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Lender response

Gordon Bowden, business development director at Scottish Widows Bank, says that clients should appraise the risks of 100% mortgages with a financial adviser

Ms Wood needs to focus on closing the gap between her aspirations in terms of type of property and cost, and what realistically she can afford. Depending on her circumstances it may be that her parents or a relative could help her out with a deposit. This would need to be in the region of £25,000 to allow her access to the mainstream market, albeit at the top end of the multiple scale. Another option to consider would be a parental guarantee to cover the part of the loan that falls outside normal lender guidelines.

If Ms Wood applied for a Scottish Widows Bank Graduate Mortgage we would look for her parents to provide a guarantee for £28,000. The amount of the guarantee is simply calculated by applying our normal income multiplier of 3.5 to the applicant&#39s salary and deducting this from the loan required. Ms Wood&#39s salary will rise progressively and when her salary is sufficient to cover the entire mortgage we would release her parents from their obligations under the guarantee.

In a case like this, it is important that the circumstances of Ms Wood and her parents are assessed in order that their obligations under the mortgage don&#39t compromise their finances. As part of our assessment of Ms Wood&#39s parents we would also ensure they were in a position to support their daughter with her monthly commitments at least in the short term.

It is fairly typical to have a legacy of debt after leaving higher education. On average graduates leaving university have £12,000 of debt, although some estimates put the figure closer to £15,000. Many graduates find it hard to raise a 5% deposit so soon after leaving university. So it is common for them to require 100% borrowing for the purchase of their first home and, in some cases, a small amount in excess of the purchase figure is required to assist with the associated costs. With the Scottish Widows Bank Graduate Mortgage, Ms Wood could borrow up to 102% of the purchase price.

She should also look for a mortgage that offers flexible features such as overpayments that could save interest payments and reduce the mortgage term. All of Scottish Widows Bank&#39s mortgages benefit from daily interests calculation ensuring the benefit of any overpayments is immediate.

Ms Wood should seek financial advice from a qualified adviser, who can fully appraise the risks associated with 100% lending and the possibility of a fall in house prices. It is surprising that a significant proportion of recent graduates do not actively seek advice.

The Scottish Widows Graduate Mortgage, available to those who have graduated within the last five years, is a base rate tracker mortgage with a 0.25% discount off the bank&#39s base rate for the first six months. It then tracks at 1.25% above the bank base rate, which currently stands at 4%.

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