Jemma Forte: So Paul, this one’s for you first.
My wife and I are in our 20s and we’re looking to buy our first home in the next six months or so. We both work full-time with salaried jobs and a combined income of a little over 50,000 per year. We also have really good credit reports as a result of previous borrowing that is now pretty much all paid off.
We currently rent privately and we will only have a 5% deposit by the end of our estimated six month period. With the new changes to [inaudible 00:01:19], etc., we’ve done an AIP just to see where we’re at and it’s come back saying they’d be prepared to lend us 251,000. I’m after some advice as the way I see it, we could use help to buy, to go for a slightly bigger house or buy a smaller one on a normal mortgage.
Paul Mahoney: Okay.
Jemma Forte: It’s tough these days, isn’t it, just to [inaudible 00:01:40] … It really is, isn’t it?
Paul Mahoney: Yeah, yeah, it’s a big problem.
Jemma Forte: You work very hard and then …
Paul Mahoney: As far as people being able to save-
Jemma Forte: Yeah.
Paul Mahoney: Okay, the 5% of nothing is nothing, so it’s hard for me to say what that actually is, but let’s say we assume it’s of the 251, but it may not be because the 251 might be based upon their income. So there’s two ways that lenders look at how much they’ll lend you.
It’s serviceability, which for a residential mortgage is how much you earn and loan to value which is the 5% they’re referring to. So if you say it’s 5% of 251, they’ve got £12,500 or thereabouts. The help to buy option, depending on where they’re buying might be their only option.
Jemma Forte: Okay.
Paul Mahoney: Your standard residential mortgage is 80, 85% so if we’re looking at 12,500, unless they’re buying somewhere that’s pretty cheap, comparative to the rest of the country, that may not be an option.
Obviously that’s the purpose of help to buy is to help people like this couple that are struggling to get that deposit to actually get into the market. And obviously that would get them to that 251 mark. But it does just depend on where they are in the country, I suppose, as to what their options are because that generally will determine the prices of properties.
As to what they should do if they did have the two options, it comes down to their personal situation, I suppose. They’re still borrowing the money with help to buy, so it still has to be repaid at some point.
Jemma Forte: What is the difference?
Paul Mahoney: Well, help to buy generally relies upon the idea that the property will be worth more at some point in the future, so it makes up for that extra value. But it may not be.
Jemma Forte: Right, okay. So is it quite hard to get that type of mortgage?
Paul Mahoney: It’s not quite hard to get it if you fit the criteria.
Jemma Forte: Or if the property fits the criteria.
Paul Mahoney: So it needs to be a new built, generally.
Jemma Forte: Right.
Paul Mahoney: So often new builds will be pretty more expensive than older properties because they’re new and for all the bells and whistles. But yeah, again, it’s fairly limited information to provide a full level of guidance as to what the pros and the consumers are there, but …
Jemma Forte: Yeah, full picture, sure.
Paul Mahoney: But definitely get advice on those two different types of mortgages and how that suits them and their plans.
But because they’re buying this place to live, it’s a very personal decision. So, generally, people aren’t willing to move too far away from where they’re comfortable just so they can buy.
Jemma Forte: They’ve completely got their lives in a certain place.
Paul Mahoney: That’s going to have a big impact on things as well. There’s the financial side of it and then there’s the personal side. Both need to be considered.
Jemma Forte: It’s just so frustrating for people once they’ve got mortgage sorted out, their monthly payments are so much less than the rent, which is that rather big hurdle to get over initially, isn’t there?
Paul Mahoney: Yeah.
Jemma Forte: Okay, thank you very much. I hope that’s helped.