Mortgages

[johnny37]

My son has been dealt a bad hand by Natwest. After saying online he could have £180K (90%) they have reduced the offer to £174K by deducting his pension contributions. Is this normal? Again Bank of Mum and Dad is going to chip in otherwise he can never move forward. He has a good job (police) two children nothing dodgy on his credit rating. For all intents and purposes is a reliable borrower.

Thanks

[fiction-factory]

It's up to them to decide how much they can lend him. Nat West would be criticised if they allowed someone to borrow too much and as a result the customer ended up in arrears. It seems reasonable to me to use his salary net of pension contributions since he doesn't have those amount contributed as available money

[Buenchico]

Since the financial crisis (which, if it wasn't for Government help, would have seen many High Street banks going bust), banks have been subject to far stricter rules on lending. One of them is that they must now take into account all of a customers outgoings (rather than just his income) when determining the maximum amount which they can lend. So I'm unsurprised that your son's pension contributions have been taken into account.

With a mortgage rate of around 4%, a 25-year loan of £174k will require a repayment of around £920 per month to service it. However the Bank of England's base lending rate is currently at an all-time low, of 0.5%. That's expected to gradually rise, up to a more 'normal' figure of perhaps 4.5%, requiring mortgage repayments of about £1340 per month. (If the base rate rose as high as it did in 1979, the mortgage repayment would need to be around £3000 per month). So the bank needs to think ahead when offering mortgages, to ensure that their customers will still be able to meet the repayments when interest rates rise.