about £96k. I expect us to get around £40k capital from sale. Our financial situation has changed since I visited the bank as we've been granted DLA for our son and secured a contarct of work that is ongoing for the foreseeable future. I expect our combined income to be nearer £50k which is more than we've ever had! But more than half of that won't be counted by the bank. We currently probably wouldn't even get our existing mortgage. When I gave a combined income of £39k I was told we could borrow to £160k property value, ignoring the bursary issue. We're looking at a region where we'd be lucky to find a 3 bed for that (we're a family of 4). I was hoping for more like £180-200k. Given the change of circumstances we probably could afford the higher interest rate now but it's going to be a lot more than the alternative rates that would be open to me if I was employed. Plus I can't see into the future and obviously want to keep my rates as low as possible.

Renting is an option I asked about. I was told I wouldn't need to change my mortgage to buy to let under the assumption that eventually we'd be coming back. I doubt we'd cover our mortgage with rent and the rent for something we could fit in in the new area would be enormous. Well over £1000pm. Plus we'll be 200 miles away so would probably have to pay for letting services. It's a possibility to explore but I'm really not wanting to become a landlord.

kingstreet

Brokers don't name lenders for fear of falling foul of regulatory action. We are expected to satisfy the know your customer requirements prior to selecting lenders and products.

My post was designed to encourage you that there are lenders out there and they can be found by carrying out your own research, or appointing an independent broker to do it for you.