House Buying: Escaping Mum and Dad - BOD014

3:12Kate Matthew:Cool.

3:12Pete Matthew:It's actually quite a well-named wanky word of the week.

3:14Kate Matthew:It is, yeah. And to be honest, on the scale of wankiness, it's not that... No.

3:21Pete Matthew:Moderately wanky.

3:23Kate Matthew:Let's stop that train of thought right now.

3:27Pete Matthew:Okay. Four out of ten on a wankiness scale.

3:31Kate Matthew:I know we created it, but there's only so many times I want to talk about wankiness with you.

3:35Pete Matthew:Okay, that's fair enough. So, where are we starting?

3:39Kate Matthew:We've got a couple of subsections. So, let's start off with the can I even afford a house section.

3:45Pete Matthew:No.

3:46Kate Matthew:No is the answer in my case, to be honest. Thank you for watching.

3:49Pete Matthew:Yep. Nobody can.

3:51Kate Matthew:No, no.

3:52Pete Matthew:So, yes, potentially.

3:54Kate Matthew:Well, question one is how much do I need to get a deposit to buy my house?

4:00Pete Matthew:Okay, so the deposit is the bit you're putting in. Yes. All right. So, you know, there was a time, I remember it well, where you could borrow 110 % of the value of a house.

4:11Kate Matthew:And 10?

4:12Pete Matthew:Yeah. There was a special, I remember this, when I was doing mortgages 20 odd years ago, So Northern Rock had, which no longer exists anymore, funny that, had a mortgage product where they would lend you, I'm sure it was 110, it might even have been 115, but they would give you a 95 % mortgage. So in other words, you needed a 5 % deposit, but they would lend you 110 % because you might need money to do up the house, buy furniture and stuff. It's a terrible, terrible idea. In my head, I was going, that's a great idea. Well, the problem is you end up owing more than the house is worth. So that's suboptimal.

4:49Kate Matthew:Ah, yeah.

4:51Pete Matthew:The short answer to your question is 5 % really. There is talk of 100 % mortgages coming back. Generally speaking, I think that's a bit of a symptom of an unhealthy economy. If money is too easy to borrow, that's not a good thing, right? So a 5 % deposit at least shows willing.

5:10Kate Matthew:5 % of the house price.

5:11Pete Matthew:So if you buy a house for 200 grand, that's a 10 ,000 pound deposit. If you borrow for$150 ,000, that's a seven and a half grand deposit. 5%, but you need to consider that a minimum.

5:21Kate Matthew:Yeah.

5:21Pete Matthew:10 % is better if you can. It opens up potentially more mortgage deals and stuff like that. We'll get to that. But your minimum deposit, call it 5 % for now.

5:30Kate Matthew:Of the house.

5:31Pete Matthew:Of the value of the purchase price, yes.

5:33Kate Matthew:All right. So how much can I borrow based on my salary?

5:37Pete Matthew:Well, here we go with the affordability assessment. Okay. It used to be a lot simpler. Again, back when I was doing mortgages, basically a multiple of your salary, less anything you already owed. So I don't know. Let's say if your earnings were 25 grand and you had a 5 ,000 pound personal loan, you'd get, say, three times your earnings, 75 grand, and they'd take the 5 grand personal loan off it. It used to be dead easy. Nowadays, there's a million.

6:04Kate Matthew:And you could buy 12 houses in the time. Exactly, yes. And the castle for 75 ,000.

6:09Pete Matthew:Can you tell I'm bitter? A little bit bitter and twisted. So look, multiples still kind of exist, but they're really just a starting point. Standard is, say, four to four and a half times your salary. I can see you doing the mental arithmetic. That's standard, right?

6:25Kate Matthew:That's about right to what I was offered in Venice.

6:27Pete Matthew:Well, there you go. And you don't have any debt.

6:30Kate Matthew:I don't.

6:31Pete Matthew:All right. I have a credit card by payoff monthly. Four to four and a half times is standard. You may get offered more if you are in, quote, profession, law, you're a doctor, you're an accountant, solicitor.

6:47Kate Matthew:It's ironic because all those things would have high student loans.

6:50Pete Matthew:We'll get to how student loans affect affordability in a minute. But the point is they are sort of deemed to be secure professions and with good earnings trajectory. Sure. So you're likely to earn more quickly.

7:03Kate Matthew:uber super duper lawyer then you're going to earn the uber super duper pounds that's right so

7:07Pete Matthew:you know very often you might get offered a higher multiple if you're a solicitor than you would if you are a i feel like we mentioned scaffolders last time you know what i mean it's if you're if you're a marketing communications coordinator right do you mean so so you may get a higher multiple you may even get high multiple if you're in london versus if you're in Bradford?

7:32Kate Matthew:In London or looking to buy in London?

7:37Pete Matthew:Looking to buy in London.

7:38Kate Matthew:So I could say I'm looking to buy in London to get a mortgage.

7:41Pete Matthew:Yeah, so look.

7:43Kate Matthew:I can't then buy a house in the land with it.

7:46Pete Matthew:No, not exactly. You've got to think that lending money to you is a risk to the lender. So if the Bank of Building Society or whatever is going to lend you money, they are assessing you for risk. are you a good bet or are you going to default?

8:01Kate Matthew:Yes, I am.

