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Our property investment expert is Jeni Browne, Sales Director at
Mortgages for Business
www.mortgagesforbusiness.co.uk/
Tel: 0345 345 6788
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Question
Can we afford to move to a bigger house?
My partner and I would like to move house but we are not sure whether we’ll be accepted for a mortgage. This is because, when we first moved to our current property we both worked – although I was in the early stages of pregnancy. However, now the only income is from my partner who works full time.
His salary has increased by around £7k since we took out our first mortgage but this is not enough to cover the shortfall in mine. Our house has gone up in value though during the last five years. We bought it for £220k and similar houses in our road are now going for £270k – so we will have gained some equity.
Our outgoings are quite basic as we don’t have childcare and we haven’t been on holiday for two years. We are very careful with money and the biggest expense, aside from our bills and mortgage, is the car.
The house we would like to move to would cost in the region of £350k. Can we afford it?
Answer
Every lender is different, and thus, each lender will offer a different loan amount. However, the rule of thumb is 5x income (net income minus committed expenditure and living costs) as a maximum, but not all lenders will lend to this income to loan ratio. Generally, I’d assume a 4x income multiple when working out what you can likely achieve.
So, that’s how lenders calculate affordability and maximum loan size. Yet, you still need to ask yourself, does the mortgage feel affordable to you?
Speak to your mortgage broker, who can run through the above and will be able to give you a monthly cost. Helping you decide whether buying a property at a higher value is viable to you.
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Question
Can we have a mortgage in two countries?
We will be moving to the USA next year for five years and will be keeping our home in the UK for our sons to live in while we are away. Our current mortgage is a fixed rate that ends in Dec 2025, i.e. before we would return to the UK.
While renting in the USA is an option the choice is limited and I would prefer to buy. Will having a mortgage in the UK and the USA work? Will lenders be willing to provide 100% mortgage to expats in the USA?
What are the pitfalls of all this? Thanks in advance for your advice and support.
Answer
I’m afraid I do not advise on mortgages outside of the UK, so my knowledge of US banks and their appetite to lend is likely less than yours!
I imagine that 100% finance is hard to come by in the USA, considering the causes of 2008’s credit crisis. Nevertheless, I can certainly help you with your UK mortgage.
My advice is to speak to your lender, discuss your plans for the future and ensure they do not have issues. Being honest and open about your goals can avoid any nasty surprises in the future.
I don’t expect your lender to have issues with your plans, especially since you will not be renting your property out, and it will still be occupied (necessary for insurance). Also, as long as you are not breaching your mortgage conditions, you should be fine.
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Question
Tell me more about shared equity….
What is a shared equity mortgage and is it the same as shared ownership? I am a first-time buyer and spotted this online but would be interested in finding out more please.
Answer
Shared equity, also known as the Help to Buy Scheme, is where the Government lends you money to form your deposit.
Repaying your mortgage will settle the lenders’ loan to you. However, the government will take a share (proportionate to the amount initially borrowed) of the property value growth.
Interest is not payable on this loan for the first five years, meaning you can pay the loan back at any time.
Shared ownership, also known as ‘part-buy, part rent’, is where you buy a percentage share in the property, and the seller will retain the remaining equity. Typically, this is a housing association or developer.
Due to you living in 100% of the property yet only owning a percentage of the home, you must pay rent on the equity you do not own.
It’s in your best interest to increase your share in the property until you own the home in its entirety. However, you are not bound to do so. You are only benefiting from the increase in property value on your share.
Both schemes are a brilliant way to enter the property market, and they have helped first-time buyers across the country for years. I feel that shared equity may suit someone who has a high income, but low deposit and shared ownership schemes are best suited for those in the opposite situation.
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Question
Buying into a family home – do the numbers stack up?
My partner’s grandad died last year and left his house to his four children. My partner and I, along with her mum (who is one of the four children who will benefit from the home) are thinking of buying the others out.
The house should be worth around £450,000 therefore my partner’s mum will have £100,000 equity from the home. This means my partner and I will need to find the remaining £350,000.
I have £150k in equity from my flat. This means we’ll need a mortgage for £200k but I am not sure my earnings will make the required 4.5x salary criteria from a lender.
My partner is on some benefits and earns a small salary. We are not sure if this will help count towards a mortgage or work against us.
We are also wondering whether the Inheritance Tax rules might have an impact on the sales.
Answer
Your partner’s salary will certainly count. The type of benefits your partner receives will determine whether lenders use the payments when calculating affordability (they tend to favour long-term benefits).
Concerning Inheritance Tax rules, seek advice from a tax adviser – the rules currently state, a £500,000 threshold is available when leaving your home to your children.
I would speak to a mortgage broker who can run through your borrowing capacity, giving you an idea of whether you will be accepted. Good luck!
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