Looks like mortgage won't go through...Plan B?

[Greenfairydust]

I made an offer on a house 2 weeks ago, I had a mortgage in principle for up to £85K with no issues and I have a £200K deposit in the bank from the sale of my previous home (a 1 bed flat).

I am in my early 50s and work part-time & also receive a small PIP award for a long-term disability. House is 275K. My salary is £25K.

Now the broker who did my mortgage in principle and is seeking a £75K mortgage says that the bank might not give me the full amount because my pip award is renewed every 3 year.

I am extremely pissed off by this as I based all my calculations on the mortgage in principle and expected that my salary itself would be enough to borrow that amount (3 times my salary) rather than having to faff about with PIP awards. The broker never mentioned that this could be an issue.

I am having second thoughts about the whole thing now as a result and wonder if I should just withdrew from this purchase and look for cheaper home to buy (easier said than done as I am on the South East coast) or just accept that I might need to move into a 2 bed flat rather than a house.

I am concerned that if the brokers starts looking for a new deal somewhere else I will end up with hard searches on my credit score and still no mortgage...and I don't want to start paying solicitors fees for something doomed to fail.

What would you do in my situation? Am I overstretching myself anyway?

I really wanted a small house after having so many issues with noise in my previous flat...

PIP awards should be ring fenced as they are for the extra costs you incur as a disabled person for your disability needs. They shouldn't be considered when borrowing or if you get into debt.

How long is the mortgage for? If its extending beyond retirement age it might be that that is causing concern. Your mortgage advisor should be offering solutions and recommendations not just problems

I can't see the issue, as your loan to value is low, and you're only wanting 3 x income, I presume the repayments are affordable - I'm guessing about £550 and that you could afford half as much again if the interest rates rose - and assume only wanting 15 years to retirement? And that if 2 or 3 bed, you could always get a lodger if needed to top the available income?

I know it’s a pain if you have your heart set on a particular house, but could you get something adequate without a mortgage? Have you considered extending your search area?

People are correct that PIP should stay in places at roughly the same level but there is really no guarantee of this, if the next government changes the bandings or the assessment criteria. If this happened one thing would be to think about whether you could afford the mortgage easily or whether the rest of your life would suffer. It sounds like you’ve been unlucky in past flats but some are absolutely fine- small purpose built blocks should be no more noisy than a terraced cottage, especially if you go for the upper floors. Or, dare I say it, might you qualify for some retirement places (some around me are v. swanky and tend to cost less).

The only other ideas if you definitely do want the mortgage might be to get your broker to try a different lender- if you try more than one then you know it’s not just that bank- or, mad as it may sound, get a part time job to increase your provable income in the short term?

Thanks everyone for the answers so far:

• I had no intention to include PIP in the mortgage calculations, I just mentioned it to the broker because it is an additional source of income that I use on things like transport (so it reduces my monthly outgoings from that point of view at the moment). I am very aware the award might not be granted again in 3 years

• the mortgage repayments that I was quoted in the mortgage in principle would actually be less than my rent at the moment (my rent is £750) and I was paying about £690 in mortgage for 12 years before so I thought everything would be affordable simply based on my salary. I absolutely don't get why the bank would have an issue granting a mortgage of 3x income with such a big deposit...I thought that was pretty standard.

I told the broker I wanted to have a chat with him this afternoon.

He think we can just extend the mortgage terms if needed but all of this is starting to make me nervous. I only wanted a 12 year mortgage to take me to 65. I also don't see how that is any better for the bank as I am unlikely to get more than a basic pension.

I don't really want to house hunt in another town as it would then make my job/commuting more difficult and this is a nice, safe town for someone who lives on her own and to retire in.

I am still too young to qualify for retirement housing :)

I should have said I also have a good credit rating with no debts whatsoever...

If you have enough income without "counting" the PIP for the amount you want to borrow, in terms of the bank's income multipliers and affordability tests, I can't see why it should have any impact in practice.

I wonder if your broker has mentioned it because it's on a tick list of things they have to warn you about, ie going through the motions rather than actually thinking it through.

We had something a bit similar with our mortgage application a while ago. It was for a v modest loan on our home, with a small LTV. I also have a rental property (I lived there many years ago before meeting DH, never sold it) with a tiny mortgage still on it. On the income multiplier calculators, we would be good for a loan of more than twice both mortgages put together, even if no rent coming in, so logically there was no reason for the rental income to be an issue as we weren't reliant on it to fund repayments. And it wasn't an issue. But the broker still gave a standard warning about it, that had me panicking unnecessarily for a day or two.

Hopefully that's all it is in your case too. Fingers crossed it goes through smoothly for you.

Just extend the term and overpay then? There's usually only a 10% of remaining mortgage balance limit and it gives you easier access to credit for longer anyway.

Yeah I think if your income would cover the mortgage anyway I might leave the PIP off completely as it might just act as a prompt for further questioning etc (obviously if you’re advised you have to disclose it that’s different but I can’t see why that would be the case).

I would also agree that in your case if you really want the place extending the term and then overpaying by however much you can per year (is it still normally 10%) would probably be fine, although again your broker should be able to do the figures.

