First Start is a brand new solution for those who are just shy of their aspirational borrowing needs and need the support of a sponsor to boost their borrowing power.
This type of proposition has many benefits beyond just securing the purchase itself. You have the opportunity for more protection sales as there may be a need for the sponsor to take protection separately from the main applicant(s). Additionally, as the fact find will gather data on the sponsor, it can generate remortgage and sales leads including will writing, income protection, GI, retirement planning and so on.
Case Study 1 – John and Amy – Home Movers
John and Amy are home movers. They’re looking to sell a 2 bedroom townhouse in favour of a 3 bedroom detached property in the midlands. This is partly in preparation for starting a family in the years to come but primarily because Amy recently became self-employed as a specialist seamstress / blind maker and needs additional storage space. Although she is doing very well, projecting her earnings in the first year to be around £24,000, she has officially only been self-employed for 6 months.
They have found a property for sale at £229,500. However, they have limited funds available since Amy went self-employed, so they’ll need to use most of the existing equity to fund the costs of the move and therefore are only able to raise a 5% deposit.
John is a primary school teacher. He currently earns £28,000 and has car finance of £200 per month. As Amy has only been self-employed for 6 months, most lenders would not consider her to have any assessable income for mortgage purposes. Based on John’s income alone, the typical maximum borrowing on a 25 year term would be £119,000.
While John’s parents are eager to help out, they too have limited available capital and certainly nowhere near the amount required to meet the shortfall between John’s available maximum loan size and the purchase price. John’s father, however, is willing to support the couple by acting as a sponsor.
John’s father, Terry, is a senior manager earning £55,000 a year and will be 55 on his next birthday. He and his wife have a modest £72,000 repayment mortgage remaining on their own property, which has 10 years left to run. He also has a lease car finance agreement which he pays £295 per month for. His wife Liz is not financially dependent on Terry.
Using Bank of Ireland’s First Start affordability calculator, combining Terry’s and John’s income together, the borrowing capacity is increased to £221,993, over 25 years, therefore meeting their borrowing requirements and enabling them to fund the purchase of their new home. Terry, John and Amy are all named on the mortgage and will be jointly and severably liable for the debt. Terry is however able to avoid any further SDLT liability by opting not to be named on the title deeds after having taken independent legal and tax advice.
Case Study 2 – Suzy the First Time Buyer
Suzy, a First Time Buyer, has been working in the city for 12 months. She’s found the commute from her parent’s home very time consuming so she wants to buy nearer her place of work. She earns £30,000 per year and has found a flat for sale in a development which is 10 storeys, built in 2009, with commercial premises in the ground floor. The price is £250,000. Her parents have offered to gift her the 5% deposit, so she needs to raise a mortgage of £237,500.
Based on her current earnings and a term of between 25 and 35 years, Suzy can typically borrow £135,000 which is far short of her required borrowing.
However, her mother Tanya, a successful business woman, has offered to be a sponsor on her daughters mortgage. Tanya will be 54 on her next birthday and earns £65,000. Her husband Gordon has taken early retirement, but hasn’t yet chosen to draw on his pension, so is therefore currently financially dependent on Tanya. They have another daughter, who is 15, also living at home and still in full time education. Tanya has a car finance agreement that she pays £350 per month for. Both she and Gordon have an outstanding mortgage of £100,000, with 15 years remaining.
Using Bank of Ireland’s First Start affordability calculator, combining Suzy and Tanya’s income together, the borrowing capacity Is increased to £245,251, over 26 years. This meets Suzy’s borrowing requirements and enables her to purchase in her desired location. Both Suzy and Tanya are named on the mortgage and will be jointly and severably liable for the debt. Tanya is happy to assist Suzy with the mortgage repayments and is able to avoid any further SDLT liability by opting not to be named on the title deeds after having taken independent legal and tax advice.
