Borrowers

No, this is nothing to do with the Little People that ‘borrow’ buttons, safety pins or other bits and pieces for their world.

The media is full of changes being made to mortgage applications as from midnight tonight.
Some of the ‘invasive questions’ are reportedly to include any gambling debts, child payments, loans, gym and other club memberships, pension contributions, magazine subscriptions and even how much it costs to deliver your milk.
Most of these should have been included already!

If Hubby and I applied for a mortgage today, the laughter would echo down the hall and into the next county. There is no leeway in our budget for any other expenditure.

A little history about the mortgages in my life:

Ex husband and I applied for a 90% mortgage to purchase a terrace property in the 70s (twice joint salary, or 2 and 1/2 times the greater plus once the lower were favoured multiples) .
Repayments were interest only but with no endowment policy as it was classed as a Starter Mortgage for couples like ourselves wanting to get on the property ladder.

When we moved to our second house, the mortgage was changed to one on repayment terms. However, we divorced, the house was sold, all debts repaid and we went our separate ways.

Hubby and I bought our first house with a 95% mortgage plus endowment policy, but the property market crashed and we ended up in negative equity.
We saved like stink and went without luxuries for years before eventually finding a buyer. Luckily, we were able to cover our losses, put down a 5% deposit on the next house and meet all legal expenses.
At that time, Lenders insisted that borrowers taking out a loan of more than 75% of the purchase price were to pay a one-off ‘indemnity insurance fee’ to cover any shortfall in debt/house value should prices continue to fall. In our case, this was added to our new repayment mortgage, so we didn’t have to find the money up front, and we decided to keep the endowment going as a ‘pension plan’.
We moved again, but three years later I was made redundant. I used my final paycheck to halve our mortgage, eventually finding alternative employment at less than half my original salary.
The following year, the insurance company was suffering shortfalls in endowment payouts and stripped all policies with ten years or more to run of their accumulated bonuses.
We lost thousands, and decided to cash it in as they couldn’t guarantee even half the original figure when we took the policy out. We used the money plus all our savings to clear our mortgage completely, which was just as well as six months later, Hubby also lost his job.

Now you could ask, where am I going with this.

For years so-called Experts have been encouraging people to borrow more than they can afford to repay.
I know of one instance where a young couple wanted to move from their 2 bed terrace to an apartment closer to family. This was £20K more than their house value, and so they approached a Financial Advisor. He told them that they could struggle with their mortgage repayments for 6 months until their car loan was repaid, then use that money to cover the extra outlay. She then discovered she was pregnant.
In the 90s,  a self-employed couple we knew were encouraged to provide their own accounts for a mortgage application. Three years proof of earnings (for each of them) was required, but because the wife had only just gone self-employed, their Advisor suggested to assume her potential earnings when she had only ‘been in business’ for two months.

In recent years, parents incomes and potential inheritances are also included in some mortgage calculations, not to mention mortgage terms extended to 30 or 35 years.
Some professionals have been working the figures backwards, by taking net income (take home pay) , deducting all expenditure of bills, loans, pension payments, etc, and seeing what’s left to cover a mortgage/rent.
With the property bubble here, something has to pop eventually, and it won’t be your trouser buttons when you have the choice of keeping a roof over your head or eating.

I do not have an A level in Maths, nor a Degree in Finance, but I do have Common Sense.

My formula is simple.
Income must be considerably more than outgoings.
Income is not supposed to match outgoings exactly.
You bring home £xxxx a month.
Your fixed outgoings are £yyyy (local taxes, loans, utility bills) .
That leaves £zzz.

Out of that, you have to eat, run a car perhaps or pay bus fares, have some form of relaxation (purchase the occasional DVD or CD, go out with friends) , clothe and keep yourself clean, and if you’re practical, try to put something by for emergencies.
And that’s before you think about rent or a mortgage.
Check your figures again, and once more for good measure.
Have you forgotten anything?
What about the dog/cat/guinea pig….. jabs, insurance, food.  It all adds up.
Everything works so well on paper, but just one little tilt, like redundancy, an unplanned baby, unexpected car or home repair, health issues, or an increase in interest rates, and it’s not worth jack.

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