Q My partner and I have a big conundrum and wondered if you could weigh in on our issue before we take the next step. Essentially, we are looking to merge our assets and buy a home together. I own a property, where we currently live, which is worth at least £550,000 with a mortgage of £140,000. My partner recently sold his property and so has £160,000 in cash to put towards the purchase of our new home. He earns £120,000, while I earn £80,000, and we have been told that together we can get a substantially large mortgage in the region of £1.2m to £1.3m.
The issue here is that while I am putting in more deposit, which will mean I own more of the property, I am concerned about a high mortgage being divided equally, leaving me with little savings after payments each month. Whereas my partner, who earns more, will have substantially more left over.
AS
A I think taking out a huge mortgage just because you can is risky. This is mostly because you don’t seem comfortable with the idea, partly because of the way interest rates are going and because it seems a weird way of going about things.
Using your borrowing power to determine the type of property you buy seems odd. What should determine what you end up needing to borrow is the value of the type and size of property you want and the area you want to live in.
If the amount you need to borrow is more than four times your joint income – so £800,000 – you will either need to rein in your property plans or use an independent mortgage broker to find a lender prepared to offer more generous terms. Some lenders, for example, are prepared to agree to up to seven times a yearly income but they are rare.
On a positive note, if the maximum you can borrow does turn out to be £800,000 it will mean the most you can afford to pay for a property is £1,350,000 (after setting aside £20,000 for stamp duty land tax and legal costs). But that means your mortgage would represent just under 60% of the value of your home, which in turn means you should have access to very competitive interest rates.
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