There is a way single borrowers can afford to buy their own home
Posted by Kevin Gray 29th October 2019
Housing affordability in the UK is a hot topic. And while the situation is showing slow but sure signs of improving, the number of adult children living with parents while they save for the keys to their own front door, continues to rise.
The high value of UK property requires every potential home buyer to pass two major tests in order to grab their dream home. The affordability hurdle has become even harder to clear in recent years since the introduction of the Mortgage Market Review. This piece of regulation requires lenders to stress test every borrower’s ability to afford their monthly repayments at the rate of interest they will pay, not when their mortgage starts, but at the point their initial product discount ends, plus add an extra interest element to cover the possibility of future increases in the Bank of England base rate. Although the affordability test protects borrowers in the event of rising interest rates, it makes getting a mortgage in the first instance much more difficult than it ever was historically.
There are really only two ways of getting a cash deposit together. The traditional way is to try and save it. This is frequently done with the assistance of government savings schemes such as Help to Buy ISAs and Lifetime ISAs. The second way is to be given the cash from a relation i.e. the so called ‘Bank of Mum and Dad’.
In the absence of a large cash deposit, borrowers can also use other forms of collateral to reduce the risk to their lenders and by doing so also reduce the rates of interest charged on their loans. Mortgage Indemnity Guarantee mortgages and collateral charging of other properties are classic examples of secondary collateral. Of course, not everyone is lucky enough to have relations who can either give them a cash gift or indeed offer their own properties as collateral. For all potential borrowers, with or without assistance from their families, the affordability test must always be passed.
Married or cohabiting couples are at a distinct advantage when testing mortgage affordability as they generally have two incomes. But what if you’re single? How can single people, with only one income, be able to afford mortgage payments? How can individuals who find themselves single again, continue to stay in their own homes when the second income supporting their mortgage disappears when personal relationships dissolve? Bath Building Society has come up with one innovative solution called the ‘Rent a Room’ mortgage. This product allows single borrowers with no dependent children to rent out a spare room and for the rental income to be used to support up to 50% of the overall loan repayments. The product is a hybrid between a traditional home purchase mortgage and a buy-to-let mortgage. Our Rent a Room product allows our single customers to effectively borrow a higher multiple of their employment income, thereby allowing them to either secure a new home or to remain in a home when a partner moves on. It is also tax efficient, as UK individuals are permitted to receive up to £7,500 per annum from renting out a room in a property that they also occupy before any rent becomes subject to income tax.
You can only get the Rent a Room mortgage at Bath Building Society. If you are a single person who can muster a sufficient deposit for a mortgage but who lacks enough earned income to be able to afford ongoing monthly repayments, then perhaps Rent a Room could be the answer for you. If you would like more information on the Rent a Room mortgage, then please speak to one of the Society’s Mortgage Advisers on 01225 475730.