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Colin Whitaker
Age: 27
Lives: in South London
Occupation: TV researcher
Earns: c.?25,000 a year
Mortgage: None
Debts: Student loan
Investments: ?3,000 in bank account
Pension: None
Aims: To move into home ownership and start a
pension
Few first-time buyers find it easy to get on to the housing ladder these days, but for Colin it is even more difficult because he is a freelance worker.
Colin works as a TV researcher - for the last few months on ITV's Pop Idol programme.
He started in television after doing a degree in European Studies with French and German at Manchester Metropolitan University four years ago. He explains: 'I started off as a runner, making tea and coffee, and worked my way up to be a researcher. Now I am a senior researcher and am hoping to be promoted to associate producer before long, which will mean an increase in my salary.'
He is living in a house share in Battersea, which costs him £460 a month, but he would like to buy somewhere of his own.
'The problem is that the lenders I have contacted want to see a contract with six months' minimum left to run, or similar example of job security. The nature of my work means that I'm lucky to get a contract that long in the first place - the average length is three to four months.
'The fact that I've been in continuous employment for the past four years does not seem to hold much sway.'
Colin's present contract is about to end and he is negotiating his next job. He thinks now could be the time to buy, bearing in mind the lull in the property market.
Ideally, he would like a two-bedroom house in south London, which would enable him to let out a room to help pay the mortgage. He thinks such a property would cost about £150,000. The alternative would be to buy a one-bedroom flat for about £100,000, but he would not be able to accommodate a tenant and he feels he may be stretched with the mortgage on his own.
Colin has savings of £3,000 to put towards his deposit and says his parents would be prepared to lend him more money. His only debt is his student loan of £1,200, which he is repaying at £60 a month. That will be cleared in three years.
He is concerned about his lack of a pension and would like to get that sorted out, too. He wonders whether he should make that a priority. 'Would I be better off pumping all my money into a property and cutting back on a pension, or paying for a pension now, thereby trimming down the amount I can afford towards a mortgage each month? I really do not know what is best.'
Adviser 1: Ray Boulger
If Colin has an accountant who could confirm
his income over the past two years, he could be
considered for a standard mortgage. An
alternative would be to opt for a self-certification
or non-status mortgage. These are not as cheap
and he will need a deposit of at least 10 per cent.
Two good lenders in this area are Bank of
Scotland, which has flexible lending criteria, and
GMAC (General Motors Acceptance Corporation),
which offers non-status loans of up to 90 per cent.
As well as helping with a deposit, Colin's parents
could act as guarantors for the mortgage. This
would mean a lender based its decision on the
parents' finances rather than Colin's. This would
offer better value and Colin could obtain a 95 or
100 per cent mortgage.
Which option Colin de cides on and how much he
borrows will depend on how much he can afford.
If he lets out a room, the rental income would be
tax free up to ?4,250 per annum. This would give
him a total income of around ?30,000 a year and,
using an income multiple of four times, a
self-certified or parent-guaranteed loan of
?120,000 would be feasible. A repayment
mortgage of that size would cost ?702 a month,
but Colin needs to remember that unless he takes
a fixed-rate loan, his payments could fluctuate.
With a pension, the sooner you can start making
contributions the better. However, it may be wise
for Colin to defer starting a pension for a couple
of years while he acclimatises himself to paying a
mortgage and to give time for his salary to
increase.
Ray Boulger works for mortgage and financial
adviser Charcol
Adviser 2: David Hollingworth
As Colin is freelance, he is in effect
self-employed. Lenders will be looking for
evidence of employment going forward, but in
Colin's favour is the fact that he has a good track
record of employment over the past few years in
the same type of role. By shopping around, he
should be able to find a lender that will take a
flexible, commonsense view of his circumstances.
Some of the more flexible lenders include Abbey
National, NatWest and Cheltenham & Gloucester.
His own bank would also be a good place to
inquire, as he already has a relationship and
track record with it.
A big factor in assessing his case will be the size
of deposit that he can put down. The larger this is
as a percentage of the property value, the more
likely a lender is to look at Colin's situation
favourably.
Then Colin needs to consider what he can borrow
on his income. A lender will only consider his
earned income and not the rental income he
hopes to pull in. Working on an income multiple
of four times, which is at the upper end of the
spectrum, he will be able to borrow just over
?100,000.
Unless Colin gets together a large deposit, it
would be sensible for him to try to get on to the
property ladder by buying a more modest home.
Otherwise he will be in serious danger of
overstretching himself, which could be disastrous
if he has a spell without work.
He should look to a fixed-rate loan to protect
himself if mortgage rates rise.
Once he has his mortgage sorted out he can
consider starting on his pension provision.
David Hollingworth works for mortgage adviser
London & Country.
· Advice is for guidance only. Do you want to appear in Wealthcheck? Write,
including daytime and evening telephone
numbers, a brief list of circumstances and any
investments, to: Wealthcheck, The Observer, 119
Farringdon Road, London EC1R 3ER, or
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