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You can find the current article at its original source at http://www.guardian.co.uk/money/2013/jul/03/guarantors-struggling-find-mortgage
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| Although I have guarantors I'm still struggling to find a mortgage | Although I have guarantors I'm still struggling to find a mortgage |
| (3 days later) | |
| Q I have just spilt from my partner who is the father of my children and I am looking to buy another property. I have found a house I want to buy and had my offer of £307,500 accepted, but the financing is causing me some difficulty. I will have a deposit of between £90,000 and £95,000 and know I could pay the mortgage if I could find a lender willing to lend me the rest of the money. | Q I have just spilt from my partner who is the father of my children and I am looking to buy another property. I have found a house I want to buy and had my offer of £307,500 accepted, but the financing is causing me some difficulty. I will have a deposit of between £90,000 and £95,000 and know I could pay the mortgage if I could find a lender willing to lend me the rest of the money. |
| I will be on a fairly low income as I am due to start teacher training on a salaried basis of £20,000 in September. I currently work part-time and earn £17,000. I am planning to rent out a room to finance the mortgage. | I will be on a fairly low income as I am due to start teacher training on a salaried basis of £20,000 in September. I currently work part-time and earn £17,000. I am planning to rent out a room to finance the mortgage. |
| My father and stepmother have said that they could act as a guarantors for the mortgage. My stepmother earns £48,000 and my father gets a rental income of £16,000 a year. Their own home is worth £750,000 and has no mortgage. My dad is 62 and my stepmother is 49. | My father and stepmother have said that they could act as a guarantors for the mortgage. My stepmother earns £48,000 and my father gets a rental income of £16,000 a year. Their own home is worth £750,000 and has no mortgage. My dad is 62 and my stepmother is 49. |
| Is there any way that I can find a lender to offer me the money with a guarantor mortgage offering competitive rates? TC | Is there any way that I can find a lender to offer me the money with a guarantor mortgage offering competitive rates? TC |
| A The short answer is yes, but to make a guarantor mortgage work for you, you will probably have to find somewhere else to buy. | A The short answer is yes, but to make a guarantor mortgage work for you, you will probably have to find somewhere else to buy. |
| Guarantor mortgages – where a parent or other close relative guarantees your mortgage repayments – are typically associated with first-time buyers. But some lenders, such as the Mortgage Works (a wholly-owned subsidiary of Nationwide building society), also make them available for people looking to move home or remortgage. The advantage of having a guarantor is lenders that consider them base what they will lend on the earnings of the guarantor, which are likely to be higher than the mortgage borrower's. For example, the most you might be able to borrow on your salary of £20,000 would be £80,000 whereas with your stepmother acting as guarantor, you could possibly borrow £180,000. With the Co-operative bank, where it is possible to borrow 4.25 times a guarantor's gross income, you could potentially borrow £191,250. | Guarantor mortgages – where a parent or other close relative guarantees your mortgage repayments – are typically associated with first-time buyers. But some lenders, such as the Mortgage Works (a wholly-owned subsidiary of Nationwide building society), also make them available for people looking to move home or remortgage. The advantage of having a guarantor is lenders that consider them base what they will lend on the earnings of the guarantor, which are likely to be higher than the mortgage borrower's. For example, the most you might be able to borrow on your salary of £20,000 would be £80,000 whereas with your stepmother acting as guarantor, you could possibly borrow £180,000. With the Co-operative bank, where it is possible to borrow 4.25 times a guarantor's gross income, you could potentially borrow £191,250. |
| But a guarantor's earnings aren't the whole story. In most cases, the guarantor must be a close family relative under the age of 65 and have sufficient income to cover both any borrowing of their own plus the mortgage they are guaranteeing. The maximum you can typically borrow is 85% of the lender's valuation of a property (which is not the same as the price you pay for it). The downside, from the guarantor's point of view, is that he or she becomes liable for the mortgage if the borrower defaults on it. In the case of a full liability guarantor mortgage, the guarantor is liable for the whole loan. However, with limited liability guarantor mortgages, a guarantor is liable for only part of the loan. This is the difference between what a borrower could have afforded with a mortgage on his or her own earnings and what is actually being borrowed with a guarantor in place, plus 10%. . | But a guarantor's earnings aren't the whole story. In most cases, the guarantor must be a close family relative under the age of 65 and have sufficient income to cover both any borrowing of their own plus the mortgage they are guaranteeing. The maximum you can typically borrow is 85% of the lender's valuation of a property (which is not the same as the price you pay for it). The downside, from the guarantor's point of view, is that he or she becomes liable for the mortgage if the borrower defaults on it. In the case of a full liability guarantor mortgage, the guarantor is liable for the whole loan. However, with limited liability guarantor mortgages, a guarantor is liable for only part of the loan. This is the difference between what a borrower could have afforded with a mortgage on his or her own earnings and what is actually being borrowed with a guarantor in place, plus 10%. . |
| In theory, guarantee mortgages could be considered to be a good thing because they enable borrowers to get bigger mortgages than they would otherwise be able to get. However, a borrower must still be able to afford the mortgage repayments. | In theory, guarantee mortgages could be considered to be a good thing because they enable borrowers to get bigger mortgages than they would otherwise be able to get. However, a borrower must still be able to afford the mortgage repayments. |
| In your case, it might have been a good idea to look into your finances before putting in your offer of £307,500. Assuming that you put down a cash deposit of £90,000 (to allow for other costs such as legal fees and stamp duty), that means that you would need a mortgage of £217,500 to be able to pay the purchase price. This size of repayment mortgage with a 25-year term and an interest rate of 4.25% would cost around £1,200 a month or £14,400 a year. This means that just over 70% of your before-tax salary would be going on mortgage repayments which doesn't leave much change for other bills even taking into account rent from a lodger and possible maintenance payments for your children from your ex. | In your case, it might have been a good idea to look into your finances before putting in your offer of £307,500. Assuming that you put down a cash deposit of £90,000 (to allow for other costs such as legal fees and stamp duty), that means that you would need a mortgage of £217,500 to be able to pay the purchase price. This size of repayment mortgage with a 25-year term and an interest rate of 4.25% would cost around £1,200 a month or £14,400 a year. This means that just over 70% of your before-tax salary would be going on mortgage repayments which doesn't leave much change for other bills even taking into account rent from a lodger and possible maintenance payments for your children from your ex. |
| However, lack of affordability isn't the main issue. Even with both your father and stepmother acting as guarantors, only one income – most likely to be your stepmother's — would be taken into account when assessing how much you can borrow so the main barrier to being able to buy the house you want is the fact that you won't be able to borrow the £217,500 that you need. | However, lack of affordability isn't the main issue. Even with both your father and stepmother acting as guarantors, only one income – most likely to be your stepmother's — would be taken into account when assessing how much you can borrow so the main barrier to being able to buy the house you want is the fact that you won't be able to borrow the £217,500 that you need. |
| Top mortgages | Top mortgages |
| Chelsea Building Society | Chelsea Building Society |
| Yorkshire BS | |
| HSBC | HSBC |
| Provided by London & Country for the Guardian | Provided by London & Country for the Guardian |