Simon Webster is managing director of Facts and Figures Financial Planners
“The client has several options available to them. They could decide to go it alone – where normally the maximum advance would be around 4-4.5 times income, or sign up to a government Key Workers’ scheme.
Alternatively shared equity – not available to everyone – but under which the government would make a grant of say £30,000, is an option. The client would pay a mortgage on their part of the property only and no rent. The government would take an equity stake in the property as a percentage of their grant value against the overall value of the property. When the property is eventually sold the government would take back its percentage stake.
Shared ownership is another option under which client would buy a percentage of the value of the property and the government would buy the balance, say 25 per cent. The borrower would pay the rent on that 25 per cent and the mortgage on the 75 per cent client they own. The first option is the more attractive as client doesn’t pay rent and this gives a cash flow advantage.
Obtaining a guarantor is a final option, but only if the client can get a parent or other rich relative to stand. The mortgage lender might offer client a larger loan if it thought that someone else would be involved to help bale the client out if things got too tight.”
Mark Leaper is managing director of Vesta Packaging
“The client is an all-too-common one. She has a good regular job and significant savings, but is not up to the restrictive income multiples that are demanded still by many lenders. Unfortunately, the standard tends to be 3.5 or 4 times single income. These are relics from the past. Around four times income might have worked in 1980, but there is no way it works today. There has been little real effort by many lenders to offer buyers ways of getting on the first rung of the property ladder.
Selina is in a ‘Catch 22’ position because she can save like fury, but still not keep pace with house price rises still of the order of 3-5 per cent per year. If her £190,000 flat grows in value by 3 per cent this year, she will need to save £5,700 just to tread water and be in the same buying situation this time next year. She should therefore put her preferences for a high-street lender to one side and allow the broker to find a product that allows her to buy now. This may be from a lender she doesn’t recognise from TV advertisements.
There are products out there that will fit her circumstances. We have an affordability-based offering from a lender that can achieve 7.5 times single income, with flexible terms. Providing she doesn’t have overly high outgoings and large amounts of credit card or hire purchase debt, we can provide an advance of up to £160,000 (at 85 per cent LTV).
We have an easy affordability calculator on our website that will give you and your client an instant idea of how much she can borrow. Depending on her precise circumstances, this should demonstrate to her that she can obtain a mortgage. There is no reason to delay her purchase until such time that she can meet the income multiples of the lenders she would prefer to deal with. That time may never come.”
Laura Caseley is an IFA at the Falcon Group
“It is very unfortunate that Selina is unwilling to venture off the high-street, as she would find that these lenders might be more flexible. Many lenders now look at affordability rather than income multiples and so she may find her application much more successful away from the high-street. However, if the client insists that this is the approach she wishes to take, then she has two main options.
She could look at adding a guarantor to her mortgage. Most high-street lenders are familiar with this method and it is particularly popular for first-time buyers to purchase property using a guarantor. The lender will usually insist this is a member of the applicant’s immediate family and so it can sometimes be difficult to find someone suitable to guarantee the loan. Additionally, not everyone is happy to pass this liability to a family member.
The other option is buying a property under a shared equity scheme. This is becoming increasingly popular in areas with expensive housing such as London. These schemes work by purchasing part of a property from a local housing association and rent the remaining part of the property. After a qualifying period of time, Selina would have the option to purchase extra parts of the property at the current market rate if it is affordable. When Selina then comes to sell, she would gain that proportion of gain or loss. Although these are not particularly common yet, there is a handful of high-street lenders that do accept this type of business.”
