One of his first meetings was with a gentleman, aged in his early fifties, who was looking to purchase a home outside of London for around £125,000. Martin Lewis proceeded to ask the man what his income was and he revealed that he earned between £18,000 – £21,000 a year. Mr Lewis detailed that it may be tough for him but: “It’s a good time to look for mortgages”. As he explained, a lot of mortgage providers these days do not work out what they can give based on multiples of salaries.
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Many modern mortgage lenders focus on affordability tests instead. Mr Lewis suggested finding a mortgage broker who would be able to detail what options were available and the choice of what to do should be made from there.
Interestingly, Martin Lewis advised the man to consider buying a home with a friend. He highlighted that mortgages do not need to be bought exclusively by couples.
Buying with a friend is a good way to get on the ladder but Mr Lewis advises making sure a legal contract is set up.
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Mr Lewis went on to meet a young woman who was applying for jobs in Cardiff as her partner is also working in the city.
The couple were aiming to purchase a house together and Martin stressed the concept of merging their ISAs. With Lifetime ISAs specifically, the size of the bonus received is higher when the amount in the pot is high.
Merging two ISAs together makes sense for taking advantage of these bonuses. Affordability also came up again with Mr Lewis detailing that when applying for mortgages being frugal will pay off. Lenders want to see that their funds will be paid back effectively.
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Martin Lewis went on to cover this in much more detail, he specifically pleaded with mortgage applicants to take one specific action.
He detailed that one of the most important aspects of mortgage applications is the “loan to value ratio”.
This ratio effectively means the more equity that a person has on their home, the lower the mortgage repayments will be.
In comparing five percent deposits with 10 percent deposits Mr Lewis had this to say:
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“Now, five percent deposit mortgages have got cheaper in recent years. Here they are, but id still try and push you, urge you to try and get to at least 10 percent because this has the biggest single drop.”
He used a five year fixed rate mortgage and a two year fixed mortgage as an example. On a five year fixed rate mortgage a person would only pay £845 a month and a two year would be £785 with a 10 percent deposit. He continued:
“That’s 60 quid cheaper, over the five years you’d save nearly four grand. So a first timer if you could wait a little bit longer to get over that boundary, great. If you’re remortgaging, if you had savings you could use to get over a boundary, really good stuff.
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“Now don’t tell anyone I told you his but I hear rumours from underwriters that if you go exactly to a boundary, say the 85 percent level, it could look as if you’re struggling so you might be less likely to be accepted.
“But if you go 100 pounds beyond it, it eases acceptance. Don’t know how true it is but you might as well try.”
Mr Lewis rounded off his advice by examining remortgaging rates. A middle aged woman asked him if she should remortgage her 10 year fixed mortgage that has a get out clause. He detailed that she could probably get a cheaper mortgage, saving roughly £800 a year.
However, remortgaging will likely mean fees and penalties from the existing mortgage lender for switching early. He detailed that while it is worth remortgaging, these types of fees need to be factored in. He advises always using comparison sites and brokers to find the best deals.