Rent-a-room scheme gives first-time buyers a leg up
By Sharlene Goff
Renting a spare room to a friend or colleague has long been a popular way for first-time buyers to get a helping hand with their mortgage repayments.
But as lenders look for increasingly innovative ways to help cash-strapped buyers onto the property ladder, Stroud & Swindon is now offering larger loans to people willing to share their property with a couple of flat-mates.
The building society is allowing first-time buyers to inflate their own yearly income by up to £6,375 if they have two spare rooms that could be let out.
Based on a standard four times income mortgage, someone would be able to borrow an additional £25,500 to secure a foot on the property ladder. The option is available across the group’s mortgage offers – on fixed and variable-rate deals - and does not require any additional proof of income.
The offer by Stroud & Swindon is the latest in a string of more creative mortgage offers aimed at bumping up loans for homebuyers struggling to keep pace with runaway house prices.
It follows new launches of 50-year and “lifetime” mortgages, which allow homeowners to pass on their loans to the next generation (AtW's comment: **** me, they are so kind as to "allow" morgage to be passed to the next generation!
). There has also been strong growth of group mortgages, which enable up to four borrowers to club together and share the responsibility for a loan, and guarantor mortgages, where a parent or guardian underwrites the mortgage repayments.
Paul Chafer, sales director of Stroud & Swindon says: “More and more first-time buyers are finding it impossible to get a foot on the property ladder or are being forced to purchase property with friends.”
Brokers say this “buy-to-share” offer can be a simpler alternative to entering a group mortgage as it gives the benefit of enhanced income without locking you into a legal agreement with other borrowers.
Andrew Montlake at Cobalt Capital, a mortgage broker, says: “This seems like quite a genuine move to help first-time buyers. (AtW's comment: no you numbnuts, the genuine move to help would be refuse to lend more than 3 times salary full stop.) It takes into account the economic realities of today without the complexities of a group mortgage.”
He says Stroud & Swindon is the first lender to offer this option across its full mortgage range rather than launching a particular product, potentially with extra costs. It is also unusual for a lender to take into account rental income from more than one room.
Bradford & Bingley has a similar “rent-a-room” mortgage offer. However this is not available on interest-only mortgages and only takes into account the extra income from one spare room.
Takers of the Stroud & Swindon buy-to-share mortgage are able to add £4,250 to their annual income for the first room they are planning to rent. This amount represents the level of income you can make from renting out a room in your home without having to pay income tax.
Borrowers can then add a further £2,125 onto their income for a second spare room – this amount is lower as it reflects the fact that income tax will be payable on any rent gained in excess of £4,250.
Brokers do not expect great demand for the additional borrowing ability gained from renting a second room as most first-time buyers look for two-bedroom rather than three-bedroom properties.
Montlake says: “A lot of first-time buyers do let out a spare room but previously not many lenders have taken this into account.
“The extra borrowing potential could make the difference for someone trying to get on the ladder.” However, brokers say there is a reason why lenders have not traditionally recognised this rental income.
Melanie Bien at Savills Private Finance, says: “Most lenders refuse to take rent from a spare room or two into account because it is not a very secure form of income and you have no track record of it, as you would with a salary or bonus.
As you have yet to rent out the room how do you know how much income you can expect to generate?”
Bien says that as the rental income from spare rooms is not guaranteed it is important that borrowers do not take on a bigger mortgage than they can comfortably afford to repay on their income alone.
So if you are already at the top end of your affordability range it might not be wise to use this option if it is just to further stretch your borrowing ability.
“You should consider how you will manage if the spare room is empty for several months,” says Bien.
-----------
*******s!
By Sharlene Goff
Renting a spare room to a friend or colleague has long been a popular way for first-time buyers to get a helping hand with their mortgage repayments.
But as lenders look for increasingly innovative ways to help cash-strapped buyers onto the property ladder, Stroud & Swindon is now offering larger loans to people willing to share their property with a couple of flat-mates.
The building society is allowing first-time buyers to inflate their own yearly income by up to £6,375 if they have two spare rooms that could be let out.
Based on a standard four times income mortgage, someone would be able to borrow an additional £25,500 to secure a foot on the property ladder. The option is available across the group’s mortgage offers – on fixed and variable-rate deals - and does not require any additional proof of income.
The offer by Stroud & Swindon is the latest in a string of more creative mortgage offers aimed at bumping up loans for homebuyers struggling to keep pace with runaway house prices.
It follows new launches of 50-year and “lifetime” mortgages, which allow homeowners to pass on their loans to the next generation (AtW's comment: **** me, they are so kind as to "allow" morgage to be passed to the next generation!
). There has also been strong growth of group mortgages, which enable up to four borrowers to club together and share the responsibility for a loan, and guarantor mortgages, where a parent or guardian underwrites the mortgage repayments.Paul Chafer, sales director of Stroud & Swindon says: “More and more first-time buyers are finding it impossible to get a foot on the property ladder or are being forced to purchase property with friends.”
Brokers say this “buy-to-share” offer can be a simpler alternative to entering a group mortgage as it gives the benefit of enhanced income without locking you into a legal agreement with other borrowers.
Andrew Montlake at Cobalt Capital, a mortgage broker, says: “This seems like quite a genuine move to help first-time buyers. (AtW's comment: no you numbnuts, the genuine move to help would be refuse to lend more than 3 times salary full stop.) It takes into account the economic realities of today without the complexities of a group mortgage.”
He says Stroud & Swindon is the first lender to offer this option across its full mortgage range rather than launching a particular product, potentially with extra costs. It is also unusual for a lender to take into account rental income from more than one room.
Bradford & Bingley has a similar “rent-a-room” mortgage offer. However this is not available on interest-only mortgages and only takes into account the extra income from one spare room.
Takers of the Stroud & Swindon buy-to-share mortgage are able to add £4,250 to their annual income for the first room they are planning to rent. This amount represents the level of income you can make from renting out a room in your home without having to pay income tax.
Borrowers can then add a further £2,125 onto their income for a second spare room – this amount is lower as it reflects the fact that income tax will be payable on any rent gained in excess of £4,250.
Brokers do not expect great demand for the additional borrowing ability gained from renting a second room as most first-time buyers look for two-bedroom rather than three-bedroom properties.
Montlake says: “A lot of first-time buyers do let out a spare room but previously not many lenders have taken this into account.
“The extra borrowing potential could make the difference for someone trying to get on the ladder.” However, brokers say there is a reason why lenders have not traditionally recognised this rental income.
Melanie Bien at Savills Private Finance, says: “Most lenders refuse to take rent from a spare room or two into account because it is not a very secure form of income and you have no track record of it, as you would with a salary or bonus.
As you have yet to rent out the room how do you know how much income you can expect to generate?”
Bien says that as the rental income from spare rooms is not guaranteed it is important that borrowers do not take on a bigger mortgage than they can comfortably afford to repay on their income alone.
So if you are already at the top end of your affordability range it might not be wise to use this option if it is just to further stretch your borrowing ability.
“You should consider how you will manage if the spare room is empty for several months,” says Bien.
-----------
*******s!
Comment