8:02Pete Matthew:Are you going to default on the mortgage? That is get behind and end up not paying it.

8:06Kate Matthew:Okay.

8:09Pete Matthew:So, you know, I think it's, if you're in London, it's less of a bet because chances are house prices may rise more. If house prices rise and you're paying your debt down, the amount that you own gets bigger. It's called the equity you have in the house. So, you know, easy figures. you've got a£200 ,000 house and you put a£20 ,000 deposit down, that's your equity because you owe£180 ,000. But if you pay off your mortgage and it comes£150 ,000 and the house goes from£200 ,000 up to£250 ,000, now you own£100 ,000 worth of equity. So if the house price is likely to rise quicker, that's a better bet potentially for the lender.

8:46Pete Matthew:So they may give you a higher multiple. That's very... we danced around that a lot. You might get a higher multiple if you live in London, Kate.

8:54Kate Matthew:Cool. That's fine. That's all I need to know. I don't live in London, so that doesn't affect me.

8:59Pete Matthew:One last factor, amount of deposit. You may get a higher multiple if you have a bigger deposit. Bloody wish.

9:06Kate Matthew:So I'm really, I've got a really strong deposit behind me, and I can buy a shoebox.

9:13Pete Matthew:Welcome to Cornwall. Yep.

9:16Kate Matthew:Anyway, it's fine. It's fine. I'm not mad.

9:19Pete Matthew:You're a little bit bitter and twisted.

9:21Kate Matthew:Why am I twisted? Just saying.

9:26Pete Matthew:bitter and twisted is a sort of phrase isn't it

9:29Kate Matthew:oh it's a generational difference

9:31Pete Matthew:it must be

9:32Kate Matthew:because bitter and twisted sounds like I'm scheming evil gonna be like the bad guy in a story twisted and bitter I'm just a bit pissed off I can't buy a house in my county alright so going back to that affordability assessment and all of that how do lenders decide what I can afford?

9:58Pete Matthew:Well,

9:59Kate Matthew:I'm pretty good with money. Why haven't they given me more?

10:02Pete Matthew:Well, credit score will be a factor. And so if you are good with money, your credit score will be higher. So if you haven't, you know, got into a bit of a mess with debt or if you haven't missed payments or if you have more savings behind you, stuff like that, all of that will contribute to your credit score. We talked about that a few episodes ago. Credit score is a sort of numerical representation of your credit history, your financial history. So a better score will mean they're more likely to lend you slightly more. If you have commitments, so if you are a member of a gym, if you have a car loan, if you're even paying some insurances, they would consider those commitments.

10:45Pete Matthew:Again, each lender would have slightly different rules on that, but they will consider them commitments. and so we'll factor that in in working out how much they will lend you. And of course remember that it's not just how much they'll lend you, it's the cost of paying it back

10:58Kate Matthew:and that's a variable thing.

10:59Pete Matthew:It depends what interest rates are at. We'll get into that a little bit in a minute. It depends what term you take the mortgage over, how long you're borrowing for. So there's a lot of variables and the lenders will take all that into account but you basically want your finances in good order and you don't want to buy too much house. You don't want to borrow right to the hilt unless you have to.

11:18Kate Matthew:Right, so one thing I remember asking you about when I first started going down the rabbit hole, mortgage, what are fixed versus variable rates? What do they mean? What's the difference?

11:33Pete Matthew:Okay, so rate refers to the interest rate. So if you borrow money from anybody, you have to pay them the amount that you've borrowed, plus you have to pay them some extra for the privilege of doing it, and that's interest.

11:44Kate Matthew:And that's how they make their money.

11:45Pete Matthew:That's how they make their money, right? So interest rates are set kind of nationally by the Bank of England. So there's usually an announcement once a month on a Thursday, and they will say whether interest rates have risen or fallen. So those are kind of like the standard interest rates, and then lenders kind of link to those in some ways, right? Add a couple of zeros. Well, not a couple of zeros. Shift the decimal place to the right. So they will link to it, but not quite as extortionate as that, right? So if the Bank of England base rate moves down, generally speaking, mortgage rates will fall as well.

12:20Okay.

12:20Pete Matthew:All right. So the rates bit refers to the interest. So a fixed rate means that the interest rate is fixed for a period of time.

12:29Kate Matthew:So regardless of what interest rates do in the UK, it will stay the same for however long you've agreed it will stay the same for.

12:36Pete Matthew:That's right. So most people, you wouldn't fix for less than two years, and you used to be able to fix for 10. I don't think there's many of those. I think there's only five now. Five-year fix. So five-year fix, it means if the interest rate is fixed, your monthly payment is fixed. And so that's super helpful for budgeting.

12:49Kate Matthew:Yeah, you know exactly how much you're going to be paying.

12:51Pete Matthew:Exactly. The only downer is if interest rates fall, you've got to pay the higher amount because you're fixed. But the flip is true.

12:59Kate Matthew:If interest rates rise, you get to stay on the lower amount.

13:02Pete Matthew:And so it's a bit of a toss of a coin, isn't it?

13:04Kate Matthew:Yeah, whereas variable, I suppose you get, if I had to guess, it follows the interest rates. It does, yeah.

