02 April 2010

Guarantor Mortgages, great for First Time Buyers

First time buyers are still struggling to get on to the property ladder. So, this week, I thought I would evaluate an option available to first time buyers in the form of guarantor mortgages.

Some lenders will allow a family member to act as a guarantor. Usually, the guarantor will need to prove they can afford their own residential mortgage and also the proposed mortgage they wish to guarantee. For example, if their mortgage was £100k and the proposed mortgage was £100k, the lender would look to ensure the guarantor could afford the total £200k loan. So, based on standard income multiples of, say, 4 x income, the guarantor would need to prove income of £50k. There are many ways of calculating affordability and every mortgage case is different. Lenders income multiples vary. Some assume the guarantor has no other loans. Some lenders offer a limited liability guarantee, so guaranteeing a smaller proportion of the loan. Although a guarantor mortgage is traditionally associated with first time buyers, there are products in the market that cater for those looking to move home or re-mortgage. You will probably need a minimum deposit of 15%.

The Post Office has confirmed that they will shortly be lending 90% mortgages aimed at first time buyers. At the moment it has not given any more details about the product, but says it wants to target those on low incomes. Let’s evaluate. I’ll make assumptions that they mean £20k (and below) and four times income, so £80k. Add in a 10% deposit (plus solicitors and valuation fees) and you are looking at a purchase price in the region of just £90k! This move was announced by a Government spokesman so the cynic in me asks if the headline was designed to win votes? Rates are likely to be quite high and, interestingly, the funding line is from Bank of Ireland.

Nationwide have confirmed that house prices rose by 0.7% in March, compared to a 0.8% drop in February. Prices sit 9% higher than a year ago, say the lender.

Finally, the WSCT Business Awards 2010 voting deadline is drawing close (9/4/10). If you have not voted yet, please take 2 minutes to do so. Local companies have had a rough ride over the last few months and need your support and your votes!
Have a great Easter!

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