Advice for a First Time buyer ( high commission earner with unpredictable monthly inc

dj2ball

Hi all

I’m looking for some advice as to the best products that would suit my circumstances, so firstly, here’s the background and the figures.

I’m just about to buy a property with my fiancée, in preparation of getting married next year. We’re both 23, I’m a headhunter on £28k basic, she is in marketing on about 20k at the moment.

Basically my job is heavily commission oriented, and I know I can rely on at least a certain figure over a 12 month period, but I can’t always predict when I will get It. For example, I earned £14,500 commission between Feb and April this year, and am expecting another £10-15,000 before the end of this year. What this means though in terms of buying a place is that on a regular monthly basis, we don’t the same disposable income as someone earning my salary purely on a basic rate. I would say every year I can expect £50-60k comfortably, sometimes more, depending on my performance. It is paid quarterly as a lump sum bonus into my salary.

We’re looking to buy a property valued around 175k, with a deposit of 10k, and repayment over 25 years. On that basis, we would be looking at current interest rates around £1000 per month repayment on an interest only mortgage. On repayment, we’ve been quoted £1300-1400 per month. To be honest, we can cover and budget for 1000 p/m with everything else we have to pay on the flat (ground rent, service charge, council tax etc), but I think 13-1400 would be really pushing it on a monthly basis and we’d feel like we were on the breadline.

Would an interest only deal allow me to potentially make significant overpayments into the mortgage periodically, or do I need to wait until the end of the 25yr term?

Would any lenders be willing to consider a lower repayment option provided I top it up semi-regularly?

Does anyone have any ideas of how best I could structure this? I intend to pay any mortgage back well before the 25 year mark using my commission exclusively to build capital.

It’s really frustrating knowing I earn enough to pay for a house over a year but not seeing any way I can fit it to suit my work situation!

Thanks in advance!

herbiesjp

This should be really straightforward.

You can set the mortgage up however you want, and plenty lenders allow for capital overpayments.

It will just be a case of finding a deal that meets the flexibility you need - assuming no other debts in the background and a clean credit history for you both

dj2ball

We basically have about 290 p/m we pay toward a car - thats the only outstanding loan we have for calculating the income multiplyer.

Would an interest-only mortgage allowing for overpayments be the most competitive option for me?

herbiesjp

The option of being interest only or a repayment mortgage, does not affect how competitive the rate is. Firstly you need to decide if you want fixed, tracker, discounted, capped etc rates. Then you need to decide how long you want that initial deal for i.e. fixed for 2 years or longer?

Then you can start looking into those deals and see what you can find. One thing that can affect the deals offered is the loan to value (the percentage that you are looking to borrow against the value of the property). Borrowing £165k against a value of £175k will mean borrowing 95% and rates at that level will be higher and most lenders will charge a Higher Lending Charge

To get more competitive deals, looking at a higher deposit would help.

dj2ball

Thanks for the reply herbiesjp. Sadly with a wedding to pay for, a bigger deposit at this stage is not an option

on another note, I understand your points, but perhaps I didn’t quite phrase myself clearly first time around.

I guess where im going with this is my interpretation of the figures ive looked at off of various calculators etc.

With repayment over 25 years I’d pay back for example about 290k on a 165k loan. With interest only I would pay back something like 230k in interest, if I pay the base amount every month, and settle the outstanding loan value of 165k at the end. So ineffect paying over 100k more for the luxury of the interest only mortgage.

My main query is how this scenario would then change, should I be able to make overpayments along the way (say either quarterly or yearly) and how this would stack up against saving the other money I earn separately, leaving it to mature In some other vehicle and paying back the lump sum in one go, at or near the end of the term…


I know I really haven’t been that clear but I guess my question would be, can I use the interest only model to save money over the repayment one in the long run, should I be able to allocate enough funds to it and invest them astutely enough? Or should I simply be making overpayments directly into the mortgage…



Maybe this is more investment than mortgage advice but they seem closely intertwined