Wealth Check: £15k in the bank but no credit rating
Saturday 04 March 2006
Ajay Barak, 27, moved to Nottingham from Delhi in March 2005. His work permit is valid until November 2010, with permanent residency due to be granted in March 2009. He works as an executive development chef at a chain of French restaurants in the Midlands.
Fed up with throwing his money away on rent, Ajay would like to invest his savings in a property. He has £15,000 put by and no debts. But, with no proven credit history, he is having problems finding a lender.
We asked Nick Gardner of Chase De Vere Mortgage Management, Darren Littler of Savills Private Finance and Ray Boulger of John Charcol for advice.
Ajay Barak, 27, executive chef
Personal: Ajay, a chef, moved to the UK from India last year. He earns £34,000, plus a bonus of £6,000.
Savings: £15,000 so far, He contributes £1,600 a month to his savings account. Ajay has three accounts with NatWest - a current account, a savings account and a non-taxable savings account.
Mortgage: Ajay wants to buy a property but, with almost no UK credit history, is finding it hard to get a loan.
THE EXPERTS' VERDICT
Gardner recognises that Ajay's residency issues would deter most lenders from offering him a mortgage. Most lenders insist that borrowers have lived in the country for at least two years. Although Ajay has a work permit until 2010 and should get residency in 2009, he will need to prove that his permanent residency is guaranteed.
However, there are a few lenders who would be happy to lend to Ajay, Littler says. Both Halifax and its online subsidiary Intelligent Finance (IF) would consider Ajay's position, provided he has a minimum of two and a half years left on his visa.
Although both lenders are part of the HBOS group, they offer different products and assess applications in different ways. The case would need to be assessed on the basis of Ajay's credit score and would then be looked at by an underwriter.
Ajay's credit rating may well suffer from the fact that his previous job, as a head chef, came with live-in accommodation. As a result, he has less evidence to show that he can cope with mortgage or rental payments.
Neither lender publishes the maximum income multiple that they will consider, but typically it is possible to borrow four times your income from Halifax and up to five times from IF. Ajay's bonus may be taken into account, but he would have to provide details of his contract and evidence of when his bonus is paid.
Both banks offer an array of competitive fixed and tracker rates. Halifax has a two-year tracker costing 0.04 per cent over the Bank of England's base rate - it would currently cost 4.54 per cent. There is also a good-value two-year fixed rate costing 4.59 per cent.
IF will potentially lend more but is likely to insist that Ajay borrows no more than 90 per cent of the purchase price of a property, so he will require a sizeable deposit. Rates are slightly higher than at Halifax, but IF has flexible underwriting and experience of applicants who haven't lived in the UK for long.
Accord Mortgages will also consider people who have been in the UK for only a short time, Gardner adds, but only if the applicant is one of an approved list of professionals, such as a doctor or a dentist. Otherwise, they must have been in the country for two years.
Bank of Scotland would not be so worried about the length of time Ajay has lived here, or even his lack of credit history, but would need to see something that guaranteed his permanent residency in the UK. If he were able to show that he will definitely be granted citizenship in 2009, it would be able to lend him the money if he passed the usual affordability checks.
Cheltenham & Gloucester would also consider Ajay for a loan. His residency issues probably wouldn't cause any trouble, but his case would need to be considered on an individual basis by the bank's underwriters, who would take a view on his circumstances.
It would be helpful for Ajay to use an independent mortgage broker to investigate these avenues for him and negotiate on his behalf. Brokers can often persuade lenders to take a slightly more common-sense view and look beyond their usual lending criteria.
Boulger says Ajay needs to work out how to present his case in the best possible way. There are problems with his situation, but, on the plus side, Ajay is clearly in a good job, earning a good salary for his age. The fact that his work permit is valid until 2010 is helpful, as he already has guaranteed residency for at least three and a half years.
If Ajay is a graduate, that opens up a few other options, Boulger adds. Some lenders - Scottish Widows, for example - take a more favourable view of graduates, even if they come from another country. Ajay has savings, and is continuing to save, which will also work to his advantage.
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