The Daily Telegraph - Saturday - Money
At our age, is it too late to buy our first home?
Couple want a mortgage in a few years, but at age 48 and 50, what deal can they get? Charlotte Gifford asks the experts
Natalie Morten- Spencer, 48, and her husband Jake, 50, are currently renting in Milton Keynes – but they have dreams of buying a local two- or three-bedroom house for between £250,000 and £350,000.
Natalie, a freelance writer, earns between £59,000 and £65,000 a year while her husband’s annual salary is £43,000. They aim to save £50,000 for a deposit over the next couple of years, putting away £2,000 a month, which they hope is possible thanks to their low monthly rent of £450 each.
However, there are obstacles in their way. Lenders are likely to offer them a shorter mortgage term due to their age. Also, their recent wedding ate into their savings, and Natalie now has just four months’ worth of salary in the bank. Meanwhile, Jake has £20,000 of debt. “Is it better to prioritise paying off the debt or saving for a mortgage?” asks Natalie. “My credit rating is also better than his, so should the mortgage be in my name?”
Natalie is a sole trader and also wants to know whether setting up a limited company would impact her mortgage application. In addition, she is considering investing in a plot of land – an idea that came to her after she hired a basic campsite for a festival for 50 guests in Oxfordshire.
“We paid £3,000 to hire the land for the weekend and it made me realise how lucrative it is to hire out land for events,” she says. “When I looked into the cost of land, I found you can buy a good plot in that region for £15,000 to £ 20,000. So, my thought is that it might be worth investing this amount and setting up a business so it generates a good income that can contribute to a deposit – and/or to our mortgage as part of my earnings otherwise.”
Lisa Caplan Director of OneStep Financial Plans at Charles Stanley
Saving £2,000 a month would seem quite possible. I suggest they carefully add up their monthly expenditure to see exactly where they stand.
First of all, I strongly suggest paying down Jake’s £20,000 debt as soon as practicable, and assuming that it is penalty-free to do so. Any interest they gain on saving cash will probably be less than the interest on the debt. This should be possible within a year with their current rate of saving.
After this, given the rate of saving, it will take them about two years to save £50,000, leaving their existing savings as an emergency fund, and over this period it makes sense to prioritise safety. For any planned spending in a short timescale, it’s not worth taking the risk of volatility in the markets.
Fortunately, it’s not a bad time to be a saver. Inflation is currently receding, and interest rates are set to remain quite high to ensure it remains subdued, so some effort to shop around and find competitive interest rates stands to be rewarded and could cut a month or two off the time it takes to reach their goal.
One issue the couple may not have encountered up to now is tax on savings. Presently, as a higher-rate taxpayer Natalie will have an annual savings allowance of £ 500 that she can earn in tax- free interest, which may come into play as her savings grow. As her husband only pays tax at the basic rate, his allowance is £1,000. For maximum efficiency, it is therefore important they use their Isa allowances where interest is automatically tax-free, and thereafter split the money between them to utilise two allowances.
Regarding the possible purchase of land, I would suggest this should be considered more of a long-term investment. Although £3,000 sounds like a very good income from land costing £15,000 to £20,000, I’m unsure as to the reliability of this. In addition, Natalie should consider that income from land or property is taxed at her highest marginal income tax rate – 40pc. Another consideration would be the time it takes to buy and subsequently resell the land (should this form part of the deposit) and the associated costs. Over the short timeframe involved, therefore, this is unlikely to speed up reaching the deposit amount.
Buying the land first may mean that they pay more stamp duty on the house purchase. If the land is purchased first, they will not qualify as first-time buyers on the house purchase.
The current stamp duty land tax thresholds are £250,000 for residential properties, £425,000 for first-time buyers buying a residential property worth £ 625,000 or less and £ 150,000 for non-residential land and properties.
Luke Thorne Associate director of mortgage broker SPF Private Clients
As well as the deposit, they need to consider other purchasing costs such as surveys, legal fees, broker and lender fees (where applicable), as well as the cost of moving.
The minimum deposit they need to buy a property is 5pc of the purchase price. So, if it’s a £250,000 property, they need £ 12,500 or £ 17,500 for a £350,000 property. If they managed to raise a £50,000 deposit, they would be closer to 20pc or 25pc of the purchase price, depending on property value. The bigger the deposit, generally the better the mortgage rate. However, this needs to be weighed up against a potential rise in property prices during the time spent saving, which could counteract the potential reduction in the rate. If Natalie is a sole trader and wants to imminently get a mortgage, it would be better to stay as she is. Lenders might want a two-year track record for a limited company before agreeing to lend.
A sole trader’s income is relatively straightforward – the lender will use the profit on her tax return to calculate how much she can borrow. If she has a limited company, it becomes more complicated as she may have dividends plus a salary but the profit may be much higher than her income.
If Natalie earns £65,000 a year, she could borrow 4.5 times income so might struggle to get to £350,000 if buying on her own. The couple may want to approach a broker who can get a decision-in-principle, which is a soft footprint and won’t affect their credit score. This will let them know whether a mortgage is feasible or not. If they do decide to buy together, their joint income would be more than £100,000 so they would be borrowing quite a low income multiple. Credit scoring also tends to be less stringent at lower loanto-values; if they borrowed at a 95pc loan-to-value ratio it would be much tighter as they would be “higher risk”.
The couple may have to take a shorter mortgage because of their ages. If they have non-physical jobs, most lenders will agree to a term of up to age 75, as long as they plan to work until then. But if they put down a bigger deposit, they will have a smaller mortgage so should be able to pay it back over a shorter period, so that shouldn’t be an issue.