First time buyers – what are the options?

Grant Bather

June 10, 2006

Ian Batterbee is managing director of Clancy LeSurf “The good news is that as they have a deposit, we’ll be able to look at more lenders than if they didn’t.

The most competitive deal we could arrange with the information provided, on a fixed rate basis, is a two-year product with Harbour Home Loans at 6.05 per cent per annum. This has a monthly payment of £892 over the first two years. Redemptions apply at the rate of 7 per cent of the loan in year one, falling to 6 per cent in year two. It also has a booking fee of £599, and a valuation of £99.

Although both clients are employed, Barry’s lack of employment history in the UK could present a problem. Depending on where he has been working, and what role he was fulfilling, we might be able to get them a more competitive deal.

The lenders are simply interested in the client’s ability to repay the loan, and therefore like employed people to have ‘settled’ employment history. This would indicate to the lender that even if the client were to lose their job – say through redundancy – the likelihood of getting further employment is high.

For example, if Barry had a series of bar jobs in Spain for the last five years, it is unlikely that a prospective lender would be willing to accept this as ‘continuous employment’.

On the other hand, if he had been employed by a large corporation – say a bank, or a similar institution – we would expect a bank to view this in a favourable light, and the deals available would be more competitive.”

Alan Lakey is senior partner at Highclere Financial Services

“Paul and Barry are looking to borrow to the very edge of their capacity. Assuming fees of £3,000 they are looking for around 95 per cent of £200,000. Any property purchase price above this further limits their choice as the loan will be over 95 per cent.

Assuming that their personal finances and outgoings mean the loan is affordable and there are no loans, credit card balances, etc, there are numerous hurdles to overcome. Many lenders will ignore Barry’s income until he has been with his employer for three or six months. That he has been abroad is likely to result in a lower than usual credit score. At this borrowing level, a higher lending fee is likely to apply and, although this can often be added to the loan, it increases the repayment strain.

Alliance & Leicester has one of the more generous lending calculations – 4 times joint incomes – but even so, the maximum loan available would be £164,000. Therefore, without outside assistance, they will be unable to borrow to this level.

Their options are to reduce the property price to a more realistic level – up to £170,000 – or to use one of the guarantor schemes available from a lender such as Bank of Ireland, where a willing parent assists by using his or her non-mortgaged income.

Finally, as they are partners purely in the financial sense, they will need to purchase on a tenants-in-common basis and also consider protection plans, which allow the partners share to be purchased in the event of death or diagnosis of a critical illness.”

Mike Pendergast is an IFA at Zen Financial Services

“The brothers have a joint income of £41,000 with savings of £13,000. If we take the view that, say based on £200,000 house less the £13,000 deposit, Paul and Barry will be looking for about a 93 per cent mortgage, at £187,000. This equates to about 4.5 times joint income.

Most mortgage lenders will be fine with same sex couples applying for a mortgage – depending on the nature of their relationship (i.e. brothers, partners, just sharing a house to save money, etc), but they should ensure the legal ownership status (i.e. tenants in common or joint tenancy) is correct and agreeable to both parties.

In terms of a mortgage, it is hard to judge as it is unclear if Paul is employed or self-employed. However, self-certification may not be available due to the loan-to-value (LTV). If one of the brothers is a graduate, lenders may lend up to this level, otherwise they may struggle.

Shared ownership may be an avenue they wish to explore.”

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