Lending criteria flexibility - max borrowing for single-income couple

[gnubbit]

Apologies if this duplicates other posts - I couldn't find what I was looking for when I searched.

The situation is this: a couple with only one earner (on 40K) would like to own their own home. The other non-earning half of the couple will be earning ~50K in 3 years time (presumably with increases in line with inflation). However they would like to buy now as they are worried about the huge increases in house prices. Ideally they would like to buy a home up to 381K in value. They have about 20K in shares which they could liquidate if necessary. They feel they can comfortably afford ~1200-1300 pm in repayments.

Are there any lenders that will lend more than 4-5 times a person's salary? Do they ever look at ability to repay, and if so how do they judge that? Is there any flexibility with what they can borrow? Would interest-only (in the short term) mortgages be an option? Would having a guarantor make any difference? Are there any brokers that might bend the rules?

Any info or pointers to relevant posts would be much appreciated.

 

[AKA]

You'll be able to more than 5 times your salary but not much more as a single earner, maybe 6 times or slightly more. But if you are providing for a second person on this salary I doubt it. You'd be lucky to get 4 times. It also depends on your age and the length of mortgage you apply for. If you are 25 you could take a 40 year mortgage which will keep repayments low, to fall within the 30 - 35 % of your salary.

Earning 40K (gross) you are clearing about €2500 per month. I don't see how you could pay €1300 per month or more than 50% of your salary towards a mortage. That's before you take into account any bills, maintenance, mortgage protection etc which would bring your bills up to 65% of you net income, giving very little for 2 people to live on.

Maybe interest-free or guarantor might be options. But the guarantor isn't going to pay the mortgage every month.

 

[gnubbit]

Thanks AKA. I should have mentioned they take home 2900 pm. The figure came from what they're paying in rent + what they're currently saving each month for a deposit (on top of maxed SSIA).

Any idea how much the extra bills assocatiated with owning a home are? E.g., insurance, mortgage protection etc.

 

[Glenbhoy]

Gnubbit - without wanting to influence your decision in anyway, you should also evaluate whether or not it really makes sense to buy a home in a location that you may not be content to stay in for several years. In many instances at present it is cheaper to rent than to buy, this is illustrated on many different threads in the 'great financial debate' section. A quick example here is:
You obtain a mortgage of 300K at 4% over 35yrs (That amount would appear quite high given your current circumstances, but we will use it for this example), in year 1 your repayments are 1327 per month or 16000 per annum of which interest is 11908 and capital is 4018, hence if you can rent for circa 1000 per month it is cheaper than to buy.
The main issues you have to consider are:
1. What/where can you buy with 300,000
2. What/where can you rent for 1000 per month
3. How stretched would you be with the repayments of 1300 per month
4. Additional costs such as insurance, maintenance, management fees, commute costs, furnishings, solicitors, stamp duty (if applicable)
5. Whether or not you think property prices will continue to increase (this is the key question)
6. The addtional utiliity/happiness that owning a home means to you, this again is intangible and is different for everyone.
Good luck whatever you decide.

 

[gnubbit]

Thanks Glenbhoy, that nicely sums it up. There's a lot of food for thought there and I think points 5 and 6 are the most important here. I heard Brian Cowen was warning FTBs the other day that house prices are not going to keep rising so I guess that must be true and there's no need to worry

 

[vladamir]

gnubbit,

earning around the same as yourself. bank gave me over six times (PTSB) and they were willing to go a bit more. only supporting me fein though.

If its just you and your other half, and if you're buying a house with a few bedrooms, you can claim that you intend to rent out the other rooms (you dont actually need to rent out the rooms, just say you will) - that will increase what they'll give you.

 

[CCOVICH]

This Key Post may be of some assistance.

 

[AKA]

Any idea how much the extra bills assocatiated with owning a home are? E.g., insurance, mortgage protection etc.

Insurance - €270 per year
Maintenance - €300 per year
NTL = €20 * 12 - €240 year
Rubbish = €280 per year - some tax relief available
Electricity & electricity = bills vary so far as estimates - around €75 per month = €900 per year
Mortgage Protection - depends on age / prop value etc. €130 per year
Phone €27 per month = €324 per year
Broadband €30 per month = €360 per year

Approx €235 a month excluding food. Broadband, Phone, NTL not essentials so could take off €77 leaving you with bills totalling €155. Apartment maintenance will be at least a €1000 usually more - friend moved into new development recently where maintenance on 2 bed is €1400, but this includes buildings insurance and rubbish, leaving you with contents insurance for about €100 per year.

Best of luck.