Who do I trust (Mortgage borrowing amount)

ichidan

Thrugelmir wrote: »

Sounds as lenders may have an issue trusting you. Application fraud is not a recommended route to follow. As the outcome will have very serious consequences for you for many years.

Was more a hypothetical question, to see how the mysterious mortgage loan amount is calculated. As an engineer/scientist I find it fascinating. While the Halifax calculator isn't 100% guaranteed, and just gives an indication I've found that:

1. HTB caps loan amount to 4.5x, when off it is capped at 5.0x
2. The longer the loan term, the more you can borrow:

5: 2.02x
10: 3.45x
15: 4.45x
18: 4.904x
19 - 35 years: 5x

3. Having 2 or more applicants reduce the loan amount from 5x to 4.336x

4. Leasehold properties reduce the loan amount by nearly 0.2x e.g. from 5.0x for freehold, then 4.8x for lease hold. (not sure if this is absolute or a relative calculation).

5. Credit commitments (monthly). Every £1/month credit commitment reduces mortgage by £120. So £100/month commitment means you can borrow £12k less.

6. Credit card balances remaining. Every £1 remaining reduces mortgage by £6. So £1k in credit cards means you can borrow £6k less.

I'll probably spend more time reverse engineering their calculator. As I said it's just a rough indicator. But good to know.

Thrugelmir wrote: »

Why not take the route the majority of people will take and sell their existing property. Thereby injecting the equity into the new purchase. Makes life far simpler.

While it may make life simpler at present to sell. When it comes to my retirement. I would like to have some sort of pension, while living in a house. I'd also like my child(ren?) to have a future.

ichidan

With regards to the 'Loan Amount' (on the Halifax calculator)

I don't quite understand what to put there.

If I put loan amount as £500,000 then I get Loan amount (at the bottom) as 500k (as in 5x annual salary if salary is 100k). If I put loan amount as £500,001 then I get Loan amount (at the bottom) as 400k (as in 4x annual salary if salary is 100k).

What do the 2 loan amounts mean?

If you're buying a house for 500,000, planning to put 10% down. Does that mean the loan amount is 500,000 or 450,000? I presume it is the latter? But then this is like saying:

"If you plan on borrowing 450k, then we will allow you to borrow 500k max. But if you plan on borrowing 501k, then we will allow you to borrow only 400k max.". This makes no sense!

EDIT: Ok a quick google finds that if you wish to borrow more than 500k, then it must be 4 times your salary. So that clears up that piece of the equation. ("Now Lloyds limits mortgage to four times your salary: Britain's biggest lender caps loans over £500,000")

Thrugelmir

ichidan wrote: »

Was more a hypothetical question, to see how the mysterious mortgage loan amount is calculated.

People will do any number of things to bend the rules. Unlike speeding in a car. The consequences of application fraud have far more serious repercussions.

While it may make life simpler at present to sell. When it comes to my retirement. I would like to have some sort of pension, while living in a house. I'd also like my child(ren?) to have a future.

That's a topic for a different forum. Not least the British obsession with property prices in the recent past.

ichidan

Thrugelmir wrote: »

People will do any number of things to bend the rules. Unlike speeding in a car. The consequences of application fraud have far more serious repercussions.

Actually knowing that buying a Porsche on finance will result in a 300 pound a month credit commitment. Thus resulting in being able to borrow 36k less (£300 * 120) on a mortgage would make some reconsider buying that Porsche, or buying it on finance. That's not fraud, that's knowledge!

Thrugelmir wrote: »

That's a topic for a different forum. Not least the British obsession with property prices in the recent past.

Yes, which is why I was hesitant about replying to your post as it derails this topic.

I'm trying to understand the mechanics of mortgage lending, and how much mortgage I can expect to get before committing to this off-plan property. If there's a chance I can't get the mortgage and will lose 25 to 50,000 pounds in the process. Then I'm not going to take it.

