Anyone know a lender that considers salary growth potential & other factors

Hi

I'm now ready to get on the property ladder but I can only find lenders that offer a meager 4x Salary....which doesn't buy you anything

Does anyone know a lender who takes into account your likely, and quicker than usual salary growth? and savings you have to ease things during the early years.

I need a lender that will use judgement instead of just a computer

Thanks

 

Hmm, now that would be nice.

The normal person you would speak to in a branch wouldn't be qualified to make that kind of judgement. I had an appointment (not just a drop-in) last week where the "advisor" wasn't able to give any advice and just walked me through their internet site!

Abbey National do up to 5x salary and have some special offers for 1st time buyers at the moment.

If you do find someone who takes potential growth into account, you'd probably find that the interest rate gets hiked up to compensate the lender. While someone borrowing 4x current might get Bank of England +0.75%, you could get lumbered with BoE +2%.

 

Have you tried Direct Line? They work out how much they're prepared to lend you based on what you can afford to pay each month rather than salary multiples (which, as you say, doesn't get very much these days). Give them a call and see what they might be able to offer you....

 

Phil 4X salary is not meager it is historically generous.In fact it is bordering on the reckless. When my parents bought their first house in 1963 the building society insisted on a 25% down payment and would only lend 2X my father's salary. (My mother was better paid at the time.)

The reason 4X salary will not buy you much is that we are at the top of a bull market and the last 25 years has seen a credit expansion of enormous proportions. This will not continue

Given that 2/3 of actuarial students do not make great progress with their exams, is it really reasonable to ask the building society to take into account salary growth?

 

4.25x is the max i was ever offered, but let's be realistic, unless you are borrowing over >40 years, the monthly repayments are going to be pretty hard at that level of multiplier...

... and when the crash comes, you'll be the hardest hit.

 

Cardano
An income multiplier of 4 may be high in terms of income multipiers.

But 4 x gradute trainee income = very little capital, hardly enough to buy a studio in the most run down areas! And part ownership still involves part rent which is throwing money down the drain.

------
Gareth: Regarding a crash

I'm fearing interest rates will rise further without a corresponding drop in property prices. Therefore I want to enter a long term fixed interest deal. And already the smaller building societies are withdrawing their fixed interest deals because they know there'll be further rises.

I'm more bothered about having my own place than the investment aspects of it: I would rather the risk of having my own place at a long-term fixed interest rate and property prices then crashing.......than risking not buying a property and property prices rising further with or without increases in interest rates.

 

why is the UK mentality so focused on property ownership? Current mortgage costs are about 30% above rental costs, plus you have costs of buildings insurance and maintainence (and exposure to market volatility).

I just don't understand why a first time buyer would want to buy in the present climate.

 

I agree, and it’s not “pouring money down the drain”, at the end of the day the margins between rent and mortgage repayments can be massive for comparable properties in some areas. Anyway, for the first few years you’ll barley make a dent on the capital, with most of your repayments covering the interest. I’d avoid the market risks involved by renting even for 5 years or so until the UK market outlook becomes more certain. And if you do find someone who will lend at 5x salary, I hope you’ve done the maths, and enjoy baked beans and Tesco clothes.

 

King

Yes I have done the maths:
I've started off by looking at what I would be paying if I didn't have these savings so rented instead.......and I have previously managed 12 months paying this amount on a far lower salary without being tight or having to live off "baked beans" or "Tesco clothes"

That's only the start of the maths

Yes my calculations assume I make reasonable progress in the career

 

I don't think that's fair. A graduate on £20K borrowing 5x salary over 25 years at 5% would pay less than £600 a month. That's less than my rent at the time I started work and I didn't live off baked beans

Admittedly if interest rates had gone to say 10% I might have struggled, but I was quickly earning more.

 

I am in agreement with both Gareth and King. When you can rent a lot cheaper than a interest only mortgage, renting is an absolute nobrainer.

The danger here is not getting on the property ladder, but getting on and then seeing the entire banking system collapse.

