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Getting a £200,000 mortgage on low Income.

Is it possible to get a £200,000 - £250,000 mortgage on a relatively low income?

The traditional approach to mortgage lending was for banks to give 3 times income. This means to get a £200,000 mortgage you would need to earn an average salary of £67,000 a year. If you have a partner, the bank may also lend an additional amount equal to 2 times their income.

However, for the vast majority of British workers, a £200,000 mortgage would be beyond their scope. Yet, with average UK house prices now reaching £200,000 why does demand keep rising. How are people managing to get a mortgage for the average house?

1. Flexible Lending

Firstly, banks and building societies are no longer using traditional lending techniques. With a period of relatively low long term interest rates, banks are increasingly using a test of affordability. Basically they will look at average outgoings and total income to decide how much they can lend. Banks such as HSBC and Abbey National are ,in some cases, lending up to 5 times income. This reduces the needed income to £40,000.
The problem with this flexible lending is that mortgage payments are taking up a bigger % of people's disposable income; if long term interest rates were to rise then there may be many homeowners who would struggle to meet their mortgage payments.

2. Interest Only Mortgages

Interest only mortgages means that homeowners will only pay the interest on the loan; they will make no capital repayments. The effect of this is that, in theory, they can borrow bigger amounts because their mortgage payments will be lower.

3. Self - Certification Mortgages.

Self Certification mortgages enable a homeowner to borrow a large mortgage loan, without having to prove their income. Self certification mortgages are aimed at the self employed, who have difficulty proving income or their income is volatile. However, self certification mortgages can be used by people who wish to borrow more than the maximum of 5 times. The FSA has investigated the self cert market and warned against irresponsible lending. However, if a homeowner is determined to borrow much higher than his salary, self certification mortgages make it possible.

4. Large Deposit.

A large deposit will help getting a £200,000 mortgage. Firstly, banks usually offer better rates for those who are borrowing a low % of their house. This is particular important for homeowners wishing to try and get a self certification mortgage. The problem is that to save 15% of a £200,000 mortgage can be very difficult. To save £30,000 is difficult, especially if rent payments are very high. Quite often, the most popular way for getting a big mortgage on a low income is to borrow a deposit from parents or friends.

5. Mortgage against Parents House

Another option is to borrow using your parent's house as capital. Alternatively a mortgage could be got in your parents name.

See also:

• Getting large mortgage on small income

Top 5 Tips for Reducing Mortgage Debt

1. Remortgage with Existing Lender.

Most mortgages offer an introductory offer with a better rate of interest. When this introductory rate end you will revert to the Standard Variable Interest rate. As soon as this happens it is worth ringing up your mortgage lender and asking what options there are. The advantage of remortgaging with your existing lender is that usually you will be pre-qualified. This is useful if your income is hard to prove.

2. Search Range of Remortgage Quotes

After checking out your existing mortgage lender, look through other mortgage dealers. If you get an improved interest rate on your mortgage, it creates an opportunity to payback a bigger % of your capital debt. For example, instead of choosing lower mortgage payments. You could pay the same but just pay more capital back each month. Guide to Remortgaging

3. Current Account Mortgage.

A current account, or offset mortgage, works by using your bank savings, to automatically reduce your mortgage debt. For example, if you have £5,000 in your current account, this can be automatically used to reduce your mortgage debt. Usually these types of mortgage involve combining your current account with your mortgage. They are increasingly popular.

4. Flexible Mortgage.

A flexible mortgage enables you to pay off your mortgage debt early, through making extra payments. If you are able to make extra payments to your mortgage you save in two ways. Firstly, the capital is automatically reduced; secondly you save future interest payments. The more you can pay off in the beginning of your mortgage term, the more you will benefit from reducing your debt and future interest payments.

5. Mortgage Cycling.

This is a complicated way to reduce your mortgage debt, through recycling your mortgage loans. It involves making extra payments, and if necessary borrowing from other sources to be able to pay these extra repayments. It require careful thought, as it is risky.

Related Financial Tips

• Top 10 Financial Tips for saving Money
• Tips for Reducing Debt Payments
• Guide to Getting Mortgage in UK - Top 10 Tips
• Improve Your Credit Rating
• Top 10 Mortgage Tips
  

Related

• Different Types of Mortgages
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Guide to Getting Mortgage in UK - Top 10 Tips

Advice and checklist for Getting a Mortgage in UK.

Information includes:

1. How Much Can I borrow?
2. How much deposit do I need?
3. Which mortgage to choose
4. Repayment or interest only?
5. Remortgage in the future?
6. Fixed or variable?
7. Overcoming problems of getting mortgage
8. How long to get a mortgage term for?
9. When is a good time to buy?
10. Choosing a mortgage dealer

• Guide to Getting Mortgage

Getting a Remortgage Quote with own Lender

Currently I am on Standard Life’s Standard Variable Rate of 6.75% paying £878 per month. The mortgage balance is about 137,000 and is for a term of 32 years.

I have been with the standard life for nearly 3 years. Originally the mortgage was a self-certification mortgage. At the moment I thought it would be hard to re mortgage because my income is too low for conventional mortgage deals.

Despite writing frequently about the benefits of Re mortgaging on this mortgage sites I never got round to doing it myself. – Sometimes it is easier to give advice than it is to follow it!
Anyway today I rang up standard life and asked about Re mortgaging. They offered a couple of deals.

