Salary to afford £70k loan

housebuyer7

Hello, I am interested in taking out a loan (secured I think?) for £70,000 either now or sometime in the future.

Current house purchase price £462,000
Valuation by bank: £475,000 (we knocked some money off the agreed price for works following survey)
Mortgage debt: £392,000.
Monthly repayments: £1685
No dependents
No other loans or committed outgoings (other than usual bills, food etc)

Husband’s salary: £38,000 (public sector, unlikely to rise for years if ever)
My salary: £45,000 (private sector, possible to rise to £60,000 within 2-3 years).

I am wondering at what point we may afford to borrow £70,000 for an extension and other works? What salary would I need to be on for it to be affordable and for a lender to approve?

Grumpy_chap

housebuyer7 said:

Hello, I am interested in taking out a loan (secured I think?) for £70,000 either now or sometime in the future.

Current house purchase price £462,000
Valuation by bank: £475,000 (we knocked some money off the agreed price for works following survey)
Mortgage debt: £392,000.
Monthly repayments: £1685
No dependents
No other loans or committed outgoings (other than usual bills, food etc)

Husband’s salary: £38,000 (public sector, unlikely to rise for years if ever)
My salary: £45,000 (private sector, possible to rise to £60,000 within 2-3 years).

I am wondering at what point we may afford to borrow £70,000 for an extension and other works? What salary would I need to be on for it to be affordable and for a lender to approve?

It does not sound like you will want a loan but to extend your mortgage.

Current mortgage (392k) vs house value (£462k) is 85% LTV. 

Current mortgage (£392k) vs salary (£38k + £45k = £83k) is 4.75 times multiple.

For a good future mortgage rate, you won't really want to go above 85% LTV or 4.75 times multiple.
So, the future mortgage would be £392k + £70k = £462k.  At 75% LTV, that requires the house value to have increased to £616k.
The future mortgage will require joint salary at £97k to maintain the 4.75 times multiple.

Obviously, in the  time that happens the original mortgage £392k will have been paid down a bit so you'll start to gain some flex.

Unfortunately, lenders are not keen to consider the future house value after the extension is complete as part of the security as that would be lending on a promise.  They cannot force that you actually do the building work once you have the funds - you might buy a sports car instead.  Also, for lenders, lending against building work carries a risk as it is possible to get half way through and then run out of money leaving the house worth less than before the project started.

It looks as though the salary box could be achieved in the next 2-3 years as the pay rise to £60k happens (£60k + £38k = £98k).
Anybody's guess how long it will take the house to appreciate to £616k to achieve the favourable LTV.

housebuyer7

OK so I can do it when I am on £60k salary but only if the house value rises to £616k? That’s definitely impossible if the bank won’t take improvements into account for the value 😔

Grumpy_chap

You may be able to do it before the house price rises but, as LTV increases above 85%, interest rates rise.  At current house value, you would be looking at 100% LTV.  I'm not even sure that is available in the current market.

TripleH

You could look to rearrange your budget and either save up some money or try over paying the mortgage to bring down the LTV.

How essential is the work you want doing? Could it be done in stages?

housebuyer7

It could be done in stages but would still need a large lump at the start I think. What about a loan with a different bank separate to my mortgage?

Grumpy_chap

housebuyer7 said:

It could be done in stages but would still need a large lump at the start I think. What about a loan with a different bank separate to my mortgage?

Unsecured loan will be difficult for the kind of sum indicated.

Secured loan will mean a second charge on the property.  That won't be straight forward and may be more expensive than extended mortgage.

housebuyer7

Thank you!

Grumpelstiltskin

TripleH said:

You could look to rearrange your budget and either save up some money or try over paying the mortgage to bring down the LTV.

How essential is the work you want doing? Could it be done in stages?

This  ^   Why not save like mad for a couple of years and then you would need to borrow much less

housebuyer7

How much do you think we might be able to save on our salaries on the basis of a mortgage of £1685 but no other fixed commitments for our outgoings? We both pay student loan and around 5% into pensions.

Brie

First thing I'd look at is how long your mortgage payments are likely to stay at the current level.  If you are on a fixed rate for a couple of years yet then there's likely to be a big jump when you renew.  If you're on a variable rate that will be creeping up every couple of months for the foreseeable future.  How affordable will that be for you?

Next consider that any bank will look at how easily you can afford both amounts you want.  So can you afford to make payments on £462k?  And it won't matter if you think your salary will go up in a couple of years as that isn't real quite yet so of no importance.  At least not to the bank.  Maybe they will consider things when you're making £60k a year, OH has edged up to £39k and the interest rate is 12% or whatever.