First time buyer - eligibilty advice needed

el93

Since graduating university I have lived with my parents rent-free while working in a minimum wage job and attempting to build up a self-employed business. I have been seriously saving for a deposit towards a house for over a year and intend to start looking at houses from April 2018 with hope of being moved in by this time next year. If I continue saving at the same rate I have been doing, by mid-April I will have £5700 in my Help To Buy ISA (with £1425 bonus) and £1990 in a second savings account resulting in a total of £7690 deposit (£9115 including bonus but not sure if this can/should be put towards this or reserved for admin fees). I may be able to increase savings rate some months to bring up the deposit to a more round number. For the house prices I'm looking at, this would give me a good 5% deposit.

However, the advice I need is about eligibility. In my minimum wage job, my annual salary is just below 10k, and my self-employed work is approximately 3k. (I've not done my first tax return yet but will have done by mortgage application. My business is improving and year 2017/18 should have a much better return, but won't be done before when I hope to do the mortgage application.) As my salary is relatively low, I'm a bit worried about being approved for borrowing a large sum as my research has shown you are entitled to borrow up to 3 times the amount of your annual salary, which for me (13k x 3 = 39k), there are just no houses available at that price. I've looked into shared ownership which would be better for my salary, but the stair-casing process looks so difficult and I would rather have full ownership from the start. I've contemplated just waiting until a time that I've met a partner who I can buy a house with and then our combined salaries may be approved for borrowing a larger amount. However, this would take years and a lot of trust for such a huge commitment, and I would rather buy on my own sooner, then buy somewhere bigger with a partner several years down the line. Then I thought there's someone else I could buy with, who has a good salary and I already trust, my mother. Our salaries combined should be approved for up to 150k lend which would be plenty for the kinds of houses I'm looking at. We would apply to jointly own the house with the payments paid by me. The only things is, she has had 2 endowment mortgages, both have under-performed, with one maturing a few years ago and the other maturing in the next 4 years. This means there will be a large payment due on those mortgages soon. Is this likely to affect the chances of being approved for a mortgage with her? Any advice would be appreciated as we've no idea if/how this could work.

I'm also wondering if there's anybody who's been in my situation (low income but good at budgeting/saving) who can offer their experiences on applying/being approved for a mortgage application. Also, any advice on mortgages for the self-employed would be helpful as I intend that as my self-employed work grows to reduce my employed work until I am fully self-employed, although I hope to have my mortgage set before this happens.

Thanks in advance.

Fiesto88

3x earnings is actually much lower than would be possible. You shouldn't struggle to get 4.5x. This still wouldn't give you a huge figure but it helps.

The thing that could scupper the option of applying with your mother is the two mortgages she already has. These, along with her own living expenses, are likely to need factoring into affordability - on top of your own. You would definitely need the assistance of a broker if you are contemplating this route.

If you don't mind my asking, what is your minimum wage job and what is your degree qualification? I honestly, genuinely don't want to belittle the work you're doing now as you're obviously working very hard and taking good care of finances - just wondering if there is a possibility of you finding something that pays a little better. I realise it might be more difficult when you're also flexing it around building up a business. If you can commit to full time work, depending on where you live, with a degree behind you it shouldn't be too difficult to move up to closer to the 20k mark. Although any change would mean you'd be applying for a mortgage while reasonably new to a job, most lenders wouldn't look unfavourably on that for a graduate.

Thrugelmir

el93 wrote: »

I'm a bit worried about being approved for borrowing a large sum as my research has shown you are entitled to borrow up to 3 times the amount of your annual salary, which for me (13k x 3 = 39k),

There's no entitlement to a mortgage. Lenders are in business, you'll need to meet their criteria to borrow money. Which is in itself is determined by legislated regulation.

You've started the journey by making the right moves. Have you considered opening a Cash LISA. This will ultimately provide another cash bonus towards your goal of house purchase.

Hopefully over time your earnings will grow. Likewise you may well find a partner to share the financial burden. Keep on saving. You'll get there in the end. However fruitless it may seem at the current time.

kingstreet

Fiesto88 wrote: »

3x earnings is actually much lower than would be possible. You shouldn't struggle to get 4.5x. This still wouldn't give you a huge figure but it helps.

I'm inclined to disagree.

At lower incomes, more money is taken up by subsistence expenses, leaving less to spend on a mortgage.

If you enter low incomes in lender affordability calculators, you will find they generate lower than 4.5 x income.

As an example, Halifax will lend (over 35 years);-

Salary £10k = £18,670
Salary £13k = £47,770
Salary £15k = £64,490
Salary £17k = £80,750
Salary £20k = £95,000

so you only get above 4x when you earn over £15k if my mental arithmetic is correct.

glosoli

I just done the same calculation out of sheer and utter curiosity using a formula which mirrors the affordability calculations of the credit scoring system I am familiar with.

Assuming one adult with no dependants, £100 for council tax, £30 for water, and £50 insurance costs, with no debts what so ever, no deductions from salary, with a maximum term of 40 years and 0 months, based on the current stress test interest rate (which has just increased this week):

£10,000 - mortgage borrowing of £2,500 - x0.25, absolutely nothing left after subsistence expenditure
£12,500 - mortgage borrowing of £27,500 - x2.2
£15,000 - mortgage borrowing of £47,500 - x3.16
£17,500 - mortgage borrowing of £68,000 - x3.88
£20,000 - mortgage borrowing of £90,000 - x4.5
£22,500 - mortgage borrowing of £111,000 - x4.93
£25,000 - mortgage borrowing of £125,000 - x5, which is the max multiple permitted

As you can see, the difference in the borrowing amounts between £10,000 and £25,000 is a factor of 50. This is how subsistence expenditure effects lower incomes.

Of course there are many variable factors which could influence this in either direction, such as product selection, and the actual mortgage borrowing the advisor would be able to recommend could be lower than this during fact find stage depending on expenditures.

trix-a-belle

Others have covered the issues surrounding an application with your mother due to her existing mortgages.

You say you haven't done a tax return yet for your self employment therefore haven't been trading long, I believe most banks require at least 2 if not 3 years of accounts (i've just done a mortgage application with nationwide who ask for 2 years & I have started some self employed work on the side this year & have done 1 self assessment return which couldn't be taken into account as income due to this)
I'd suggest you look to increase your earning, if the employment is part time (looks that way given you say your salary is £10k) is there something else that pays better for similar hours or can you increase your hours to full time/take a better paid full time job and do the self employment in evening and weekend time?

Also in the amount you have saved have you set aside additional monies for solicitors fees, searches, stamp duty, (< that lot is likely to be ~£2k on a £150k property) surveys, furniture and white goods you know you will need when you get into the home? Sadly i'd suggest you push on harder with saving, look carefully at your outgoings currently but equally look hard at increasing what you earn

Good luck

csgohan4

you need to find a better paid job, bide your time, save more.


Money and family should never mix. if you apply with your mother, mortgage term will likely be lower, what if you want your own place, or you get married and have children, much more difficult to separate your finances on a mortgage unless you can buy out your mother outright.


What's the rush to buy a house? A house is not a right, nothing wrong with renting however in your case your living rent free in your mother's house meaning you can save more.


Buying a house/flat has responsibilities, do you know how much a new boiler can cost or a roof to be fixed for example, because even if you own 50% of a house in Shared ownership your responsible for 100% of the cost of repairs.