Mortgages Exercises

A Harry and Julia Newton earn basic pay of £4,800 and £30,500 a year respectively. Under Harry's terms of employment he is entitled to a bonus that varies in amount but which has averaged £600 a year over the last three years; £400 of this is guaranteed. A building society has indicated that on an earnings basis it would consider an application for a £16,750 mortgage on the joint incomes under normal conditions, but that with interest levels of 15% the total borrowing would be restricted to £13,675. Show the society's calculations of these amounts. Could the couple hope to get a top-up loan to bring the total borrowing to a higher level? Give reasons for the answer.

B What will be the single premium on the mortgage guarantee that will be required for a mortgage loan of £24,000 on a property valued at £27,000, where the rules of the society require independent security to be taken for the excess lending over 80% of valuation? Assume the premium rate to be 4%.

C What will be the net cost after tax relief to a basic-rate taxpayer of the first complete year's instalments on a 25-year repayment mortgage for £10,000, basing your answer on the specimen figures ).

D What will be the approximate initial costs involved in purchasing a property valued at the purchase price of £18,000, and obtaining a 90% mortgage on it from a building society? Base your answer on pages 102 to 104, and include the mortgage guarantee premium.

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