13:10Pete Matthew:Not always exactly the same, but it's linked to. So sometimes you'll see mortgages expressed as kind of Bank of England base rate plus 1%, say. So as I record this, Bank of England base rate is 3.75%. I know that because I just Googled it because it's quite gone out of my mind. So you might say bank plus 1%, so your mortgage rate would be 4.75%. Bank of England rate falls, so will your mortgage rate. If it goes up, so will your mortgage. So it's linked.

13:40Kate Matthew:Is there a better one?

13:43Pete Matthew:Depends on your needs. I think if you're borrowing, you know, like to the hilt, to the extent that you probably want to fix because you probably want to know what your payments are.

13:51Kate Matthew:You don't want to be going higher.

13:52Pete Matthew:Well, if you fix for five years, the odds are your earnings will increase over that period. And you think, right, okay.

13:58Kate Matthew:Should become more manageable then.

14:00Pete Matthew:More manageable. And then the end of five years, you get to choose again what sort of thing, what kind of deal you go on to.

14:06Kate Matthew:So you can choose if you want fixed or variable.

14:08Pete Matthew:You can choose, yeah, yeah. so yeah which one you choose is more likely to be dependent on your circumstances really

14:17Kate Matthew:what happens when you reach the end of your fixed term so let's say you've agreed to keep it whatever amount for five years what do you do when the five years pass because you haven't paid the whole thing

14:26Pete Matthew:off no so you'll either if you do nothing you'll just go on to the bank's variable rate that usually their svr standard variable rate um which normally isn't that competitive right that's the rate that that people pay if they can't be arsed engaging with their finances, right? So that doesn't make any sense.

14:44Kate Matthew:Which isn't you guys.

14:45Pete Matthew:No, no, definitely not. So when you get to the end of your fixed rate or your discounted rate or whatever, which is just a different kind of variable, right? Then what most people do is they re-mortgage, which means they shop around for another deal. Might be with their existing lender. It might be with a new lender.

15:01Kate Matthew:So does the new lender like buy the debt?

15:04Pete Matthew:They just, no, there's a solicitor involved, right? So your new lender is lender B. They pay the money you borrow to the solicitor. Your solicitor pays it to lender A. So lender A is done, they're done. Yeah, yeah. And now you owe it to B.

15:21Kate Matthew:Okay, that makes sense. Yeah, yeah.

15:23Pete Matthew:They're not buying the debt as such. It's just money is changing hands. Yeah. Well, they are buying the debt in a sense.

15:29Kate Matthew:Yeah. They're giving the money back to A through a solicitor.

15:34Pete Matthew:Yeah. So that's what most people do at the end of a deal. they will remortgage to look for a deal, which makes sense at that time.

15:42Kate Matthew:So what does term change? So what does that...

15:46Pete Matthew:Oh, the mortgage term.

15:48Kate Matthew:Yeah.

15:48Pete Matthew:So the whole term that you borrow over.

15:50Kate Matthew:Yeah.

15:51Pete Matthew:It reduces the payments primarily. So the same amount borrowed over 40 years would be cheaper per month than an amount borrowed over 30 years.

16:01Kate Matthew:Because it's...

16:02Pete Matthew:Because you've got less time to pay it. So your mortgage payment is more.

16:04Kate Matthew:It's going to be higher because you've still got the same total to pay in the end.

16:06Pete Matthew:also if you borrow for longer you're going to pay more interest because interest is an annual thing

16:12Kate Matthew:so do they kind of cancel each other out or no do you know what I mean by that

16:18Pete Matthew:oh I see what you mean

16:19Kate Matthew:it's a cheaper amount monthly if you go for a longer term but the longer term does also mean higher interest

16:24Pete Matthew:depending on the interest rate ultimately it comes down to affordability you've got to decide how much can I afford I want this house I've been told I can borrow the amount of money I need to buy it if I do it over 30 years it's going to cost me I don't know, 1200 quid a month if I do it over 40 years it's going to cost me 900 quid a month 900 sounds better but 40 years is a hell of a long time

16:47Kate Matthew:yeah but realistically you're not going to pay it for 40 years are you

16:50Pete Matthew:well probably not, that's exactly right so probably when you get 5 years in or whatever and I've done this you get a chance to remortgage so let's say you do a 40 year term to make it really affordable

17:00Kate Matthew:which is something that myself, my age group can do. You're not buying a house for a 40 year mortgage, are you?

17:06Pete Matthew:No, I'd be 92.

17:07Kate Matthew:Exactly. But I can because I'll be 63.

17:10Pete Matthew:Yeah, right. So you have a longer term when you're starting out because it keeps it affordable.

17:17Kate Matthew:Yeah.

17:17Pete Matthew:But remember what we said, if you're five years in, you've got 35 years left on your mortgage. Probably your salary's risen.

17:24Kate Matthew:So you might be able to change it to you've got 32 years to pay it.

17:27Pete Matthew:Yeah, instead of 35 years you bring your term down a bit as well as changing your deal.

17:31Kate Matthew:So that will increase your monthly payment but you've probably had a salary increase in that time yeah so each time it sort of comes

17:37Pete Matthew:up for review you've got to kind of assess your circumstances and work out what's best for you you don't have to change it really no you don't have to change your term you basically every time you remortgage you just kind of got a clean sheet of paper what shall we decide this time that's quite cool yeah it's good it's a good way of doing it it's a useful little angle actually just bringing your term down um yeah because your benefit your um salary will probably have increased. You would have paid a lot off though. Problem with very long-term mortgages is that you pay hardly any off in the first years.

