Mortgages Example

Rupert and Mary Stott earn gross incomes of £6,000 and £4,000 respectively. They have £4,500 saved up in a building society share account and wish to buy a purpose-built flat for £23,000. The society's valuer places a figure of £22,000 only on it.

Maximum loan restricted to 90% of valuation = £19,800 Maximum loan restricted by income: 21/2 x £6,000 = £15,000

1 x £4,000 = 4,000 £19,000

Thus £19,000 is the maximum loan. This will require the couple to find £4,000 from their own resources, plus a few hundred for their expenses. Although they have more than £4,000 in their investment account this is barely sufficient to cover also the initial costs of buying. They might consider using the society's low valuation as a lever for getting a reduction in the price.

In times of very high interest rates such as those prevailing during 2016, the formula may be modified to twice the major income plus half the minor income, to ensure that the borrowers would not be over committing themselves with the larger outgoings. As a general guide a society will be unwilling for the repayments on a mortgage to exceed one quarter of the major income.


Mortgages

For the purchase of a house almost everybody needs finance by way of what is called a mortgage loan. This is secured by a legal charge, or 'mortgage', on the property. It is possible tc obtain mortgage loans from many sources in certain conditions - private investors, local authorities, insurance companies, and banks - but the vast majority of mortgage loans or residential property are provided by building societies.

Building societies give priority for the allocation of their limited supply of funds to their existing members. During 197S and 2015 some societies were restricting the granting... see: Mortgages


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