April 2023: In this month’s readers’ Q&A, Neil Bishop helps family hoping to move house to calculate how much they can borrow and gives advice to a self-employed mortgage applicant who has no accounts yet. Plus, he looks at the impact of childcare costs on a family’s application
Parents want to help with mortgage but are worried about second home tax
Question
I am a first-time buyer and have saved enough for a deposit but I’m having problems with affordability as my salary is not quite high enough.
My parents came up with the idea of helping me out by becoming joint borrowers with me. That way they could provide the extra monthly income required to secure me the deal.
They have a particular concern though – they already own their own property therefore they will be liable for a second home tax. Will this still apply if I am the main name on the mortgage?
Also, this would not be a permanent arrangement. I am in a job which has potential to eventually achieve a much higher salary in a couple of years. Could I, effectively, take my parents off the mortgage when this happens?
Answer
Well done on saving up for your deposit! This arrangement type is what’s known as a ‘Joint Borrower, Sole Proprietor’ mortgage. In this case, you and your parents will sign the mortgage deed, but it will be just you on the property deeds.
As such, with your sole name filed on the Land Registry, your parents shouldn’t be liable for any additional home tax. Please seek professional tax advice before making any property investment decisions.
When the time comes that you’d like to remove your parents from the mortgage, so long as it’s still affordable in your own name, you shouldn’t have any problems doing so.
Buying your first home is an exciting but sometimes stressful experience – I wish you all the best.
Moving home: How much can we borrow?
Question
My partner and I are about to welcome our fourth child to the family and we need to move house. However, I am not sure we can afford to do so. Could you advise whether we could be eligible for a mortgage, please?
We purchased our current house for £180k and it’s now worth approximately £245k. The houses we are keen to move to are valued around £500k. We currently have £130k left to pay on our mortgage. So, if I am correct, I believe we have £65k in equity plus the £50k we have paid off which is £115k in deposit for our new home?
I earn £45k per year and my wife doesn’t work. However, I can boost my earnings up to £55k with overtime.
On this basis, how much could we borrow? Is there anything we can do to improve our chances if we cannot afford the homes we would like? Any government schemes?
Answer
Congratulations! I’ve looked at the numbers to give you a basic idea of your options. So, if we looked at a lender who would offer based on 100% of overtime, we could potentially boost you to a £210,000 loan amount.
This would be based on a single applicant with five dependants (four children and a parent on maternity leave). With a £115k deposit, this would, unfortunately, give you a maximum purchase price of around £335k.
However, you must also take into account that other purchase costs, such as legal and valuation fees, will also increase your overall outgoings for the process.
When it comes to securing your mortgage, speak to a broker who can help you to cost up the best deal for you; it may be that a slightly higher rate with free legals is your best option.
I understand this isn’t the response you hoped for, as your purchase price is much lower than the properties you’re looking for.
There are government schemes that may be of use for your situation, such as Shared Ownership or Deposit Unlock. Each scheme has its own affordability criteria, but this support may help you get the home you’re looking for.
Self-employed but no records – will I be rejected for a mortgage?
Question
I was made redundant as a graphic designer last year and have recently gone freelance. I’ve got email history of all my projects so far to confirm earnings, and payments into my bank account, but I have not yet filed a self-assessment form to HMRC so there’s nothing formal yet.
This may not seem to be a problem, but my wife and I have been saving for our first home for years!
And we have finally gathered enough cash for our deposit. We are paying far more in rent than we would on a mortgage so she’s keen to get moving. But I’m worried my lack of accounts will hold us back.
I have been working as a freelancer since August 2022 and thus far have earned nearly as much in six months as I used to in a year, so I am not worried about affordability. However, I am aware lenders need documents.
Answer
I’m sorry to hear about your redundancy, but it’s great that you’ve kept a record of all your work since and have the correct paperwork in place.
So, there are some lenders that may be able to accept the accounts you have so far within the one-year period. However, on the whole, most prefer to see that applicants have been self-employed for a full twelve months.
It may be that, as you are in the same line of work with a solid employment/project history, a lender may be willing to take a view on your case.
As this is likely to be a more complex application, I’d recommend seeking some support from an experienced broker. Best of luck!
Do childcare costs hamper mortgage applications?
Question
My children are one and two-and-a-half (yes, it’s quite a handful at the moment). We are about to remortgage as our five-year fixed rate deal is due to expire.
As you can probably tell, when we took out the mortgage we were child free and our entire salary was ours. Now, we have nearly £2,000 per month going into childcare fees – that’s double our mortgage repayments!
We have been managing our repayments as we are on a really low rate – 1.99%. But we are aware mortgage rates have increased a lot since we locked into this deal.
Do you think we can get a remortgage? For info, my wife and I earn a joint salary of £72,000. Our house was worth £355,000 five years ago but it’s looking to be c£480,000 today. We’ve got £210,000 left on the mortgage.
Answer
It’s great that you’re already considering your options, as £2,000 per month on childcare fees will impact your affordability.
What we are seeing at the moment is lenders tightening their affordability checks, so it’s definitely worth exploring different options with a whole-of-market broker to see how much of an impact this outgoing might have.
Another option is to look at the product transfer facility. This is where you remortgage with your current lender and simply pick a new product.
The process is quick and easy and may be the best route for you. For a more in-depth explanation of product transfers, see one of our recent articles linked here. Best of luck!
Meet our expert…
Neil Bishop, head of residential at Mortgages for Business
As part of the residential desk at Mortgages for Business, Neil can offer advice on an extensive range of scenarios – from those looking to purchase their first home, to those with complex income streams looking to move or remortgage.
Before joining Mortgages for Business in 2022, he managed a team of five brokers at a new build specialist, sourcing finance for home buyers. He’s also the proud owner of a Green Blue Peter Badge!
Email kate.saines@emap.com to ask Neil a question
