The Client:
The client is a married couple that own their own residential home. They were looking to raise some money against the property, plus pay off the mortgage and two further advances currently outstanding. The money raised is to be used for multiple Buy to Let purchases.
The husband was the only source of income, and he had only just started a new job about 6 weeks before the Fact Find was completed. The wife stays at home and looks after the their three children. This is something that needs to be identified as a possible issue, since three dependents with one source of income can severely affect affordability potential with most lenders.
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The Scenario:
The clients wanted an “Interest only Residential Mortgage”. The difficulty with this is you need a certain amount of equity in the property for a full Interest Only Residential Mortgage to be considered, as most lenders need to be able to use the sale of security property as an acceptable repayment strategy. The other difficulties with Interest Only Residential Mortgages is the maximum Loan to Values, plus minimum income requirements, with most lenders needing at least £75,000 for one applicant, or £100,000 joint for two.
The Solution:
A “Part & Part Mortgage” (i.e part “Interest only” and part “Capital Repayment”) fits perfectly in this scenario. There is only one main Lender that can offer this product. The income of £66,000 is acceptable. The three children do not affect affordability. The lender will allow up to 60% on interest only, plus a further 15% on repayment – i.e. 75% Loan to Value (LTV). The lender is also fine with the client having just started a new job, whilst also being in probation. They also have a different way of working out equity required for our desired repayment vehicle.
They have a tool that gives us a figure on the average property value in the area and that amount is the equity that needs to be left at the end of the mortgage term, for downsizing and sale of property to be acceptable. With the full 75% of interest only plus repayment, it does not fit this criteria, but once the repayment aspect is paid off at the end of the term, it has the equity required, this is important to remember.
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Key Points to consider:
- Interest only “part and part” is certainly achievable on less than £75,000 income.
- You can be in probation and have started a new job recently.
- The equity finder is generally more relaxed than a fixed amount that other lenders demand.
- Child Dependents don’t necessarily ruin affordability.
To find out more and speak to one of our highly experienced and CeMAP qualified Mortgage Advisors, call us now on 03303 112 646. You can also fill in this short online form to get started. Our team of Residential & Buy to Let Mortgage Advisors will get back to you straight away.