A few years ago I struggled to get a new mortgage even with 50% equity and income from an ill health pension (which is safer income than a wage where you could be made redundant etc) but because I got benefits due to my ill Health the broker couldn't get me a mortgage (a broker I used with no problems while working). I went direct to barclays bank and got a mortgage. Try direct with the companies.

Thanks everyone.

I thought a broker would be easier (they arranged my previous mortgage when I had a flat)...it seems to have so far added more complications than I expected. Yes it could be the case that the broker is anticipating potential issues rather than them being a reality.

I am really in two minds about this because I really don't want to overstretch myself either so I am starting to have real doubt about the house.

I had calculated that the mortgage would not be more than what I used to pay in my previous mortgage and what I currently pay in rent and as mentioned I have a really good credit rating so I am a bit mystified that the bank would not lend me that amount on affordability grounds potentially.

I am really not keen on pushing the mortgage beyond 65 I must say. I am 52 now so that's why I wanted a 12 year mortgage max, something that would not go beyond that age, because anything could happen health-wise. I could always sale the house if needed, but still.

I had my eye on another house which is cheaper but requires more work, which I suppose I could do over time.

I think I will speak to the broker this afternoon and see what the feedback is then make a decision.

I would take it out for a term of 12-15 years fixed for 2-5 years; overpay if you can; and then when the fixed deal is up for renewal look at a shorter term (again fix and overpay). And repeat.
We have done this since 2004 when we borrowed more to extend our house. We extended the term back up to 25 years (which would have meant that we should repay by 2029). Each time the deal is up for renewal we renegotiate the term. We paid our mortgage in full 2 months ago. 6 years early.

Sorry to hear your troubles @Greenfairydust

I can't offer much help but am/was in a fairly similar situation though some differences. I am FTB and 29 years working life left. My deposit was £175k, house £280k and I earn £25k. I thought I could borrow about £108k and do a 25 year mortgage - repayments were going to be about £550 and I've been paying rent of £850 for years, have no debt / perfect credit etc, and that ratio is only just over 4 times income. When it came to applying, the best I could get was £100k over a 30 year mortgage. I'm making it work using the money I had set for redecorating on the extra deposit needed, but was really surprised how hard it was to get any mortgage offer at the level I wanted.

None would lend on a lower than 30 year term so I wonder if the issue isn't the level of mortgage but the years you have left to repay it?

I think things have tightened up in recent months - from 18 months ago I had AIP for £112k and loads of mortgage advice saying I could get it (every EA made me speak to them...) - so when it came to applying back in Feb it came as a real shock. My only real thing I wanted to say is it might be that everything's tightened up at the moment but will relax again in 6 months - a year. Liz Truss did a great deal of harm and the banks are still getting back to their normal balance.

Is it that your expenses look high against income if excluding PIP so it’s the affordability (which would include stress testing to a higher interest rate) that they’re challenging?

Would you consider buying a flat outright without any mortgage?

@BelindaBears My expenses are tiny I would say compared to many people: no car, no loan, no childcare fees. Just utility bills, food & council tax.

I just find it bizarre that I got a mortgage in principle a month ago for up to £85 and made my situation very clear and then suddenly when it comes to applying for the mortgage borrowing £75K could be an issue.

I was not expecting that at all.

@ComeOnYouSummer

Yes I would but there is very little on the market in term of 2 bed. This is a small town and most of what is on the market is houses/cottages.

The flats I can see on the market have short or short-ish leases and/or tenants so that might be an issue.

Another consideration with regard to a flat is how to pay ground rent, service charges and management fees on a basic pension. You can't, AFAIK, get extra help like Pension Credit to help with those.

I know this is not the main topic of my thread but this is the other house I saw which is 25K cheaper but needs work.

www.rightmove.co.uk/properties/131831078#/?channel=RES_BUY

Or I could buy something like that outright:

www.rightmove.co.uk/properties/131510117#/?channel=RES_BUY
but it has a 90 year lease.

The house looks like it mainly just needs non urgent updating.
The lease on the flat is quite short.

Please take advice from a professional if you are seriously considering a purchase of a leasehold property with less than 100 years remaining and look at what costs you would incur if you tried to extend the lease. Take advice on how a (future) short lease would affect any future resale potential.

It’s difficult OP. From your responses and reading between the lines I get the impression that you might be happier without the mortgage. I think your idea of discussing it with your broker and seeing how you feel sounds good. Also have you looked at the other places which you could afford- how do you feel about them? It can be quite stressful to find reputable tradespeople at the moment and can be expensive to do work but if you’re not paying the mortgage then of course you should be able to do things gradually as you’ll be saving money. Is the other place at least liveable? Would it be as nice or nicer once done up?

@Anon19902

Indeed I had a leasehold flat before and I am really not keen on having to deal again with the hassle of service charge/ground rent and lease extension... which is why I really wanted to get a house.

@ComeOnYouSummer
Thank you for your feedback. Yes it is nice house too just one that has not been updated by the elderly owner for quite a while. I am chasing the agent to check what is happening with it.

I looked on Rightmove and there are some beautiful flats that are under 200k in
Deal, admittedly I don’t know the area very well.

@Heronwatcher

I tend to be risk-adverse financially which is why I have never had any loans or debts! so yes for me taking a mortgage well into my late 60s is a scary prospect.

The other house is liveable.