18:07Pete Matthew:You're paying almost all interest. Most people think, you know, it's like a straight line. So I pay the same amount off every month. Well, it isn't. In your early years, your monthly payment is almost all interest. And when you get to the end of the term, it's almost all capital, how much you owe. It's just the way it works.

18:25Kate Matthew:Yeah, I have a load of questions in my head about that, but I feel like that's going to take us down a rabbit hole that's irrelevant?

18:30Pete Matthew:Well, only you can decide because I don't know what the questions are.

18:33Kate Matthew:Well, it's like, how? Surely if I'm giving you money, it just is being given to you. I don't understand how it can be just...

18:42Pete Matthew:Well, at what point do you owe the most?

18:45Kate Matthew:At the beginning.

18:46Pete Matthew:And so you're paying most interest on that. Halfway through the term, you'd think you would owe half the amount, right? But you don't.

18:54Kate Matthew:Because you've been...

18:55Pete Matthew:Because you've been paying almost all interest. So it just kind of works its way out so that you're paying mostly interest, but you're paying a little bit of capital, and then you're paying a little bit more capital off, and so you're paying a bit less interest. Then you're paying a bit more capital off as you're in year 10 or whatever, so you're paying a bit less interest. It's all kind of worked out.

19:13Kate Matthew:That makes sense, but it also is stupid.

19:16Pete Matthew:Okay. I'll have a word with the finance people.

19:19Kate Matthew:It makes sense. I get it, but I'm also just... I've just had my lunch.

19:25Pete Matthew:Are you, like, tired or something?

19:26Kate Matthew:I feel a bit sleepy.

19:29Pete Matthew:I was going to say buck up but that's a bit of an old expression

19:31Kate Matthew:I had a toasty and now I'm like ready for an hour

19:33Pete Matthew:just had a coke you should be

19:35Kate Matthew:I haven't finished it getting approved for a mortgage so what credit score do I need

19:44Pete Matthew:there's no minimum score there's three credit reference agencies and they all score slightly different so it's not like it's got to be 600 or more

19:50Kate Matthew:annoyingly that would be a really handy target but there isn't

19:53Pete Matthew:remember every lender has different rules It's simply a case of the higher the score, the better the chances. The better the chances of what? Borrowing at all. Getting a better interest rate, getting more lenient affordability assessment sort of thing. So being offered to borrow more. So there's no cut off. Just the better the score, the better the deal you'll get.

20:16Kate Matthew:Okay. All right. Let's think about things that could affect chances. Do student loans affect it? Car finances, being in my overdraft?

20:25Pete Matthew:Yes, yes, and yes. So, because they all come down to affordability. Like I said, it's not as simple as it was when I started doing mortgages, where you basically, whatever you owed, you just took it off the amount that they would lend you. If you owed five grand, you could borrow five grand less. Now it's much more about monthly affordability, which is actually a positive, by the way. It's much more practical, I think. So it comes, obviously, if you have an overdraft, that's a debt. You're going to be, your credit score is going to be down.

20:53Kate Matthew:Yeah, they're not going to like.

20:54Pete Matthew:A bit.

20:55Kate Matthew:They're not going to want to lend to someone who already has a debt.

21:00Pete Matthew:It's going to count against you. Yeah, it's not a reason not to. No, it will be a sort of like a debit in the column. It'll be a bit of a sort of something against you rather than for you.

21:10Kate Matthew:A con.

21:11Pete Matthew:It won't be a deal breaker. In your profile. A con in your pros and cons column, right?

21:15Kate Matthew:Yeah.

21:16Pete Matthew:If you have car finance, you've got a monthly commitment. You either give up the car and finish the finance so that you don't have a monthly payment. but it's the monthly payment that will get you. So, I'm just wondering if this is slightly counter,

21:30Kate Matthew:not intuitive, contradictory, unless I've misunderstood what you said earlier. You said like having the regular payments, like the gym is a good thing and showing that you can handle that commitment.

21:43Pete Matthew:No, you did misunderstand. Having been a member of a gym, that's a commitment.

21:49Kate Matthew:And that's a bad thing?

21:50Pete Matthew:Yeah, because it reduces your affordability. oh see i did you read it as a i can i can commit yeah okay no that makes sense well to be honest it makes sense and it should be that i remember remortgaging once right with my existing lender all right so i'm on the phone to first direct who i've banked with since we were married yeah and i think at that point i owed him i don't know 230 grand something like that and um i just wanted to change my deal the the deal had come up i wanted to remortgage and they i went like 40 minute phone conversation, they said, right, thank you, Mr. Matthew, I'm pleased to be able to tell you that we can lend you$130 ,000, uh, pounds.

22:28Pete Matthew:That's weird. We can lend you £130 ,000. I said, that's cool, I already owe you£230 ,000. Yeah, no, the maximum we can remortgage you for is£130 ,000. I don't know.

22:40Kate Matthew:How does it even work? Well, I mean,

22:42Pete Matthew:it's bullshit, is what it was. I said, what on earth? I was mad as hell at the time. I'm like, why? And they couldn't tell me why. It's like, computer says no. Remember, but there's nationwide adverts. No. Computer says no, right? Not that long ago.

