Borrowers with a secure job, buying an ordinary home with a decent deposit are spoilt for choice when it comes to lenders – but not everyone is in that position. Kay Hill looks at the wider mortgage market.
If you are in permanent employment, want to borrow four times income, have a good credit rating and over a 10% deposit, then lenders will be falling over themselves to offer you a mortgage. If that’s not your position, then read on, because there may still be a lender out there willing to help.
Non-standard employment
The world of work has changed, with more people self-employed (around 12% of the UK workforce), working fixed term contracts or part of the gig economy – thankfully, the world of mortgages is catching up. If you have three years of business accounts, preferably certified by an accountant, you should have no problems with a mainstream lender.
If that’s not the case, then look for a lender that uses manual underwriting to look at more complex cases, such as The Stafford Building Society, which will consider contractors, zero-hours workers and small business owners. Alternatively, try a mortgage broker that specialises in this area, such as CMME Contractor Mortgages. There’s a fee of £995, but it has a good reputation and works with over 90 lenders that accept freelancers, sole traders, contractors and small business owners.
No or low deposit
First time buyers who are renting pay large amounts each month, but struggle to save for a deposit. Luckily, more and more lenders are offering 95% mortgages as part of their standard offering, and some will go further. If you have family members who could set aside savings for a few years to offset the loan, then look at Lloyds’ Lend a Hand (three-year fix, not available for new build, Shared Ownership or Right to Buy, 4.44%), Barclays Family Springboard (five-year fix, not available for new builds, zero fee, 5.29%) or similar products. If you have a guarantor, Bath Building Society 100% Rent A Room mortgage allows you to add the income of having a lodger to the calculations, up to six times income. Two-year discounted variable 5.09%; two-year fix 5.2%; five year fix 5.3% all with £999 fee.
If you are doing it alone, don’t despair. Skipton Track Record mortgage lends 100% LTV, up to five times income, with monthly repayments of up to 120% of the amount that renters have reliably paid for over a year. Includes new build properties and shared ownership. Five-year fix, zero fees, 5.18%. April Mortgages’ No Deposit mortgage offers 10-year and 15-year fixes at 6.18/6.39% respectively (but won’t lend on flats or new builds).
High multiples
Most lenders offer 4-4.5 times income, but there are exceptions. HSBC will offer 6.5 times salary to those earning over £100,000 a year. Nationwide will go to six times salary for employed income over £35,000 for five-year and 10-year fixes of up to 95% LTV; Leeds will offer 5.5 times income for first time buyers with salaries over £30,000, while Lloyds, Halifax, Santander, Yorkshire and NatWest also offer high multiples.
Poor credit
A bad credit history, including bankruptcy (over a year ago) or CCJs, is not insurmountable, but expect to pay a higher interest rate and require a larger deposit. Applying and being refused runs the risk of making your credit score look even worse, so you will need a broker. Specialist “poor credit” brokers often charge large fees, so start first with a regular, free whole-of-market broker.
Unusual homes
Mainstream mortgage lenders like traditionally built homes – but what if you have your heart set on a thatched cottage or a rammed earth eco-home? Ecology Building Society is one of the few that will consider non-standard construction, as well as self-build, offsite modular construction and renovation mortgages. Its Eco Home Mortgage is 4.19% variable for up to 80% LTV, £499 fee. You may also find it harder to get a mortgage for high-rise apartments, homes above shops or near takeaways, former council houses or homes on a flood risk area. If you’re sure this is your dream home (remember, if you are struggling to get finance so will prospective buyers when you come to sell), then seek out a broker to help you find the right lender.
Off-plan homes
Many first time buyers look at new developments that are still being built, but with many lenders your mortgage offer may only be valid for a couple of months. If your home is still on the drawing board, look for lenders with a longer time frame. Coventry BS offers an initial nine months, with the option to extend to a year, while Principality, Nationwide, Leeds and Nottingham building societies and Barclays bank also offer long validity.
Friendship groups
Some lenders are wary of offering mortgages to friends, others are more obliging. Skipton for Intermediaries will accept up to four applicants and take all the incomes into account, as will Bath, Darlington and Dudley building societies. You will definitely need to use a broker and make sure you have appropriate legal agreements in place.
Benefits
Lenders vary in their attitude to state benefits, but a few accept them as income. Yorkshire Building Society, for example, includes Universal Credit in its affordability tests and will also accept Child Tax Credit and disability benefits. Nationwide for Intermediaries also takes into account a wide variety of benefits. If your main source of income comes from state benefits, a broker would help you to find the most suitable product.
Sharia-compliant
For Muslims whose faith prevents them using interest-bearing products, Home Purchase Plans are a joint ownership agreement with a bank, where the customer gradually buys the bank’s share. These are often publicised with an equivalent interest rate to aid comparison. For example, EG Gatehouse Bank offers HPPs for employed, contractors and temporary workers, including international residents, and will cover new build houses and flats (up to 90% LTV) and other homes up to 95% LTV. Discounts are available for EPC A and B properties. Green two-year fix at interest equivalent 6.49% with £999 fee. Also available to non-Muslims.
Foreign Nationals
People often live and work in the UK without become British citizens, excluding them from mainstream mortgages. However, if you have indefinite leave to remain or a Visa with over two years to run, plus a job and a UK bank account, some lenders will help. For example, Hanley Economic BS offers a two-year fixed rate up to 80% LTV, £1,199 fee, 4.99%. It will loan to foreign nationals on a Skilled Worker or Healthcare Worker visa immediately on arrival. Accord Mortgages will loan up to 90% LTV to foreign nationals with a visa provided one person has a minimum income of £50,000.
All mortgages deals are subject to change
First Time Buyer is an exciting bi-monthly glossy which takes a stylish and comprehensive look at all the options available, setting them out in an entertaining and informative way, and helping potential customers navigate their way through what is often a daunting and complex process. We dispel the myths, reinforce the facts and arm the reader with the tools necessary to make their homeownership dreams a reality.
