Question from Celia George about Sharing a Mortgage with low incomes
Hi there, my request might seem off the wall, but maybe you can help me.
My name is Celia George, I’m 23 and have recently finished a course in the entertainment industry; Acting dancing, singing. I am slowly getting some solid work experience, which will hopefully give me a higher regular income.
I'm looking to buy a house with a friend and am not sure how to approach getting a mortgage or what we could afford. We both currently live in digs which is quite a soul destroying experience.
How could this work for us?. In terms of getting a mortgage and what deposit we need
I have a contract at the moment with regular income and so does my friend who I want to buy with.
If you could give me some pointers how we could make this work for all of us? Please let me know.
Await your reply with crossed fingers.
Sincerely, Celia George.
Answer from Andrew Boast, Share a Mortgage
Hi Celia,
Thanks for emailing in your question and for allowing us to post this online for others to read.
You are not alone in hating living in rented accommodation and I understand firsthand the feeling of wanting to buy a property but not being able to afford it.
It is good to hear you are a jobbing actor; I believe that means you have a regular income. Must mean you are quite a good actor.
If you have got some friends you’d like to Share a Mortgage with, then I would suggest using our free Mortgage Calculator . The Mortgage Calculator will work out how much you and your friends can borrow.
Top Mortgage Tip – Projecting how much you can afford
Just in case you didn’t know, mortgage lenders predominantly calculate how big a mortgage they will lend you based on your basic salary times whatever multiple they want. Some mortgage lender multiples are 5, some will be 4. The Co-Operative Bank base their calculation on how much everyone can afford and does use a mortgage multiple to calculate the mortgage they will lend you.
It is important to note that when mortgage lenders use a mortgage multiple they will only multiply the two highest salary earners, not everyone.
Here’s an example
Name Basic Annual Salary
Celia £35,000
Jane £25,000
Michelle £18,000
Royal Bank of Boast give a mortgage multiple of 4 times salary (Royal Bank of Boast is a fictitious bank name in case you go looking for it).
So in this example, the mortgage multiple will be applied against Celia and Jane’s salaries which total £60,000. With a mortgage multiple of 4 this means your mortgage lender would lend you a mortgage up to £240,000.
So now you know how big a mortgage you can get you can calculate how much deposit you need. If you imagine that the mortgage is part of the full purchase price, for example 90%, then 10% will need to be invested by you all to make up the difference. The 90% is called the loan to value rate and the 10% is the deposit. The higher the deposit, reduces the mortgage you need (loan to value), which in turn will enable you to get a better mortgage interest rate. Higher loan to value rates attract higher mortgage interest rates, whereby lower ones means you are borrowing less money (less risk to the bank) meaning a lower mortgage interest rate.
Right, so to work out the deposit and full property value, if you take the mortgage value of £240,000 divide it by 90 (if it is a 90% loan to value) and then times it by 100 and this will give you £266,667 as the full purchase price. That means you will need a 10% deposit (£266,667 purchase price - £240,000 mortgage) of £26,667. Shared between the 3 of you, this means you each need to pay £8,889 deposit. Don’t forget, that you will also split the stamp duty, and legal costs as well and on a property between £250,000 and £500,000 you pay 3% stamp duty; in your case £8,000, divided by 3 is £2,667 each.
If I were you, I’d look for 3 bedroom properties up to £250,000; otherwise you’ll end up paying 3% stamp duty, instead of 1% between £125,000 and £250,000. Obviously it depends what you can find where you are. Start your search on Rightmove and you’ll find their site easy to use.
The great part about buying with 3 of you is you share everything 3 ways; stamp duty, legal costs, council tax, electricity, gas, all the living costs; which makes living together so much cheaper.
When you share a mortgage you can get Shared Ownership Protection which includes:
I know that is a lot of information on mortgage multiples, mortgage interest rates and share a mortgage, but I hope it helps.
Please feel free to use our mortgage calculator to help you get to grips with the costs involved in purchasing your own home.
Just ask if you need anything else.
Kind regards,
Andrew Boast MAAT MIC
Do you have a question?
If you have any questions call us on 0207 112 5388 or email andrewboast@shareamortgage.com. Your question will be answered in confidence and only advertised to other Members with your consent.
written by Andrew Boast, Co-founder, Share a Mortgage
Read other related articles:
1. Share a mortgage with friends
2. Share a mortgage with couples
3. Share a mortgage with different shares of deposit