22:56Kate Matthew:I'm not that old.

22:57Pete Matthew:Oh, I suppose. And she said, well, you're paying into a pension. So that's a good thing, right? Oh, yeah, but it's a commitment. So that's reduced the amount we can lend you. I said, I've just decided to stop paying into my pension. No, no, you are paying into it now. I said, I've just decided to stop. What difference does that make? It doesn't work like that. I said, right, this conversation's over, right? So commitments. That is stupid. It is stupid. I quite agree, Kate. But.

23:23Kate Matthew:All right. Well, maybe it wasn't just me post-lunch not really comprehending that. No. Understanding.

23:31Pete Matthew:Okay.

23:32Kate Matthew:Because, yeah, logically, yeah, look, I pay my gym membership and I regularly do it. I'm not behind on payments. Go me.

23:39Pete Matthew:Yeah, go me. Lend me some money, please.

23:41Kate Matthew:Look how reliable I am with it. It's a commitment.

23:43Pete Matthew:It's likely to take off your affordability. So they will lend you less as a result.

23:47Kate Matthew:That's stupid. So back to the student loan thing.

23:49Pete Matthew:Same as student loans. because student loan is not so much about how much you owe, it's how much you pay every month.

23:55Kate Matthew:But that's depending on how much you earn.

23:56Pete Matthew:Yes, it is. Yeah, but, you know, so obviously if you earn more, you should be able to borrow more, but your student loan payments will be higher, so that will reduce your affordability a little bit. It's just a monthly commitment, student loan, ultimately.

24:08Kate Matthew:It's all of this is stupid.

24:11Pete Matthew:It's like the system's a little bit against you, isn't it?

24:13Kate Matthew:Yeah.

24:14Pete Matthew:And to be honest, that's less the mortgage system than the fact that house prices are stupidly high relative to salaries, particularly in Cornwall.

24:19Kate Matthew:Particularly in Cornwall. But I'm just, yeah, to me, maybe it's a naivety thing, but I'm like, if you're showing your good with commitments, especially, I understand it in the sense of like a car finance whereby you're in some form of debt. But if you're regularly paying something that you can't afford, gym membership, pensions, how is that a negative thing?

24:40Pete Matthew:It bodes well, doesn't it?

24:42Kate Matthew:Yeah.

24:42Pete Matthew:You think from a lender's point of view, they go, oh, okay, this person's pretty tidy with their finances. Yeah, yeah. But it just reduces affordability. In fairness to the mortgage lenders, that's partly government regulation been placed on them.

24:54Kate Matthew:Oh, yeah, I'm just saying the system's stupid. I'm not saying necessarily the mortgage lenders are stupid.

24:58Pete Matthew:Well, in 2008, the entire finance system very nearly came to a crashing halt globally and primarily because lenders were too loose with their lending. They were lending to people with no income and no means of paying it back, particularly in America. There's more to it than that, but that was basically the root cause. And so governments around the world stepped in, bailed out the banks to the tune of basically hundreds and hundreds of billions, and then said, we're not doing that again. We need you to tighten up your lending criteria. And the formality came out of that.

25:29Kate Matthew:I get that. I just do still think that some of the commitments like our gym membership shouldn't go against you, but I am just one voice.

25:38Pete Matthew:But one voice on a podcast.

25:42Kate Matthew:amongst a sea of people who decide to put their opinion out there on a podcast. I am just another one of the masses. Right. So, do I need to be debt free in order to apply for a mortgage?

25:53Pete Matthew:No.

25:54Kate Matthew:Just, it's going to hinder you?

25:56Pete Matthew:Yeah, because it'll reduce your affordability. Yeah. And it's just, it's one more commitment. It's one more thing you've got to pay every month. So, if you can be, you know, we say you want to be free of bad debt if you can. personal loans overdrafts credit cards those are bad debts you really don't want to be taking the commitment of buying a house if you're still carrying that kind of debt get rid of that crap right yeah get an emergency fund behind you so your only debt really is good debt which is a mortgage all right so one of the things when you're applying for a mortgage if you've ever

26:27Kate Matthew:done it before is you need to show your job history and what you've what you earn again and to prove that you're going to be able to afford it and whatever. How much of a job in history do you need to have?

26:39Pete Matthew:I feel like a few months down the line, I could ask you this question because when you get to the point of actually properly applying, you'll have to provide all this stuff.

26:45Kate Matthew:Well, I've done...

26:47Pete Matthew:I know you've had a conversation with Gary, my great friend, and...

26:51Kate Matthew:And he's done kind of not quite... It's like a calculator, but like his version as a mortgage advisor.

26:58Pete Matthew:So you will have to show lots of things, but you want they're going to want your employment history they really want you to be in you know if you're in probation they're going to like you could lose your job at the end they want sort of three to six months worth of job history yeah I was going to say

27:16Kate Matthew:I think Gary said three months so having three to six

27:18Pete Matthew:is good six months of pay slips if you've got six months then so much the better of course that assumes you're employed

27:25Kate Matthew:yes

27:26Pete Matthew:so if you're self-employed you're working for yourself it's harder

27:29Kate Matthew:no doubt

27:30Pete Matthew:there's no like guaranteed payment going in every month. If you're self-employed, you're just like, okay.

