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Looking to the future
1 September 2007
Duncan Rivers and his partner live in a rented cottage in rural Yorkshire and want to get on the property ladder. They have a £7,000 deposit, but the area they live in and want to buy is expensive – above £140,000 for the starter home they are looking for.
They have a joint income of £45,000 and eventually stand to inherit about £100,000, but not for several years. What are their options?
Dave Wormall is head of group marketing at Scarborough Building Society
“They shouldn’t have a problem getting a mortgage of £140,000, as long as their outgoings aren’t too great. They would fit typical lending criteria of 3.5 times their joint salary and, with a 5 per cent deposit, they should have access to a better deal than those with no deposit.
It may be worth looking at fee-assisted options so they don’t have to pay an arrangement fee, although many of these products do have a slightly higher rate of interest. They’ll also have legal charges to pay, so should shop around for a solicitor who offers discounted first-time buyer packages and possibly look for a deal which offers a free valuation.
With an inheritance in a few years’ time, it may be better to look for a fixed option in the meantime to help them budget. When they do receive it, they could use some of the cash to reduce their mortgage, so should make sure they’re on a flexible product that allows overpayments without early repayment charges.”
Katie Tucker is technical specialist at John Charcol
“Bank of Ireland has a 5.59 per cent two-year discount with a £799 fee at 95 per cent. The £7,000 is 5 per cent if they are happy to limit themselves to a starter home, except Stamp Duty would be £1,400, plus £2,000 for other costs, so they may be best off taking a 100 per cent deal and considering a two-bed property to avoid the additional costs of moving again in the next few years.
Cheltenham and Gloucester (C&G) works on affordability, so could consider four times joint income and has a two-year fixed rate of 5.88 per cent for a fee of £5,599, which can be added to the loan. Standard Life has 5.99 per cent discount with £398 fee. The Standard life deal is available with gross offset, which would allow them to pay the lump sum while retaining their mortgage facility for any future projects. Net offsets are available from Intelligent Finance, Woolwich, Accord and Norwich & Peterborough.”
James Cotton is a mortgage specialist at London & Country
“Duncan and his partner should be able to get on the property ladder despite the high price of homes in their area. Assuming a joint income multiple of 3.5, they could get a loan of around £160,000 and may be able to go higher.
They need to decide whether they want to put their money down as a deposit or keep hold of it and borrow 100 per cent. The best way to get the lowest rate they can is to put down 5 per cent, but this might involve finding another couple of thousand pounds.
Lenders to consider for 100 per cent deals include Mortgage Express, C&G and Scottish Widows if they are classed as professionals or graduates.
If they won’t be receiving the inheritance for several years, it should not impact on their current choice of property or mortgage, but they should bear it in mind in the future.”
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