Quick question - how much can we borrow for a new house?

(20 Posts)
GreenMarkerPen4myHen Wed 09-Sep-20 12:03:17

Hi, I'd be very grateful to anybody who knows about these things and can give me an answer. Obviously, I will need to contact a mortgage advisor at some point, but it'd be useful to have a ballpark figure.

*Main earner*: £50,000/year in very secure job, aged 48.
*Second earner*: Started working for themselves only last month. Based on similar work they've done in the past, their estimated profit for the first year is likely to be around £20,000. Not expected to increase massively for the next few years.Aged 47
Assets: Current house worth approx £300,000 (£70,000 left to pay). We also have an apartment which were rent out and is worth approx @110,000 (£50,000 left to pay). We don't make much monthly profit out of it but it's paying itself off.

No other debts, including credit cards, no major outgoings apart from food, bills and the usual stuff. Three kids aged 8 to 12 in state education.

Thanks in advance!

OP’s posts: |
bathorshower Wed 09-Sep-20 12:09:32

An accountant friend tells me the absolute max you can borrow (now enshrined in legislation) is 4.5 times combined salary. You may not find a bank willing to loan you that much, but you won't get more!

Bluntness100 Wed 09-Sep-20 12:13:47

The person who has just started work as self employeds earnings won’t count, because you need three years accounts on average.

So it’s the 48k person only.

Likely to not get more than 4 times at the very max, which is 192k. As already borrowed 120, you might be lucky to find someone to offer another seventy, but suspect less than that.

Bells3032 Wed 09-Sep-20 12:19:08

this is not enshrined in law. I don't know why this rumour keeps going round,

some will offer you 5.5 but often at bad rates. We were offered 5 times our salary with no difficulty although took about 4.6 times our salary in the end.

However, since your second earner is only recently self employed you may have a hard time getting higher amounts if anything at all. If you have no previous evidence of income then it'll be hard to get a mortgage on that.

So i reckon you'll get 5 times person 1's income max so 250k plus the 200k you have in equity in your previous property leaving the 30k for various fees and other costs.

GreenMarkerPen4myHen Wed 09-Sep-20 12:20:55

Thank you. Yes, I am aware it is not a great income considering.

In our circumstances, would we be allowed to rent out our existing house as well as our apartment, and then buy a house for ourselves? Thanks,

OP’s posts: |
Bells3032 Wed 09-Sep-20 12:24:56

If you do you will have to consider the extra stamp duty you will have to pay (an extra 3% on the purchase price).

You also have to consider you'll loose you 200k equity for the forward purchase. and a third mortgage may be hard to maintain

Bluntness100 Wed 09-Sep-20 12:25:55

Depends on your mortgage provider op. If the terms allow renting.

But you’d still only be able to borrow the max of the multiplier on the fifty k salary minus what you’ve already borrowed.

So unless you’ve a lot of savings, or go for shared ownership, or live in rural Wales, it would be unlikely you could borrow enough to buy.

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BrowncoatWaffles Wed 09-Sep-20 12:25:58

You definitely need to talk to a mortgage broker, preferably one who specialises in freelancers/contractors/self employed.

When we got our mortgage we were in a similar situation and because DH had only just started working for himself and had no previous years' accounts his income could not be taken into account at all.

PragmaticWench Wed 09-Sep-20 12:26:26

The bank may not allow you to have two rental properties as well, it depends. They may think it too risky in case you don't have tenants and need to cover all three mortgages.

BrowncoatWaffles Wed 09-Sep-20 12:30:40

Sorry, was posting while updates moved on - realise self employment is the least of the factors being considered!

WhenInDoubtSmileandPout Wed 09-Sep-20 12:59:56

That's all great advice, thanks. It sounds like I'd have to sell my house to afford a better one, realistically; or perhaps wait three years or so until my partner has sufficient proof of earnings.

FAQs Wed 09-Sep-20 13:04:02

I’ve been offered (last night) 5 times my salary on a 70 LTV mortgage.

I’ve opted for a smaller house at 3.5 times my salary, seemed a bit more sensible but I was surprised!

Shelley54 Wed 09-Sep-20 13:07:10

bathorshower

An accountant friend tells me the absolute max you can borrow (now enshrined in legislation) is 4.5 times combined salary. You may not find a bank willing to loan you that much, but you won't get more!


Your mate is an accountant not a mortgage broker. They're also making stuff up.

ComtesseDeSpair Wed 09-Sep-20 13:58:23

It’s not enshrined in law; but FCA regulations mean lenders can only make 15% of their mortgage offers at multiples above 4.5 times salary. They tend to reserve these offers for the most attractive customers where greatest security is available - those with large deposits / small LTVs or those in select professionals and industries where there’s a very clear and lucrative promotional path.

Meaning that for most mere mortals, it may as well be the law, to be fair.

HoochieCoochieMan Wed 09-Sep-20 14:02:47

Would also depend on the mortgage term and it's affordability after outgoings ie would you still want to be paying off a mortgage in retirement.

PastMyBestBeforeDate Wed 09-Sep-20 14:18:13

The term will be reduced to end on the oldest person's 70th birthday so it currently it would be 22 years rather than the standard 25 years. Might affect the amount if the increase in monthly repayment takes you over affordability criteria.

MiniMaxi Wed 09-Sep-20 14:24:13

I was recently advised by a mortgage broker that 4.75x joint income is the maximum we would likely to be able to borrow.

For keeping and letting your property, if you can switch it to a BTL mortgage, and monthly rental income is anticipated as 125% of that monthly expense, then it should be feasible. Interest only is sometimes possible for BTL which makes that more likely but obviously you’ll need to pay back the balance at the end of the term.

JoJoSM2 Wed 09-Sep-20 14:59:25

It’s not enshrined in law; but FCA regulations mean lenders can only make 15% of their mortgage offers at multiples above 4.5 times salary.

Would they even consider that with 3 dependants and the other adult’s income not counting due to only just starting in self employment?

Mamagotskills Wed 09-Sep-20 15:13:35

You’d have more change and a better LTV if you sell both properties to give you £290k Then could borrow further £250k ish

Otherwise you’re looking at £250k max less any other outstanding mortgages

Thneedville Wed 09-Sep-20 15:50:35

Risky but:
- remortgage existing house releasing £140,000 of equity leaving you with 70% LTV. Interest only mortgage, affordability based on rental income

- £30,000 goes to feed/ stamp duty, £110,000 to equity for purchase

- new house mortgage say 4 times the non self employed earner £192,000. So second house could be £300,000 price.

So maybe possible but might be tricky to get a bank to agree. High risk and your new house is no bigger (presumably) than your current.

Also why do you want to do this? Hard to get rental income to pay enough after costs to pay off capital. Capital appreciation in future is not certain, you would need to be able to wait 10 years plus. If it’s to make moving easier, selling then renting then buying is much cheaper than paying the stamp duty.

I’m doing this actually, but we are not maxing out in borrowings, in theory we can afford both mortgages if empty even if DH lost his job.

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