27:35Kate Matthew:Got to get the work.

27:36Pete Matthew:I've got to get the work in, got to find it, got to invoice it, get people to pay me. So usually with self-employed, you need two years worth of accounts.

27:44Kate Matthew:To show that you're a safe bet.

27:46Pete Matthew:Yeah, right, that you can afford the debt. Remember the lenders, obviously, they get a lot of heat from the government and the regulators and stuff, but also they don't want to lose money, right? Yeah,

27:57Kate Matthew:on the business side, it makes sense. All right, so from my perspective, it is flipping hard to get on the mortgage, on the property ladder. It's really, really, really hard. There are schemes in place designed to try and help people because it's well known about how tricky it is to get. I mean, I know Cornwall's a specific example, but generally it's really hard to get on the property ladder at the minute.

28:24Pete Matthew:Harder than it's ever been. Yeah. and that's why it drives me nuts and I know it drives you nuts where people my age say well by your age I had a house and two kids and two cars it's like yes

28:34Kate Matthew:because it cost you£12 the example I had was when I was working in a primary school and you went away and I was like freshly 18 or something and you went away for a couple like it was your anniversary trip so you were gone for 10 days and I remember saying oh I get to play house I've got the house to myself for 10 days like wow and this woman who at the time was in her late mid 60s she was rapidly approaching retirement couldn't come quick enough and she said she said how old are you? I was 18 she goes yeah I'd had my first house by that point me and my husband had bought our first house I was like

29:08Pete Matthew:husband it was first of all husband

29:09Kate Matthew:and it was like seven grand and you were earning four or something right

29:14Pete Matthew:it's hard

29:15Kate Matthew:I could rant about this all bloody day

29:17Pete Matthew:so there are schemes I feel like this is a weird kind of therapy but it's not working it's just making the words

29:24Kate Matthew:More Aggie.

29:26Pete Matthew:Say more and more what?

29:27Kate Matthew:Aggie.

29:28Pete Matthew:What's that mean?

29:31Kate Matthew:Wound up.

29:32Pete Matthew:Is it sure for anything?

29:33Kate Matthew:Aggravated.

29:34Pete Matthew:Oh, that makes sense.

29:35Kate Matthew:Aggie.

29:36Pete Matthew:No, I heard that.

29:37Kate Matthew:It's a bit like TZ. Tardin' TZ. Tardin' TZ.

29:41Pete Matthew:That's a very cool one. Anyway, so, rant over.

29:45Kate Matthew:So, there are schemes in place. The two schemes that I've definitely heard of are help to buy, shared ownership. What are they? Do they still exist? Because I've not seen as much.

29:57Pete Matthew:Help to buy doesn't. Definitely. That ended, I can't remember when, but that's not a thing anymore. Okay. Some people may still be sort of part of that scheme, but certainly not new applicants.

30:06Kate Matthew:Yeah.

30:07Pete Matthew:Whereas shared ownership is a current thing. So shared ownership is a government sort of sponsored, is that the right word, scheme? Essentially, it's you can buy with a mortgage a percentage of a property, not all of it.

30:22Kate Matthew:Yeah.

30:22Pete Matthew:So let's say you buy 40%.

30:24Kate Matthew:Which is quite high to me when it's a lot of them, a bit about 25%. Some of them are 25, aren't they? The majority have been.

30:28Pete Matthew:So you buy a percentage, it's usually a smallish percentage.

30:31Kate Matthew:Less than high.

30:32Pete Matthew:And you pay rent on the rest. So the house is owned by a housing association or a local authority or something like that very often. And you buy 25%, 30%, 40 % of it with a mortgage and pay rent on the rest.

30:46Kate Matthew:Which sounds great until you realise you've got a mortgage payment and a rent payment.

30:51Pete Matthew:Yes, and the fact is you don't own the house, you own a part of it. You get usually the option to do what's called staircasing, which means you get the option at future points to buy, say, another 10%. And you can, in most cases, buy the whole thing.

31:06Kate Matthew:Sometimes they're capped.

31:07Pete Matthew:Yeah, not all. Yeah, so it might be...

31:09Kate Matthew:You can buy up to 80 % of it.

31:11Pete Matthew:Yeah, and so if you think that through, okay, you're paying rent on the balance, so if the landlord puts the rent up, that's not a lot you can do about that. if there is quite often there's maintenance charges or ground rent.

31:24Kate Matthew:I was going to say that, ground rent, service charge sometimes.

31:26Pete Matthew:Service charges. So if it's like a flat or if you're on an estate, sometimes you pay maintenance or service charge for maintenance of communal areas or stuff like that. And those costs can go up massively. And there's plenty of horror stories about shared ownership.

31:41Kate Matthew:Because we were looking into it and we were really trying to keep an open mind because the concept is good. The concept makes sense. But there's a lot of sneaky hidden charges out there.

31:50Pete Matthew:Potentially, and it does depend almost on the good graces of the landlords, doesn't it? If you get a slightly dodgy one or one that's, you know, and they're usually pretty wealthy, either associations or individuals, you know, they're probably lawyered up.

32:04Kate Matthew:And there's been quite a lot of talk about it actually recently, hasn't there?

