He was contacted by a lovely young couple who were looking to purchase their first home together. They’d found a property for £166,000 but had only managed to save £10,000 to cover the deposit and all expenses. Not great but, at least they weren’t looking at semi-detached houses worth £350,000, which seem to be the expectation of many a first-time buyer with eyes bigger than their pockets.
Mr. earns £19,500 per annum; Mrs. earns £15,000 plus £1,200 per annum bonus so, again, not great to work with - but better than nothing.
They do have credit cards but these are cleared in full each month and what’s more, they have no loans.
They are now purchasing at £166,000, with just £8,300 deposit. Based on a 35-year mortgage term and loan of £157,700 (95%), they are now on the housing ladder and paying just £750 per month on a five-year fixed rate mortgage.
That’s less than they were paying in rent!
Now, I’m not saying that this is the norm - far from it, and here’s why:
The couple have an excellent credit rating.
They have realistic expectations.
They have controlled their income expenditure.
They have proved they can manage debt, demonstrated by the way they use their credit card.
If you think about it rationally and imagine it’s your own hard-earned savings you’re lending out...
Would you be inclined to lend your own money to someone squeaky clean with a great credit record? Would you take the same approach with someone who misses payments or pays late, regularly overspends and uses payday loans to fund their lifestyle?
A bank or building society is no different. They are not registered charities but businesses established to make money. Like you, they would prefer to lend to Applicant One rather than Applicant Two. If they do consent to lend to Applicant Two, it won’t be as much and the rate of interest charged will be higher to reflect the risk.
So, if you’re a first-time buyer, here are a few pointers to help you get on the housing ladder:
Make sure you’re on the electoral register for your home address
- Make sure your driving licence shows the correct address (legal requirement)
- If you have a credit card, make sure you exceed the minimum payment each month
- Make sure your income is greater than your expenditure
- Don’t live on your overdraft
- Don’t use Pay-Day loans
- Look at the action on your bank statement. Would you lend money to yourself?
To find out what you can borrow, give Ian a call on 01375 311012