At 43 I am probably the oldest poster on this forum and probably the only poster with childhood memories of the 3 day week and the collapse of the secondary banking system in 1974/5. The worst case scenario goes like this.

Prices begin to fall, those who bought at the top hand their keys back as its cheaper to rent. The building society repossess and sell at auction. Nobody wants to buy as prices are falling and auction prices collapse precipitously. The morons who have been buying starter homes and flats on BTL mortgages can not cover mortgage payments and repairs and voids and sociopathic tenants and dump their holdings as well. This causes prices to fall further. People stop remortgaging their houses to get their equity as they are now in negative equity. Spending slows, people lose their jobs, default on their mortgages and more houses are repossessed and sold at auction. More and more claims go into the insurer's who have only reserved for a 2 standard deviation event on their mortgage indemnity policies. They default, or their reinsurers default and the building society's capital falls below the required level. They grant no more mortgages and repossess those with positve equity but who have defaulted on one or two payments. More houses appear at auction the price falls further. People realise that the government only guarantee 30,000 of savings and begin to doubt whether they will even meet that and pull their savings from the building societies. This means less lending, further house price falls, more repossessions, building society failures etc etc.

Far fetched?

These sort of positive feedback liquidations were common in the past - ask your grandparents about the 1930's. They have been common in latin America for 2 centuries, they occurred during the economic crisis in the far east in 1990s.

We have never had a credit binge as big as this before. Credit expansions always end nastily and its going to be interesting to see how exactly this one plays out. The major problem with Britain is that financial services is one of its biggest industries and will be very badly hit if there is a credit crunch.

 

The one great plus of the "worst case scenario" is that all the property renovation programmes will be pulled from the tv schedules

 

In case Cardano's mention of an interest only mortgage has created any confusion. No, it's a repayment mortgage I want.

Thank you for your lesson about the worst case scenario, but I think there is far too much speculation in that for it to be worth worrying about something near that happening again

 

Phil - Never underestimate the extent of kurtosis in the financial markets. I would put a probability of my particular scenario at 5-10%. I doubt anyone else on here thinks it is more than 0.1%

 

Over any 25 year period you can be reasonably certain that you are going to see a complete spectrum of economic conditions. So whenever you buy, you are at some point going to be caught with interest rates well into double figures and also a time with house prices falling. The trick is not to buy at the top.

5 years ago everyone thought that we were at the top for house prices, but they've kept on rising. The drop may not come for another 5 years, in which case any renters will be kicking themselves. Alternatively, it could start tomorrow and any buyers will be kicking themselves.

We also have the worry that if Cardano's worst case scenario happens we could find ourselves without jobs. Talk about eggs and baskets.

 

The council of mortgage lenders repossession and arrears figures are out today

http://www.cml.org.uk/cml/media/press/1089

It takes 18 months roughly for a repossession order to work through so these figures are nothing to do with recent interest rate rises, merely a sign of staggering over indebtedness

 

Phil - Do you still think you'll get a mortgage of > 4 X your salary now?

 

Northern Rock won't consider your future earnings, but they usually make their decisions based on "affordability" rather than simply a direct multiple of your income.

The only problem from my point of view is they gave me such a large mortgage that if and when I get my first actuarial role I'll be struggling for a couple of years.

 

Northern Rock has problems

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/08/15/cnrock115.xml

 

I'd say don't overstretch yourself. You may hit a stumbling block with exams that means your exponential growth in earnings takes a severe hit. Just look at pass rates!! There is no insurance you can take out against that kind of thing, and I think that kind of promotional/exam related element is a high portion of the increases you hope to see.

You probably aren't risk averse. But suppose you were repossesessed. How easy is that to get of your credit rating?

Dependent on where you live, are there loads of alternative employers around or if you decide to move jobs, does that mean relocate too? That's far easier when you don't own!

Happy hunting!

 

There are a few lenders doing 4-4.25 X multipliers still, ask a broker for help if you are having problems.

I'd not overstretch though in the current climate - who's to say interest rates couldn't rise further and the property market crashes (especially if all the buy-to-let's try to get out and there's a fire sale).