First Start Case Study
Julie** is 21 and works with a firm of accountants. Her salary is generous, but she doesn’t have a large deposit and, based on her income, the amount she can borrow is not enough to get the flat she wants.
Julie had found a 2-bedroom terrace valued at £185,000. A mortgage lender generally would have been willing to lend her £87,210 on her salary of £19,380 per annum (i.e up to 4.5x her annual income) which would leave her with a deposit shortfall of £97,790 that she would need her father to fund. She called Bristol & West Direct Mortgages who helped her secure a First Start mortgage to get herself onto the property ladder.
The Solution
Julie chose a First Start mortgage because of the unique way the parents’ mortgage commitment is treated. In this instance, Julie’s father’s income was included on the calculation and only his annual mortgage repayment was deducted from it, in the same way that we would do for any other existing credit card or loan commitment. This provides Julie with far greater borrowing power than if she applied for a guarantor mortgage. With a First Start mortgage, Julie’s father was going to be jointly liable for the mortgage repayments. As such, he took independent financial, tax and legal advice before agreeing to help Julie.
As Julie’s father was going to be party to the mortgage, we needed to work out his annual mortgage repayment so we multiplied his mortgage balance by 6.25%***, which was then deducted from his annual income. Our standard lending rules were then applied to his and Julie's income on a joint basis . We were able to lend up to £225,520, allowing Julie, allowing Julie to secure her desired property, and also look to upgrade to a better class of property if she so desired. Julie felt comfortable that she would be able to pay back this sum of money. Take a look at our worked example below.
New First Start Approach
| Father's Income |
£40,000 |
| Less annual mortgage repayment |
£3,000
(£48,000 mortgage x 6.25%) |
| Balance |
£37,000 |
| Plus Julies income |
£19,380 |
| Maximum Advance (£37,000 + £19,380) x 4 |
£225,520 |
The Outcome
Using First Start, Julie was able to purchase the house she wanted in the desired area. She was able to afford the monthly repayments and have the security of a fixed rate. By including her father’s income, using our unique First Start calculation, he was able to help his daughter purchase her desired property without the need to fund such a large deposit.
**This case study is based on real customers, but their names, method of application and occupations have been changed to protect their identities.
***The notional average mortgage rate of 1.5% above the prevailing Bank of England Base Rate (currently 4.75% as at 09/10/06) on an interest only basis regardless of the term.