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A First Time Buyer at 5.43%, case study
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A First Time Buyer at 5.43%, case study

09th May 2008

Georgia Smith 32, is a first time buyer who wanted to purchase a two-bedroom maisonette in Mitcham, Surrey for £160,000. Georgia is a Personal Assistant for a City based promotions company - a position she had held for only three weeks before making her mortgage enquiry to Mortgage Meadow. She had just received a pay increase to £28,000 with her new employer. Georgia was fed up of sharing an apartment with friends and wanted her own space, so she felt the time was right to purchase her first home. Georgia believed that she may have had a default registered against her a couple of years ago and was worried that this, coupled with the small amount of time she had been with her current employer and the amount she wanted to borrow in relation to her income, would mean she would be unable to obtain a mortgage.

A strong positive for Georgia was that her father was able to provide her with a quite significant deposit of £20,000, leaving Georgia with the other associated costs such as stamp duty, valuation and legal costs. This deposit was a gift to Georgia which is important since, if it were a repayable loan; most lenders would not have accepted it.

With lender’s changing criteria on what seems like a daily basis and a number of lenders now being extra cautious as to who they make new loans available to, we knew that finding a lender who would take a view on Georgia would be more difficult than it would have been previously. We firstly suggested to Georgia that she obtain a copy of her credit report before we spoke to any lenders. A credit report is a record of any loans and credit commitments an individual has held within the last six years. The report will show the names of the companies providing the credit, the balances held and whether or not these credit commitments have been conducted satisfactorily. It will also record details of any defaults or County Court Judgement. We all have a statutory right to see the information held on us by credit reference agencies (see Credit Agency or Experian Credit Expert ).

Georgia obtained a copy of her credit report from Experian, one of the largest credit reference agencies operating in the UK. Her credit report showed that everything over the last four years had been well conducted; however five years ago there was indeed a default registered against her for £250.00. As this was the only blip on her credit report we believed that, instead of approaching lenders who specialised in adverse credit mortgages who often charge higher rates of interest, we could use our relationship with a High Street Lender in order to secure a more competitive deal for Georgia.

Georgia’s desire was for a fixed rate mortgage to enable her to budget for the first couple of years. She wanted the security of a capital and interest mortgage, however to help her monthly budget she wanted to arrange the mortgage over a longer term than the standard 25 years. After some research, we found Abbey were offering Georgia the most suitable product for her needs. The deal was a 5.43% two year fixed with a fee of £999.00. The maximum term Abbey would agree was 35 years; although extending the term to 35 years meant that the mortgage would end after her current anticipated retirement age.

Georgia expects her income to increase significantly over the next couple of years, so we have planned regular reviews with her so we can reduce her mortgage term as her income increases. Also the mortgage offers the ability to make lump sum repayments of up to 10% each year without incurring any early repayment charges, this was important to Georgia as she expects to receive further cash lump sums from her father over the next couple of years with which she intends to use to repay the mortgage to reduce her term further. We will monitor this to ensure Georgia’s mortgage ends before she retires.

The advantages of this deal were numerous. Abbey do not work off traditional income multiples. Georgia wanted to borrow what would have been considered 5x her income. Instead Abbey use a complex affordability calculation which looks at a person’s income after tax, their outgoings and credit profile to work out how much they will lend a person. A quick check on the lender’s affordability calculator confirmed that Georgia did fit their income requirements for the loan requested.

Abbey would also take a view on the fact that Georgia had recently changed jobs. As for the default, this was an issue we knew would present the greatest hurdle. Abbey usually do not accept applications where people have had credit problems in the past, however due to the small amount of the default and the length of time it had occurred we believed this to be a good case for the lender. To pre-empt a “system says no” result we first spoke to our Abbey Business Development Manager. After we discussed the case, she in turn spoke to an underwriter to get the case underwriting agreed in principle. Once this was done, the application to the abbey was referred to the same underwriter who could verify that the case was as we had presented it. As a result she was able to manually approve Georgia’s mortgage.

The mortgage took 6 days from application to offer, the industry standard is usually twenty one days, and by using a solicitor we recommended meant that the legal work was completed quickly. Georgia moved into her new home in April of this year.