32:07Pete Matthew:Yeah, I mean, it's not optimal.

32:09Kate Matthew:I want to like it.

32:10Pete Matthew:I want to like it very much. But I'm struggling to. It kind of makes sense. And I'm sure, I mean, I know people who've had a very good experience with shared ownership. It's got them on the ladder. They've subsequently sold and moved. into a place that they own all of. But even selling the house, the landlord's got to approve who you're selling it to because essentially that person's got to apply. You have to apply for a shared ownership. So, you know, it's less of a sort of fluid kind of system.

32:34Kate Matthew:And you are still at the whim. At the whim is a very dramatic, colorful way of wording it. But, you know, if something breaks or something, you've got to kind of go through someone else. If you want to fix something, if you want to decorate certain ways,

32:48Pete Matthew:yeah you'd have to press get there um yeah you'd have to get i guess permission for some things but

32:54Kate Matthew:you do own yeah you can paint the house without getting a pretty cool but like you wouldn't want

32:58Pete Matthew:to be moving walls no you wouldn't put an extension on it because you don't own it all

33:03Kate Matthew:well no you can't afford the extension if you don't own the whole house but do you know i mean

33:05Pete Matthew:you've still got a it's not your house yeah it's it's not it might be a means to an end so i mean if you know if you've got a friend who's done a shared ownership and their experience has been brilliant because the landlord's fantastic.

33:20Kate Matthew:Can you please email it?

33:21Pete Matthew:I think that's great. It's not the system that's fundamentally flawed or anything. I think you're just at the mercy of the landlord a little bit.

33:29Kate Matthew:Yeah.

33:29Pete Matthew:So, you know, if you know you can get with a good one, then great.

33:33Kate Matthew:Yeah.

33:34Pete Matthew:But it's not like that.

33:35Kate Matthew:I really, really want to like it.

33:37Pete Matthew:That means you get a lot more house for your money, that's the thing. Within reason.

33:41Kate Matthew:Yeah, you do. Within reason, obviously, like, I was told I could never apply for a, there's no point applying for a four-bedroom one because they just won't approve you as a single buyer.

33:50Pete Matthew:No, because it matters. Each dog has a room.

33:53Kate Matthew:I should buy two more dogs. Okay, so, another thing. Parents. Can parents help or family members or whatever? You know, all of my family, please help me.

34:07Pete Matthew:Is this like a really roundabout way of asking me to help you with a house deposit? Yeah. I've already said that's fine.

34:14Kate Matthew:No, what I was going to say, is does the amount that you get from your parents, does that impact how much you can borrow? Can the parents help you buy in the first place? Yeah. You know, not parents, but...

34:26Pete Matthew:Anybody.

34:26Kate Matthew:Anybody.

34:27Pete Matthew:Yes, you know, grandparents or, you know, whatever. Anybody can sort of help you with a deposit. You know, just say, hey, we're going to give you some money.

34:36Kate Matthew:Does it have to be useful, the deposit? So in my case, I've got a good deposit. I don't need any more for a deposit. But anything you gave me might be really good to filling it. Yeah.

34:45Pete Matthew:Yeah, yeah, no, it's fine. Because if it's a gift from a parent, say, let's just assume it's a parent in this case, then it's a gift. Gifts have to be kind of no strings, technically. So what you use the money for, you know, as long as you don't like going around the world.

34:59Kate Matthew:All on black.

35:00Pete Matthew:All on me with it. You know, usually gifts are given for a particular purpose, particularly in this case. So yes, they can help you with a deposit. Parents can sometimes act as guarantors. So in other words, you think...

35:13Kate Matthew:Oh, that's a wanky word.

35:13Pete Matthew:It is a bit, isn't it? So somebody who guarantees the mortgage. If you think about it from the lender's perspective, you as a 23-year-old, new to the world of work-ish. I'm a risky bet. You're more risky than I am.

35:24Kate Matthew:Yes.

35:25Pete Matthew:Who earns more and... Has worked for longer. Has worked for longer, right? So sometimes parents can act, they can kind of guarantee...

35:33Kate Matthew:Well, that if I won't pay it, you will.

35:34Pete Matthew:Yes, that's exactly what a guarantor means.

35:37Kate Matthew:Fantastic. Let's do that immediately.

35:39Pete Matthew:It's obviously a risk for the parent. Yeah, well, that's irrelevant to me. Yeah.

35:45Kate Matthew:I have found the solution to all of my problems

35:47Pete Matthew:not if you want to inherit one day ah

35:49Kate Matthew:shit

35:51Pete Matthew:so like you know that's one way they can help there is something I never knew but having spoken to my friend Gary and there is now something called I believe it's joint mortgage sole proprietor back when I was I know many wanky words but back when I was doing mortgages you had to both own the house and be on the mortgage. You couldn't do one without the other. So, for instance, I had to be on the mortgage if I was going to help you buy a house. These days, you can kind of help towards the mortgage, but you fully on the house in your own right. And you just help me pay off. I'm just on the mortgage.

36:30I'm not on the house, which is quite an interesting thing.

36:33Kate Matthew:Again, this sounds fantastic.

36:35Pete Matthew:Well, we've talked to Gary a little bit about this, and it's something potentially to pursue, because essentially then my affordability comes into play.

