First time buyer on property ladder

Jayman21

I need some advise on behalf of my cousin who works busy shifts hence little time to reach out in search of information. I created similar thread in the past but I guess there may have been a lot of changes.
He is a first time buyer (with wife and two kids) seeking to get on the property ladder. They desire a four bed house but do not want to go the shared ownership route hence desire the second hand open property market. With a deposit of 15k but most of the properties they come across are in the region of 380k in the south east areas of England.
He runs a small company with approximately annual business turnover of 70K. His partner earns an income but he would like to approach the mortgage process alone due to his partner’s credit challenges.
1. Can you advise on steps for him to take and how to approach the mortgage process,
2. is he best approaching the mortgage process by himself or best using a broker?
3. If using a broker can you suggest brokers he can seat with who would be helpful enough to run him through the process?
4. What type of mortgage is best to go for?
Thanks

da_rule

The first thing he really needs to do is build his deposit. Even if he can get a 95% mortgage he's going to need about another £15-20k to cover the deposit, legal fees, stamp duty, moving costs etc.

He can approach a broker at this stage, but he'll probably end up paying for advice. I would say, once he's got a 5% deposit and enough to cover all of the incidental costs that would be the time to speak to someone.

It'll also give his partners credit file time to heal as having her on the mortgage may help with affordability. Also, if she is going to co-own the house, some mortgage companies might insist on her being a party to it anyway.

As he's a first time buyer, is he taking advantage of the Help to Buy ISA? His wife can also get one (assuming she's a first time buyer too).

Stamp duty on a £380k house is £9k alone, which will eat up most of his £15k. I've also just done a quick mortgage comparison and a £361k mortgage against a house worth £380k (95% LTV so a 5% deposit) over 35 years works out at being about £1,270 a month. Can they afford this?

Something you didn't mention was how much money he actually takes home. Turnover may be £70k, but how much does he actually earn after paying his operating costs? Another rough comparison site calculation has shown that even if all £70k was his income (before tax) he would most likely only be able to borrow up to £315k as a single borrower.

They have a few options:
1) Speak to a broker (who may charge) and see if there are any mortgages out there that require less than 5% as a deposit - Tipton do seem to be doing 100% mortgages but you're looking at about £1,500 a month which may make it unaffordable
2) Look at cheaper/smaller houses or move to a cheaper area
3) Save really hard to build deposit

amnblog

The first thing he needs to do is get realistic.


A business with a turnover of £70,000 is not going to support a purchase with minimal deposit on a £380,000 property.


His wife probably need to be on the application due to tax credits and child benefit.


Being self-employed he can give himself some time off for proper one to one advice with a broker, as you alluded to above.


His best way of finding one is by recommendation.

Jayman21

Thanks all for your comments. They are very useful and valuable.
@da_rule: It appears waiting until his partners credit gets better for both of them to approach the application.

Help to Buy ISA: I don't think they are aware. Do they have to run the Help to Buy ISA separately of it has to be joint?

The £1,270 a month you calculated is just about right for the. Your options are very useful. Had no idea that the 100% mortgage still existed. Any downside to going with 100% mortgage?

@amnblog@ thanks

ACG

It is a little hard to give accurate information as we have limited info to go off but as a general rule of thumb, you can lend around 4.5x income. If they are looking for a mortgage of £365k, they are going to need an income in excess of £80k

Also a turnover of £70k is not an income of £70k. After expenses are accounted for, that £70k will come down.

If he adds his wife, there are tax credits that may be possible to take into account for affodability which may get you closer to the £80k. Obviously the adverse is an issue, but without knowing more it is impossible to say how much of an issue.

They are going to need to put money away for the associated fees, but speaking to a broker even if it is only a 15-20 minute chat will probably do them the world of good as it will help set them on the right path. I would be surprised if brokers charged for 15-20 minutes on the phone.

foxy-stoat

Business turnover is business turnover, what salary does he take, or dividends and how long has he taken a salary for?

downhillfast

Just to add something else into the mix...
We've recently been approved for a 95% mortgage for a property of just under £370k. Our lender (and I've heard others do similar) has a max loan of £350k on 95% mortgages... I'd say your cousin is definitely gonna need more in the savings pot.

Harryp_24

Theres no way he can get a 95% mortgage on 380k with a turnover of 70k. I dont think they will even look at turnover at any rate, Whats his dividends, salary ect? What is he taking home every month consistently.

Jayman21

Hi All. Thanks for all the input. I don't have his personal salary details but I have advised him to speak to a broker soon. That will set them on the right path.

downhillfast: this is great news. Are you able to share the name of the lender used? also if a broker was involved their name? may be they could be useful to my cousin. Thanks