Mortgage if low income but high deposit - possible or not please?

Irishsmurfy · 17 October 2019 at 3:22PM

Hi all

Looking for some advice please for my sons. (I do ramble on a bit so apologies in advance

)

I have 2 sons - 26yr old and 23 yr old - both currently living at home. They are hoping to buy a property together (would probably never afford it on their own). Youngest son wants to remain living at home with me as he likes his home comforts

but eldest son wants to move out and spread his wings

. They have approx £150,000 deposit between them plus they have approx £10,000 towards legal expenses and furniture (my husband died very recently and I gave them £50k each from his life insurance).

Property prices near me are very expensive - 2 bed houses start at circa £300k and ideally they'd like to purchase a 3 bed house and possibly rent out 1 room to a lodger (possibly 2 rooms depending on well/bad the 1st lodger works out). 3 bed houses start at circa £400k for a half decent one - neither of them are any use at DIY or decorating etc so need something ready to move into.

Assuming they opt for a £400k house they would need a mortgage of £250k. However their basic salary is only around £18k for the youngest son and £22k for the eldest son. Both of them can earn overtime but apparently mortgage lenders work on the last 3 months payslips. Neither of them has done much overtime in the last 3 months as that is the period when my husband died and then we were away for nearly 4 weeks.

Are there many/any lender out there who might give mortgage needed based on the above? I've already asked Barclays and the Halifax about being guarantor for them but was told their springboard mortgage guarantors are more suited for people struggling to get 10% deposit than to help people who would be struggling with the affordability tests.

Any advice much appreciated. (I did consider going on the mortgage with them but apparently they'll then have to pay extra stamp duty as it would be classed as my 2nd home?).

MovingForwards · 17 October 2019 at 6:59PM

Have you had a play with any mortgage calculators?

I've just checked the Halifax one and on the figures you have given they can potentially borrow upto £190k and would therefore need to find at least another £60k to get the £400k together.

Have they thought about moving a bit further out where properties are within budget?

Have they thought about what happens when one, or both, settle down and want a partner living with them or want to sell to buy with their partner but the other sibling doesn't want to?

MovingForwards · 17 October 2019 at 8:37PM

Had another train of thought.

Help to buy might be an option, but I'm not sure if that may impact on how much is lent.

bobshi · 18 October 2019 at 1:49PM

Sounds a similar situation to myself.

Mega deposit, but average salary in a world of huge house prices, and if your sons have managed to save up that much it sounds like they're not the big spender types and so therefore could afford a mortgage higher than they can obtain.

It always makes me chuckle when I see offers aimed at first time buyers exclaiming how little deposit you would need - just 5% they say. Oh great now let me get a £285k mortgage...

In response to your question though - Help To Buy is stricter on the salary multipliers, and how much bonuses play a role.

Help To Buy maxes out at 4.5 times your salary, traditional mortgages can go higher.

Help To Buy only factors in half of your bonus amounts. Traditional mortgages may include all of it.

So a £20k salary via HTB would be limited to £90k, whereas you might be able to get £100k otherwise.

Also after five years the interest kicks in. That would then be an outgoing that could affect the remortgaging potential at that time.

I too looked at other options about including my Dad on the house - as you say stamp duty then becomes payable. If you're looking at new build they do sometimes do offers where stamp duty is paid for you.

The Post Office has a 'First Start' product that will take into account your income to boost the mortgage potential, without adding you to the property (so no stamp duty - unless you wanted to be on the property), however the interest rates are much higher.

I'm also unclear on how that would work with remortgaging after the fixed term, as the mortgage would likely still be above the natural mortgage potential they have at the end of it so you might be beholden to there being a similar product existing in say 5 years time or paying the standard variable rate and paying a lot more for the mortgage.

Retired_Mortgage_Adviser · 18 October 2019 at 2:07PM

Borrowing 250k on a combined income of 40k translates to an income multiple of 6.25x which is not obtainable. Ignoring any potential complications, a decent broker might be able to go up to 4.75-5x giving a mortgage size of 200k at most.

Overtime earned consistently over the last few months might be taken into consideration by a few lenders, but it will have to be substantial to make up the 50k deficit.

kingstreet · 18 October 2019 at 6:20PM

bobshi wrote: »

Help To Buy maxes out at 4.5 times your salary.

Yes and typically 3% of the equity loan plus any ground rent & service charge will also impact affordability.

kingstreet · 18 October 2019 at 6:22PM

bobshi wrote: »

I too looked at other options about including my Dad on the house - as you say stamp duty then becomes payable. If you're looking at new build they do sometimes do offers where stamp duty is paid for you.

Yes, perhaps but I don't know a builder willing to stump up the 3% second property surcharge if your father owns his own home.

Irishsmurfy · 22 October 2019 at 9:27AM

Thanks all for your input and time.

My son went to see a mortgage advisor yesterday and is currently feeling a bit deflated

. He went through their payslips and as expected their overtime for the last 3 months was minimal due to the circumstances so he said overtime would most probably not be considered. He reckons they could get £200k mortgage so they'd be short £50k for a 3 bed house (but could get a 2 bed). I can understand his reasoning but feel it's a bit harsh as every month up until my husbands death both my sons were doing lots of regular overtime. My eldest son gave me his P60 for 5th April 2019 which shows his full annual salary including overtime as being £42k - the year before was £41k. He doesn't get bonuses - just shift allowances for weekend and overnight work.

I'm now thinking that they might have a better chance if they leave applying for 3 months as then their overtime will be on the most recent 3 payslips?

The only suggestion the mortgage guy had was to add me onto the mortgage but not the deeds themselves - so I'd be liable for the debt but have no interest in the actual property itself. That way there wouldn't be stamp duty for 2nd home. To be honest though I'm struggling to get my head around being tied to a mortgage again after just paying my own mortgage off

. Obviously if my sons had financial difficulty in the future I'd help them out - but I just don't want to have that legal agreement over my head for the next 20-25 years (I'm 49 now).

Both my sons are fairly sensible - they've already said they'll have legal agreement drawn up saying that they'll review the house purchase every 5 years and if either of them wants to sell then they'll put it on the market but if both are still happy with the status quo then they'll leave it for another 5 years. Same scenario if girlfriends etc come along - here's hoping it will be as easy as it sounds.......

Mortgage if low income but high deposit - possible or not please?

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