Getting mortgage with low salary but large amount of equity?

[Redtartanshoes]

Just general musings... asking for a friend going through divorce

Low salary (minimum wage), decent tax credits and maintenance for 2 children. Mortgage around £180k, house value is £450-£500k

Would bank entertain this? Would be 9x income, although affordable on paper.

That's an interesting question! Bumping for you.

Even with a low LTV id say they have next to no chance. Not many mortgage companies take into account CM and TC now.

I suppose at any Moment either could be withdrawn so probably sensible

I’m not sure how it would be affordable on paper? A mortgage of £180000 would be at least £700-750. That must be at least 50% of their wage if they are on minimum wage and that’s without council tax, utilities etc

Maximum lendable multiples is 4.5x earnings pushing to 5% for lenders who stretch it.

It makes no difference having huge deposit as you wouldn’t be able to comfortably afford repayments should rates even slightly higher up or should you have any repairs to make to house or cars etc

Minimum wage (£17x2=£34k) x4.5 =£153k mortgage

I just reread your original post and realise it’s just one earner earner minimum wage so that would be £17k x 4.5 = £76.5k max mortgage borrowing

That’s assume the minimum wage job is full time hours (37.5 a week)

Banks don’t count CM as it’s not permanent as stops when children become adults

I’d say no way (was in a similar position myself.)

If I was her I would look in a cheaper area where she can buy outright. She has decent savings and over time could get equity and save more and potentially get a bigger / nicer / better located place.

Seems silly to get a mortgage with that much in savings- at least such a big one.

I thought that 3-4x her salary would be a ballpark figure that she could consider. So someone on £15k could borrow £45-£60k depending on outgoings.

Some lenders will take maintenance into account.

9x salary or 9x salary plus tax credits plus maintenance?

My lender did include tax credits and cms agreed maintenance (plus bank statements proving it had been paid for a number of years) but the mortgage was 4x full household income with a 50% deposit (80k mortgage, 80k equity/deposit).

In the current financial climate I think 9x either is very unlikely, having a £180k mortgage on a £500k house, with a salary of only £20k is an eye-watering figure. CMS is reliant on the ex paying, and therefore having a job, is that guaranteed?

Has she done any sums yet?

180k over 25 years at 2% is approx £763 per month. That leaves (from the 20k salary) £900 per month for EVERYTHING ELSE. Council tax on a 500k house won't be cheap, nor will heating/electric bills. Add on the other household bills - water, phones, insurances, food, car maintenance, tax, fuel, insurance, kids expenses possibly, and there will be nothing left. One month of zero maintenance, for example, will plunge her into a debt she will struggle to escape.

What are your friend's circumstances? Does she need such an expensive place? What are the total marital assets? Will she have residency of the dc? How are the marital assets to be divided? Is there the potential for her to ask for a bigger share of the assets to home the children?

We got a mortgage although most of my money is benefits. Although I do have OH to fall back on.Some banks will only take in 80% of your benefits. Theres some calculators that'll tell you what you could borrow jave a nosy about

No of course not, if it’s nine times total income. Generally it’s four to five percent max she can borrow as a multiplier.

No she won't get a mortgage for 9 X her annual salary.

9 x income? No way is that likely.

Not 'Unlikely'

It is an outright no chance.

I don't think there's ever been a time when you could borrow 9x income for a mortgage.

@NotDavidTennant

I don't think there's ever been a time when you could borrow 9x income for a mortgage.

There was, certainly in the days of self cert. I've definitely read about people getting 10x salary interest only mortgages.

If the friend is sure she can comfortably afford the mortgage on her wages and tax/UC alone (child maintenance is probably the least reliable if her ex decides to stop paying or loses his job), it might be worth talking to a broker to see if there are any options.

The suggestion of buying a house outright or with a much smaller mortgage is also a good one if available - eg a slightly smaller house in a slightly cheaper area, if she could find something for around £300-350k she could have no mortgage or one that she qualifies for.