1 Year Discount Re mortgage

• 1st year 1.85% discount off SVR
• 2nd Year 0 discount

This deal is tied for 2 years and has no costs of setting up. It means in effect there is an average discount of 0.925% over the two years. In the first year I would save £157 per month. Therefore total savings – 12 * £157 = £1884. This is an average saving of £942 per year.

3 year Discount Re mortgage

For each year there is a discount off SVR of 1.46%. This means that on current interest rates my mortgage interest payments would fall from £878 to £753.73.

This is a monthly saving of £125 but is for 36 months. Therefore total savings over 3 years is £4,101. However for this deal there is an administration cost of £399. Therefore total savings = £3,702. This is an average of £1,234 per year

After the time periods the mortgage reverts back to the SVR, but you are then free to change mortgage again.

The best thing about this deal is that as an existing customer I don’t need to prove any income – you automatically qualify.

Now why didn’t I do this a couple of years ago?

Top Tips for Remortgaging:

• Remortgaging is the easiest way to save lots of money.
• It is Always worth starting off with your existing mortgage dealer. This can be a good way to save on mortgage fees.

Seven Steps to getting your first Mortgage

Step One

Make the personal commitment to live in your own premises. This should be a given but you must be aware of the rights, responsibilities and social change that go with first time house ownership. There will be no parents or landlord to fall back on for repairs. The utility bills and council tax bills will fall on you. You will probably need to save for a deposit. This is usually a minimum of 5%; although failing this there are 100% mortgages on offer.

Step Two

Check out the financial issues. What is the maximum that you and any co-owners are able to pay? Include in your budget the costs of insurance, repayments tax and utilities. From this budget you will be able to assess what you can potentially borrow and how much deposit you may need to get the property of choice. See: how much can I borrow?

Step Three

Discuss the options with your bank or building society. Learn what sort of issues they want to consider such as your current salary, debts and potential problems career prospects. If the results of your discussions show your case to be marginal from the lenders point of view, then you may wish to work through a mortgage broker who can shop around on your behalf to find a willing lender.

Step Four

Be Realistic in Choosing House. Finding a suitable property means finding one that you want, but also one that can be financed. You won’t get a mortgage for more than the value the lender thinks appropriate. Some lenders don’t like problem properties e.g. those built on mine shafts or erected by notorious builders. Some companies don’t like thatched roofs or flats so check for general restrictions when talking to your preferred lender. The more marginal a property the more expensive the loan is likely to be.

Step Five

Getting a mortgage takes time. Allow time for the lender to do the work they need to do. Surveying the property and checking out your credit worthiness can take some weeks. Get an offer in writing and keep the vendors agent and your solicitor informed.

Step Six

Get a Good solicitor. Ensure your solicitor works to your needs. Get them on your side from the outset. Normally you pay a deposit, conduct due diligence with searches then complete the purchase transferring ownership to you with a registered mortgage or charge over the property.

Step Seven

Look around for most helpful mortgage adviser. Don't be put off if your own bank refuses to give sufficient mortgage. There are an increasing number of mortgages on offer which may help you get your first mortgage.

See also:

• Guide for First Time Buyers
  
• Types of Mortgages in the UK

Tips for getting a Better mortgage deal

1. Read all the small print. For example make sure you can leave the mortgage deal without incurring any excess penalties.
   
   
2. Choose the right mortgage for your circumstance. For example if you have a large current account surplus you should seek to make use of this positive balance and get a current account mortgage. This is a kind of mortgage where if you have savings in your current account they are automatically used to reduce your mortgage debt. This saves mortgage interest payments and also saves paying tax on your savings; – a double benefit. This is sometimes known as an offset mortgage.
   
   
3. Which is more important money now or money in future? There is often no “right” mortgage, it may depend upon your preferences. For example if you were to take out a 50 year mortgage the standard industry response would be to discourage you; on the basis you will end up paying more interest over the long term. However if it means you can get on the property ladder it is probably a better financial decision than renting. However if you have a low pension you will want to get a short mortgage term to enable you to pay off your mortgage early. Then in your retirement you will have low living costs.
   
   
4. Look for best Remortgage Quote. Most mortgage lenders make their highest profit margins on their existing customers. This is because existing customers stay on the Standard variable rate. However if you seek to remortgage they will probably offer you a much better deal.
   
   
5. Be careful of enticing offers. In an increasingly competitive market many mortgage dealers offer a special discount for the first 6-24 months. These interest rates can be as low as 3%. However if you look closely after the allotted time period ends the mortgage will suddenly jump up to say 7%. Also these mortgage deals often have high penalties for early leaving. When getting mortgage quotes make sure you look closely at all the detail. Make use of impartial advice of a mortgage adviser.
   
   
6. Protect your credit rating. Work hard to avoid missing any credit card payments or mortgage payments. Set up direct debits. If you do miss a payment try to explain to the bank it was a mistake, get lost in the post. Customers with bad credit can get a mortgage but they will end up paying a mortgage premium.
   
   
7. Claim exit fee refund. In the UK if you have remortgaged in the past 2 years you are probably entitled to a refund. The FSA decided the mortgage lenders had increased their exit costs without sufficient justification. If you write to the bank you will probably get a refund of upto £200.

See more on: remortgage quotes