Mortgage Clinic: 'Can a big deposit make up for a low income?'
'I have about £100,000 to put down as deposit on a house, and would like to borrow another £100,000. The trouble is, my income is low: I earn £12,500 a year on a doctoral studentship, though at least it's non-taxable. Can the large deposit make up for my low income?'
If you want to borrow £100,000, you would normally need an income of £25,000 to £33,000. Mortgage companies will lend between three and four times your salary.
But it should be possible to find a lender who will arrange a mortgage for you. You will be asking for a mortgage for half the value of the property, making you a low risk. It will be a plus if your salary is likely to rise once you finish your studentship.
A bank or building society might still reject you because you fall so far outside their lending rules. You will have to go to a mortgage broker who handles unusual cases.
"You have very good negotiating power, so use a broker who can speak directly to an underwriter and negotiate outside of the lender's normal criteria for you," says Katie Tucker, technical specialist at mortgage brokers John Charcol.
The broker can talk directly to the bank's head-office underwriters, who make the lending decisions. A good broker knows which lenders are likely to be sympathetic.
According to Tucker, Basinghall and Clydesdale Bank underwrite cases individually, so can be more flexible. Accord and Intelligent Finance will "gross up" your tax-free bursary to an equivalent, pre-tax salary. This means you will be asking for around six, rather than eight, times your salary.
You could also ask a parent or relative to guarantee your mortgage. This will increase the number of institutions that will consider you, and boost your chances of finding a competitive rate.
As your studentship is for three years, Tucker also suggests looking at three-year fixed or discount mortgages. A fixed rate might not be the cheapest, but you will know how much your repayments will be. You could then remortgage, and your higher income should allow you to find a better deal.
But before you decide on the mortgage type, you should go through your finances and your prospects with your financial adviser.
Your doctorate should boost your earnings, but you should consider what you would do if you do not find a job immediately after graduation, or if a job means moving to a different part of the country. It might be more flexible for you to rent – and keep the money you have saved in a high-interest account – until you know your future plans.
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