36:42Kate Matthew:oh so I could borrow more

36:44Pete Matthew:you've still got to pay the thing back

36:46Kate Matthew:well yeah I'm not going to try and get a like a half a million pound mortgage

36:49Pete Matthew:but if you think about this in the context say of shared ownership where you'd have a mortgage and a rent right essentially you could maybe borrow more so your mortgage payment would be higher as long as you can afford the repayments you're less limited by the multiples thing multiple of salary because my salary would be taken into account so you're likely to be able to borrow more and as long as you can afford the payments...

37:14Kate Matthew:Yeah. But so in my situation, say, the amount that I can borrow can take me from a 150 grand shitbox...

37:22Pete Matthew:To a 225 grand nice starter home.

37:25Kate Matthew:Yeah.

37:26Pete Matthew:Huge difference.

37:27Kate Matthew:Massive difference. And for a 40-year term, that's not going to be a massive monthly payment change.

37:35Pete Matthew:The downside there, though, is they're not going to lend 40 years to me, are they? Ah. Damn it! The bit, essentially, that I might be kind of responsible for will be a shorter term and hence a higher payment. So it's very specific.

37:50Kate Matthew:So you need to find like a middle ground. Don't go too much of a jump, but also use the fact that you can borrow more.

37:54Pete Matthew:This is another argument for dealing with a really great experienced mortgage broker. As I said last time we were talking about insurance, honestly, I would never ever now, even me with nearly 30 years of experience in personal finance, I wouldn't get a mortgage on my own.

38:09Kate Matthew:Well, no. For example, with both my sister and me, In the last year, having been looking at the house, you said, right, here's my friend Gary. He's fantastic. Call him.

38:21Pete Matthew:Yeah, just ring Gary or sort you out.

38:23Kate Matthew:And he has been brilliant. He's so good. But, you know, this is someone who knows what you're talking about in your field saying, nah, go to them. Yeah.

38:33Pete Matthew:Perhaps I'll check with Gary and we'll put his details in the show notes.

38:36Kate Matthew:Yes, he's great.

38:37Pete Matthew:He is brilliant. We love Gary.

38:39Kate Matthew:Gary, we love you.

38:41Pete Matthew:he knows his stuff and he's been and he's so

38:44Kate Matthew:calm and just answered every question I had yeah he's brilliant and just made me feel like I wasn't an idiot honestly should we film it put him on the telly

38:52Pete Matthew:behind me

38:52Kate Matthew:well do you know what if it was wanted that people wanted a really good in-depth mortgage like somebody who really knows what they're talking about

38:58Pete Matthew:well yeah we can get him on he'd be up for that we'd dial him in on Riverside or something because he lives in Cardiff and we don't so yeah you know unless he fancies holiday chauffeur him down

39:08Kate Matthew:anyway right Right, so that's really good. Get a broker for something as confusing as this. Can your parents help?

39:12Pete Matthew:Yes, in multiple ways. Deposit, guarantor, and maybe even these joint mortgage or proprietor type things. There's more ways than ever that parents, grandparents, other interested party can help you. Yeah.

39:23Kate Matthew:Amazing. Right.

39:24Pete Matthew:So have you got it?

39:25Kate Matthew:Have I got it? Indeed. My iPad is off.

39:27Pete Matthew:The iPad is off. Let's have a look. Minimum deposit you needed?

39:32Kate Matthew:5 % as a minimum, but if you can do 10, fantastic.

39:34Pete Matthew:Standard income multiple for how much you can borrow?

39:37Kate Matthew:Oh, about four times.

39:39Pete Matthew:Yeah, four to four and a half times. What impact does a longer or shorter mortgage term make?

39:47Kate Matthew:Right, so a longer term means you're going to have a smaller monthly payment because it's the same amount spread over longer. But that also means because you're paying the amount for longer, you're going to be paying more of interest.

39:59Pete Matthew:Yes, exactly.

40:00Kate Matthew:A shorter term would be the opposite.

40:02Pete Matthew:How much sort of job history do you need before you apply for a mortgage?

40:05Kate Matthew:Minimum of three, but aim for three to six months.

40:07Pete Matthew:If you're self-employed, you need? Two years. two years worth of accounts really um yeah that'll do i think should we round things up we probably

40:16Kate Matthew:should so thank you so much for watching and listening please if you're watching on youtube like subscribe to the channel pop that little notification bell on so you know when we post

40:25Pete Matthew:do it and if you've got any questions that you want us to answer then send us to send them to us on email hello at bank of dad dot show um use the uh subject line podcast questions we're going to be doing a sort of all Q &A episode pretty soon, next five or six episodes.

40:41Kate Matthew:Yeah, I think so. We do have some links to the show notes. So that is going to be bankofdad.show forward slash episode 14. And they'll be on there for you. So next time we're talking about pensions.

40:55Pete Matthew:Now you're talking. Much more my area than mortgages. What does it say about me that I get excited about pensions?

41:04Kate Matthew:Let's talk about how to win the lottery. Much more exciting but not going to happen on this channel anyway right but yes we're starting a series on a two-part series on pensions getting down to nitty-gritty so important

41:15Pete Matthew:really important looking forward to getting into that

41:17Kate Matthew:so yeah we will see you for that we're looking forward to it we will see you next time see you next time cheers