I'm also trying to understand the mechanics of buying off-plan (which may nullify my fear of losing 25-50k).

So far kingstreet has been far more helpful on both fronts than the Mortgage brokers and Sales person have ever been.

ichidan

Ok so Mortgage broker has said that it's purely coincidental that the amount I can borrow is identical to 4.5x my salary, not due to HTB.

Apparently my credit score with Halifax is an A* pass, probably an A, as I cannot get 95% LTV, just 90% LTV.

So I'm guessing my credit score affects not only the LTV amount, but also the borrowing multiplier. If you have a bad credit score then you can only borrow 4.5x your salary not 5x.

The irony is I've never used a credit card, and the only 'credit payment' is my mobile phone contract. Which I would gladly pay up front, but I prefer a monthly tariff to PAYG.

At this point, I can't be a***d with this property. As lovely as it is, great property, great location, ideal to get into work etc. I don't even care if I lose my reservation fee. I'm now just going to play a game of interrogating the Halifax mortgage advisor, the Mortgage broker and the sales people so that I can acquire the information that should've been available to me before this all started.

Honestly, it's like playing detective, trying to get blood out of a stone with these people.

kingstreet

Opinion wrote: »

Just out of interest, in the "Please enter details of your client's expenditure", do you put everything in there ie. mobile phone bill, Sky TV, utility bills and so on?

No. Only extraordinary expenses which might be different from one person to another such as;-

If you have credit commitments, childcare, student loan etc enter them in the credit commitments box.

The system allows for normal monthly expenditure based on ONS figures for the size of household.

ichidan

Just to clarify. The process of buying an off-plan property with Barratt homes:

Does this happen?

1. Reservation fee (client pays 1000 to Barratt Homes)
2. Mortgage AIP is done. Say this comes back as requiring e.g. 15 percent deposit (call this X).
3. Formal mortgage is done shortly after telling you exactly what the mortgage is, and how much deposit you require.
4. A deposit (call this Y) e.g. 5% (i.e. not necessarily the same amount as the deposit required for the mortgage) is paid to solicitors. To help the builders complete construction.
5. Some money is paid for flooring & another customisation to Barratt Homes e.g. 3-4k
6. Contracts exchanged.
7. Few months later you pay the remaining amount of the mortgage deposit (X) i.e. you pay X - Y. e.g. 10% + the stamp duty, and then begin paying the mortgage.

Or does this happen?

1. Reservation fee (client pays 1000 to Barratt Homes)
2. Mortgage AIP is done. Say this comes back as requiring e.g. 15 percent deposit (call this X).
3. A deposit (call this Y) e.g. 5% (i.e. not necessarily the same amount as the deposit required for the mortgage) is paid to solicitors. To help the builders complete construction.
4. Some money is paid for flooring & another customisation to Barratt Homes e.g. 3-4k
5. Contracts exchanged.
6. Few months later you apply for a Formal mortgage application, and they say actually you can't borrow as much due to your bad credit score or something, and thus require 20 percent deposit (call this O. short for 'Ohh')
7. They say in fact, the value of the property is even less than you agreed with BH. So you can't borrow as much, and thus require hmm 25 percent deposit (call this S. short for hmm. let you guess)
8a. You either hunt around for some rich relatives to give you the additional 10 percent deposit to take into account the O and the S.
8b. Or you cut your losses and say sorry I can't find funds for the additional O and S deposit required. Sorry for wasting your time, enjoy your 5% deposit (Y).

If it's the latter, then it is gambling, if it is the former, then it's just the same risk as buying any other EXISTING property on the market.

kingstreet

AIP
Reservation
Full mortgage application
Valuation
Legal Work
Mortgage Offer
Pay deposit
Exchange contracts
Build finished
Complete.

I suggest speaking to an experienced newbuild broker about the process, as well as about your mortgage specifics. If you do this over several emails/calls you'll build up a picture of knowledge of how it works.