UK house prices have risen over 130% in the past 10 years, for many prospective buyers it feels that getting on the housing ladder is beyond their reach. However despite the extravagant house price levels it is still possible for first time buyers and others on low incomes to be able to get a mortgage and buy your first house.
Although such a mortgage may be expensive it is worth persevering, especially if you are in the position of paying high levels of monthly rent. At least when you are paying mortgage payments you can view it as in investment. By getting a mortgage now you will be saving future rent payments. When you are retired you may struggle to pay rent, especially if rents continue to rise in line with inflation.
The standard justification for determining a mortgage loan was for a bank was using the old income multiple. Generally banks and building societies would lend 3 times your salary. Thus if you had a salary of £20,000 you could borrow £60,000. However in today’s housing market £60,000 would buy very little; in London you would be lucky to buy a garage let alone a house for that price. If this is a situation you find yourself in there are various options you can consider to help getting a mortgage
Tips for Getting Mortgage on Low Income
1. Save a deposit.
It might be difficult if you are paying monthly rent, however if you are disciplined to put away money each month over time this builds up and enables you to put down a deposit. Generally the bigger deposit you get the more chance you have of getting a good mortgage deal. If it is very difficult to save a sufficient deposit you could ask friends and family for a loan. However this approach may well have its drawbacks; you need to be able to have a good financial relationship with the person.
2. 90-95% Mortgage.
If you are unable to save a deposit you can try getting a 90% or even 95% mortgage. This reduces the amount of deposit you need to save. 95% mortgages are more scarce since credit crunch, and you may have to pay a small premium for low deposit. But, it does reduce the time necessary to save.
3. Joint Mortgage.
Joint mortgages or co ownership mortgages have become increasingly popular in recent years as a practical solution to the difficulty of getting a mortgage on a relatively low income. Joint mortgages enable you to share the cost of a mortgage with another person (possibly more than 1). This then allows the building society to give a bigger loan.
4. Look at Affordability.
Increasingly building societies will judge the size of a maximum loan amount depending upon affordability rather than income. This means that if you can reduce your monthly expenditures, you have a better chance of getting a mortgage. Similarly they will look at other debts you have and see the monthly repayments you need to make on these. If you are really keen to get a mortgage it may require some frugal expenditure to reduce monthly mortgage income. Once you get your first mortgage you can be a little more relaxed. However just before getting a mortgage you should try your hardest to reduce expenditure as much as possible. This enables you to present the best possible financial situation to a bank.
5. Consider Loan from Parents
It is an unfortunate fact that many first time buyers require some help from parents or wealthy relatives. A lump sum can be put towards a deposit which helps make it easier to get your first mortgage. If this is a sensitive issue, you could consider offering relatives a stake in the property and give them a clear way for mutual benefit.
6. Part Rent Part Buy
Some housing associations offer support for people on low incomes. This is a scheme to ‘part rent part buy’. The housing association makes up the shortfall and you can buy back the rest of the house over time.
7. Move to More Affordable Areas
Data shows how first time buyers face a real struggle to get a mortgage for London. The ratio of house prices to income in London is over 6.0. Whearas in the north, the ratio is just over 3.0.