Do new builds tick more boxes for mortgage lenders than period properties? Is a first time buyer more likely to be granted a go at country living or city life? According to whole-of-market mortgage broker Dean Higham, from Ascot Mortgages, providing evidence of your ability to re-pay your loan is the only factor affecting first time buyers >>
Securing a mortgage is not about the style of a home, or even the cost, but the ability to pay for it, according to Dean Higham, business development manager, whole-of-market broker, Ascot Mortgages. This is especially true since the launch of the Mortgage Market Review in April 2014, which laid down more stringent rules for borrowers based on evidence of earnings.
However, in London, a city-centre pad could cost as much as £100,000 more than a suburban semi which would lead to more scrutiny of earnings by a lender. The equation is a simple one, the bigger the cost, the bigger the risk.
Many people are concerned that they’ll never get a home loan under the new and more stringent guidelines of the Mortgage Market Review, according to Higham. But that really isn’t the case.
“It’s true that up to 20% fewer mortgages have been agreed, which would have historically been passed, but lenders are now taking into consideration a possible interest hike in the future.
“No-one wants to buy a house which five years down the line, they are not going to be able to afford. So, it’s common sense to have a crystal clear view of a client’s finances. It’s something we’ve always done at Ascot Mortgages, because it’s in everybody’s interest to do so.
“Deposits are also a contributory factor”, says Higham, “and the more a borrower is prepared to offer, the more chance they have of securing a loan.
“Style of property is irrelevant. Everything is based on a client’s ability to pay the mortgage. That is why stress testing has been introduced. That means that even if a client can afford a mortgage now, if interest rates were to rise – because they’re at an all-time low at the moment – this could render them unable to pay in the future.”
Some government-aided housing schemes require just a 5% deposit, but Higham asserts that the less deposit you pay, the more of a risk you are deemed to be.
“In a volatile housing market, prices could rise and dip again and lenders want to be assured that, if a house were to be repossessed, they would get their money back.”
On new build apartments, lenders expect between 15-20% deposit, although other financial incentives can be offset against this figure.
Older homes are more dependent on condition and valuation and a lender may demand a higher deposit as security. Likewise, if a property needs extensive refurbishment, the lender will need concrete evidence that it will be worth at least what the buyer has paid for it after the work is complete.
Neither does the age of a borrower affect a mortgage decision, although most first time buyers these days are in their 30s. Anyone younger tends to have benefited from the ‘bank of mum and dad’, Higham explains.
So how much can a first time buyer lend? Well, if they have a great A+ credit rating and earn £25,000 or above, then up to five times their salary, although typically it is usually around three to five times a wage.
“Around 70 to 80% of first timer clients are successful with us, but we do an awful lot of prep work with them prior to application. In effect, we are doing the underwriting job traditionally undertaken by the banks. It speeds up the process and gives a client a good experience.”
So, first time buyers need have no fears about the style of house they wish to purchase, only the funds to cover it today and, more importantly, tomorrow.