In my previous article, I outlined the hurdles which face first time home buyers and presented some of the solutions available. This piece highlights a further range of options and special mortgages for anyone trying to get a foot on the property ladder.
Certify yourself
If you have a problem getting a standard mortgage you might consider applying for a self-certified mortgage which does not require you to give proof of income - in most other respects the mortgages are the same as a standard mortgage. These loans are popular with self-employed borrowers who may have fluctuating incomes. Most self-certified loans require a declaration of income from the borrower but some lenders may insist on further information, such as confirmation from your accountant. Many lenders also require bigger deposits - up to 25% of the value of the property - on self-certified mortgages than on standard mortgages. The added risk for the lender means that these loans often attract slightly higher rates, too. Ray Boulger of mortgage broker Charcol, comments: 'While they do tend to be more expensive, competition has forced that margin down. Some lenders are now offering the mortgages on the same terms as their mainstream loans.'
Flaunt yourself
If you are newly qualified and struggling to pay back university debts, you may get a lucky break. Certain jobs attract extra help with first mortgages. 'Key workers' such as nurses, teachers and police officers who cannot afford to live near their work may be eligible for the government's Starter Home Initiative. This provides a loan to pay the deposit which is repayable when the house is sold. Professionally qualified borrowers such as doctors or accountants may be offered preferable rates from lenders.
Rent a room
The Inland Revenue's Rent a Room scheme has special rules that usually apply when you take in a lodger (broadly, a lodger is someone who pays to live in your home, normally with meals provided, and who often shares the family rooms). Under the scheme, a certain amount of gross (that is, before expenses) income can be received tax free from furnished accommodation in your only or main home. You cannot, however, then claim any expenses, or capital allowances. The 2003-04 allowance is £4,250.
Special Rent-a-Room mortgages are also available which allow borrowers to add the rental income from letting one room onto their salary before their income multiples are assessed. This means the scheme, ideal for low earners, enables the borrower to add the £4,250 allowance onto an income multiple of 3.25 times their salary (or 2.75 times joint) when borrowing.
'Many people are concerned about over extending themselves when it comes to mortgage borrowing,' explains David Bitner, technical manager at The MarketPlace. 'This solution provides a structured means of borrowing while at the same time allowing many more people to become homeowners.
10 key questions
Consulting an independent mortgage broker is a sensible move for anyone with unusual requirements such as first-time buyers who need to borrow more than lenders typically allow. Asking these 10 key questions will help you get the right deal:
- How much can I afford to borrow?
- How can I tell which mortgage rate is best for me?
- What is the best type of mortgage for me?
- Which repayment method is best for my circumstances?
- Can I make lump sum payments to reduce the size of the loan?
- Are there any redemption penalties?
- Does this mortgage come with compulsory insurance?
- What other charges will I have to pay?
- What happens if I can't pay?
- What about the small print?
