The Million Pound Mortgage..........for ￡1,500 per month

This weeks case was really interesting as it was a case of really stretching what the client could achieve and being creative about how we did it - but it was also a perfect illustration of just how inexpensive borrowing is at the moment.

Initially our client was looking for a mortgage of around ￡800,000, and after running affordability and doing a Decision in Principle we were able to get a maximum of ￡816,000. He had a deposit of ￡600,000 from the sale of his current property and savings to cover stamp duty. With that kind of budget he should have had a pretty good chance to get the house of his dreams...... after all ￡1.4 million buys a lot of house!

However after months of searching nothing was ticking the boxes for him and his family....except one house! Problem was that it was for sale for 1.7 million!! A bit out of range. My client was determined...he wanted that house ....so our remit was to make it happen for him. He negotiated the price down to ￡1.6 million (for a quick purchase) so his message to me was clear... "Get me a million of lending!"

HOW WE DID IT

The immediate problem was that we had already got him the maximum allowable at ￡816,000. We needed to re-engineer the case to get this figure upwards, and we started with his commitments. As a high earning couple this couple had expensive cars on leases, ran large but completely serviceable credit card balances and there was also a case of one client paying court mandated child maintenance....while the other received maintenance we couldn't declare as it was informal.

None of these elements on their own would make a major difference to borrowing levels, but combined they made a huge difference to borrowing capacity. It is what I like to call the 'marginal gain and compound factor' in mortgage affordability.

As an example your car payment might be ￡350 per month....however when you multiply this by 12 for a yearly cost that's ￡4,200...and dependent on the lender and given that they may be lending 5 x income....that's ￡4,200 they will deduct from income and 5 x that ￡4,200 that you lose in borrowing capacity! In other words, having that car payment might be costing you ￡21,000 less in terms of how much you can borrow.

By clearing the commitments shown above and making a few other tweaks we were able to demonstrate that ￡2,225 less was going out every month, and that ￡1,200 extra was genuinely coming in every month. That's a shift in the plus column to the tune of almost ￡3,500 per month. Over a year that's just shy of ￡42,000 and when you multiply that by 5 which is the multiple offered by the lender in question that made the difference between ￡816,000 maximum borrowing and the ￡1 million we wanted.

Mission accomplished.....almost.

Our clients other remit was to keep the monthly payments as low as possible. This had to be done whilst also bearing in mind what was ultimately best and would cost least over the long term for the client.

Importantly the client was planning on downsizing later on. Whilst the house was perfect for now, with children and also additional children visiting at weekends and holidays the multiple bedrooms are needed. Later down the line as the children grow up the couple can comfortably downsize to another beautiful house, but without the need for the scale and size.

So on this basis we structured the mortgage in the following way.......

Using this structure meant that a portion of the mortgage was getting paid off...

A chunk of the mortgage was interest only but would be cleared by sale of property...

The deposit would likely increase in size as the value of the property increases over time (also factoring in that they negotiated a good deal initially)

Our clients monthly cost? Just ￡1,495 per month!

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