Future Mortgage Seeker - Questions from a First Time Buyer

FutureMortgageSeeker

Afternoon All

I posted some time ago about a projected scenario for a mortgage but Covid has changed my situation somewhat. Hoping for some assessment of my chances:

Fully appreciate this is a projection of where I want to be in 18 months' time but I am hoping someone can advise. I would like to be in a position to begin the process of purchasing my first home in 18 months. My credit history is adverse due to PDL use which will be 3 years old when I am hoping to apply for my first mortgage. No defaults and all repaid - I don't need telling that they are damaging but I am conscious that the set of circumstances which contributed to them being taken out are no longer.

1 buyer - no dependents, no partner/spouse.
Salary: £39,556 - current and ignoring any potential increases. 3 years in current job.
Deposit: £7,000 but could be up to £10,000
House Purchase Price: £140,000
25 Year mortgage
No debt, missed payments, no overdraft.
1) Would the PDL use mean I need a specialist broker?
2) Would it be better to wait until I have the 10% deposit or should 5% be sufficient on affordability?
2) One of the accounts I am using to fund the deposit will mature with a guaranteed minimum value and a possible higher value. Will the bank consider it as part of the deposit at the minimum value?
Thanks in advance,
FMS

underground99

FutureMortgageSeeker said:

1) Would the PDL use mean I need a specialist broker?
2) Would it be better to wait until I have the 10% deposit or should 5% be sufficient on affordability?
2) One of the accounts I am using to fund the deposit will mature with a guaranteed minimum value and a possible higher value. Will the bank consider it as part of the deposit at the minimum value?

Needing payday loans in the recent past while blaming them on some special non-recurring set of circumstances while still being in the same job as you were then, is not a good impression to give to lenders, especially if you're only planning on being able to have a 5-7% deposit - and so a mortgage broker may be able to point you towards a lender who is less likely to mind those bad habits. Still, if you're not planning on buying until the end of 2022, the best way to get a cheap mortgage for your circumstances is a question you can ask when we can see the market conditions at the time.

Affordability depends on how much the interest rate might feasibly rise to in the coming years (increasing your mortgage payments), and how much you spend on stuff other than your mortgage. A 10% deposit is better than a 5% one unless you know your house's value is going to rise rapidly as soon as you buy it. It's riskier and thus more expensive per pound borrowed, to get a mortgage where the bank is funding such a high proportion of your purchase price.

The bank will not lend you any money until you come up with the deposit. They are not going to accept a 'possible high value of an account that will mature in the future' as a deposit, as you need cold hard cash to pay to the seller. If you can't afford the house without the matured account, you won't be buying until after it matures, and then you'll know what it is worth.

For your own budgeting purposes, you should presume it's only worth the minimum it might be worth, otherwise you could be spending money on legal costs and surveys etc for a property you can't actually afford because the account wasn't worth as much as you were hoping.

K_S

FutureMortgageSeeker said:

Afternoon All

I posted some time ago about a projected scenario for a mortgage but Covid has changed my situation somewhat. Hoping for some assessment of my chances:

Fully appreciate this is a projection of where I want to be in 18 months' time but I am hoping someone can advise. I would like to be in a position to begin the process of purchasing my first home in 18 months. My credit history is adverse due to PDL use which will be 3 years old when I am hoping to apply for my first mortgage. No defaults and all repaid - I don't need telling that they are damaging but I am conscious that the set of circumstances which contributed to them being taken out are no longer.

1 buyer - no dependents, no partner/spouse.
Salary: £39,556 - current and ignoring any potential increases. 3 years in current job.
Deposit: £7,000 but could be up to £10,000
House Purchase Price: £140,000
25 Year mortgage
No debt, missed payments, no overdraft.
1) Would the PDL use mean I need a specialist broker?
2) Would it be better to wait until I have the 10% deposit or should 5% be sufficient on affordability?
2) One of the accounts I am using to fund the deposit will mature with a guaranteed minimum value and a possible higher value. Will the bank consider it as part of the deposit at the minimum value?
Thanks in advance,
FMS

@FutureMortgageSeeker

1. Assuming 3+ year old PDL that have been serviced properly, it's unlikely that you will need a specialist lender due to that.

