MortgageAnalyser

Want to discover the best mortgage?
Analyse, compare and dissect them here.

Sections

And another thing...

Your deposit (Loan to value ratio (LTV))

The size of your deposit (fnar fnar) will have a large effect on your mortgage. A deposit is always referred to in terms of the percentage of the house price that you are contributing towards it. If you want to buy a house for 200K and have 20K to put towards it, then your deposit will be 10% and you'll need a 90% mortgage.

As a general rule, get as big a deposit as you can. Save your beer money, sell your cats, go on medical trials - do whatever you can to get as much money as possible before you buy a house. The reason for this? Most banks will not lend you more than 95% of the house price, meaning that you need to come up with a 5% deposit. In fact, they don't even like lending you 95% of the purchase price, and will charge you a grand or two for having a high loan to value ratio. You need to have a deposit of at least 10% to avoid this sort of nastiness and (as these things always work), the more money you have for a deposit, the better interest rate you will get.

It is hard to get the money together for a deposit, but you'll probably only have to do this on the first house you buy. Unless you are unlucky enough to buy a house that goes down in value, when you move to your next place (you'll be saying "never again" after all the stress and hassle of buying your first house, but it'll happen - trust me), your current house will be worth more, but the amount you owe on the mortgage will be (endowment) the same or (repayment) less. Say you bought your house for 100K with a 5% (5K) deposit; your mortgage is 95K. A couple of years on you sell your house for 120K and want to buy a house for 200K. You now have 25K (120K sale minus 95K mortgage) to use for a deposit on the new house - that's a massive 12.5% deposit, and you didn't even need to save up!

Income Multiplier

This is a thing that the banks use to gauge whether you will be able to pay back your mortgage. Despite being greedy, amoral and quite often incompetant, they don't want to lend you a load of money and then have to reposess your house when it turns out that you can't keep up the repayments. So what they do is take your gross (before tax) income, multiply it by a number (the multiplier), and the result is the maximum amount they will loan you.

And, as always, it's a bit more complicated than that. For a start, the banks all have different multipliers, ranging from a stingey 2.5 x income to an insanely over-generous 7 or 8 x income. Normally, the range of numbers is around the 2.5 - 4 mark. If you are getting a joint mortgage, the number will be lower (with our first mortgage it was 3) but, obviously, multiplied by your combined salaries. There are other ways that multipliers work with joint mortgages too, such as, e.g. 3.5 x one income plus 1 x the other. It can also be up the to the discretion of the person you are dealing with at the bank, if s/he decides to let you apply for a mortgage that is larger than your multiplier would normally allow. Basically, if s/he likes the cut of your gib, s/he can add a note to the application saying that you look like an honest sort.

> Next Section - Choosing your mortgage

^ Top | Copyright © 2007 Naich | css | xhtml