Dear Delia

Dear Delia My clients are a married couple. The wife was discharged from bankruptcy two weeks ago while the husband set up an individual voluntary agreement six months ago. They want to buy a house and would like the mortgage to be in both of their names.

They have a joint income of £70,000. They can put £34,000 down as a deposit. Should they look to take out a joint mortgage or put it in only one of their names? Delia says: There are a number of options available to the couple, despite the bankruptcy. Brian Murphy of the Mortgage Advice Bureau and Shaun I’Anson of Preferred look at the options.. Have you got a problem for Delia? Email mortgage.strategy@centaur.co.uk

Intermediary Response
Brian Murphy is head of lending at the Mortgage Advice Bureau

The client scenario given in the outline of this case does not provide an indication of whether the clients are employed or self-employed and for what period they have been in their jobs or trading.

Although we should assume nothing, clients such as these who have been discharged from bankruptcy and made arrangements with creditors may well have got themselves into problems due to their inability to live within a realistic budget.

First, we need to ascertain a monthly budget that the couple feel they can comfortably afford and based on their recent history they may be prudent to err on the side of caution and set their sights slightly below the maximum borrowing level, property prices permitting.

The clients in this case have a healthy deposit available and that should allow them to pay for all of the fees associated with buying a property and still allow them to invest about £30,000.

Again, we do not know what these customers’ family arrangements are. If they have children living with them they will no doubt require a property with several bedrooms rather than a flat.

Based on the couple’s joint income of £70,000 BM Solutions would be prepared to lend up to 3 x for customers with this type of credit history. That would allow them to borrow up to £210,000. With their £30,000 deposit they could look at property at or around £240,000.

The fact that the wife has been discharged from bankruptcy for only two weeks limits their borrowing options but several exist. And the husband’s IVA having been set up only six months further limits the options. This arrangement will require confirmation that it has been well conducted and that the IVA company will give its consent to a mortgage.

However, the couple should be eligible for BM Solutions’ medium sub-prime range. BM will only lend up to 85% LTV so the customers may need to reduce their purchase price band to allow a £30,000 deposit to represent 15%. Rates include a three-year tracker at 6.35% with a £599 fee, free valuation up to £490 and £250 cashback.

If that proves to be a non-starter, other options depend on whether the couple want a fixed or variable rate.

GMAC Partners’ criteria should be able to offer Level 1 products for these clients, and can offer either a 6.79% two-year fixed rate or a two-year discount of 1.05% giving a pay rate of 6.29%. Both of these deals are available up to 90% LTV.

Lender Response
Shaun I’Anson is head of mortgage processing at Preferred

This couple’s circumstances raise a number of interesting points. First, before they make a commitment to buy a house they should discuss their plans with a financial adviser.

The IVA and the bankruptcy mean many high street lenders will not offer a mortgage but a good adviser will be able to suggest a specialist lender such as Preferred. Getting advice at an early stage will help them understand what they can afford.

The traditional method of calculating the amount that can be borrowed using income multiples is fast being replaced by affordability calculations. These take into account income plus expenses including loan repayments. In this instance the income could be single or joint. The lender then calculates whether the borrower can afford to repay their monthly mortgage payment.

We know that this couple’s deposit incorporates family loans so they should take into account the terms of those loans – for example, when will the family members expect repayment and will they want interest payments? It might be wise to set out the terms of these loans in writing.

As long as the husband’s IVA has been well conducted it will be of less concern to potential lenders than the wife’s bankruptcy so, depending on how much they want to borrow, they might want to rely on his income alone.

Taking only the husband’s circumstances into account we could offer our select mid product as long as his IVA has been well conducted. Rates start at just 4.94% on a discounted product and 5.64% on a two-year fixed rate product.

The couple want the property to be registered in their joint names so they should seek legal advice. It is important that they understand their home could be at risk if they get into financial difficulty again.

If they decide to make a joint application the combination of the husband’s IVA and the wife’s bankruptcy may make it harder for them to get a mortgage but there will still be options. We could offer our select unlimited product which caters for a discharged bankruptcy and an IVA that has been well conducted for at least six months. Rates start at 5.24% on a discounted product and 5.94% on a two-year fix.

Whether in joint names or not, because of their financial history the amount the couple can borrow will also be restricted by the LTV. But in the case of our select unlimited product they should still be able to borrow up to 85% of the property value, subject to the affordability calculation.