2. Assuming no significant debt in the background, with 40k income and looking to buy at 140k over a 25 year term, affordability is unikely to be an issue whether at 90% or 95% LTV.

3. I'm not enitrely sure what you are asking, but for the purposes of a deposit, what matters is the cash value around the time that you want to put in an application.

FutureMortgageSeeker

K_S said:

FutureMortgageSeeker said:

Afternoon All

I posted some time ago about a projected scenario for a mortgage but Covid has changed my situation somewhat. Hoping for some assessment of my chances:

Fully appreciate this is a projection of where I want to be in 18 months' time but I am hoping someone can advise. I would like to be in a position to begin the process of purchasing my first home in 18 months. My credit history is adverse due to PDL use which will be 3 years old when I am hoping to apply for my first mortgage. No defaults and all repaid - I don't need telling that they are damaging but I am conscious that the set of circumstances which contributed to them being taken out are no longer.

1 buyer - no dependents, no partner/spouse.
Salary: £39,556 - current and ignoring any potential increases. 3 years in current job.
Deposit: £7,000 but could be up to £10,000
House Purchase Price: £140,000
25 Year mortgage
No debt, missed payments, no overdraft.
1) Would the PDL use mean I need a specialist broker?
2) Would it be better to wait until I have the 10% deposit or should 5% be sufficient on affordability?
2) One of the accounts I am using to fund the deposit will mature with a guaranteed minimum value and a possible higher value. Will the bank consider it as part of the deposit at the minimum value?
Thanks in advance,
FMS

@FutureMortgageSeeker

1. Assuming 3+ year old PDL that have been serviced properly, it's unlikely that you will need a specialist lender due to that.

2. Assuming no significant debt in the background, with 40k income and looking to buy at 140k over a 25 year term, affordability is unikely to be an issue whether at 90% or 95% LTV.

3. I'm not enitrely sure what you are asking, but for the purposes of a deposit, what matters is the cash value around the time that you want to put in an application.

Many thanks for the clear, informative, concise and swift response. Also greatly appreciate the difference in tone from the other poster.

Best wishes, FMS

FutureMortgageSeeker

underground99 said:

FutureMortgageSeeker said:

1) Would the PDL use mean I need a specialist broker?
2) Would it be better to wait until I have the 10% deposit or should 5% be sufficient on affordability?
2) One of the accounts I am using to fund the deposit will mature with a guaranteed minimum value and a possible higher value. Will the bank consider it as part of the deposit at the minimum value?

Needing payday loans in the recent past while blaming them on some special non-recurring set of circumstances while still being in the same job as you were then, is not a good impression to give to lenders, especially if you're only planning on being able to have a 5-7% deposit - and so a mortgage broker may be able to point you towards a lender who is less likely to mind those bad habits. Still, if you're not planning on buying until the end of 2022, the best way to get a cheap mortgage for your circumstances is a question you can ask when we can see the market conditions at the time.

Affordability depends on how much the interest rate might feasibly rise to in the coming years (increasing your mortgage payments), and how much you spend on stuff other than your mortgage. A 10% deposit is better than a 5% one unless you know your house's value is going to rise rapidly as soon as you buy it. It's riskier and thus more expensive per pound borrowed, to get a mortgage where the bank is funding such a high proportion of your purchase price.

The bank will not lend you any money until you come up with the deposit. They are not going to accept a 'possible high value of an account that will mature in the future' as a deposit, as you need cold hard cash to pay to the seller. If you can't afford the house without the matured account, you won't be buying until after it matures, and then you'll know what it is worth.

For your own budgeting purposes, you should presume it's only worth the minimum it might be worth, otherwise you could be spending money on legal costs and surveys etc for a property you can't actually afford because the account wasn't worth as much as you were hoping.

Thanks - whilst I appreciate your insight and taking the time to respond, I did state that I am aware of the consequences of PDLs and I don't feel I was absolving myself of responsibility in the post so the tone of your response felt somewhat condescending.