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Financial Mathematics and Business Statistics: Individual Coursework
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Question 2: (25%)
Kyle Dier is looking to buy his first home and through savings and a gift from his parents he has managed to raise £120,000. Kyle has identified two possible properties, a one bedroom flat in the centre of town that costs £350,000 and a three-bedroom house outside of town that costs £500,000 and he’s decided to ask for your help identifying the best mortgage offers he can choose.
Required:
Identify (and clearly indicate them in your submission) a minimum of three lenders Kyle could borrow the money from and discuss the mortgage alternatives available and the respective terms and applicable interest rates;
For Kyle Dier to afford either of the two properties, he will be forced to use his savings in addition to another financing tool which includes a gift from his parents or mortgage.
Option 1: Savings plus parents gift or mortgage
Amount required for one bedroom at the centre of town
Cost – savings = parents gift/loan/mortgage
£350,000 – £120,000 = £230,000
Amount required for 3 bedrooms at the centre of town
£500,000 – £120,000 = £380,000
Therefore, Kyle will require £230,000 for him to purchase the one bedroom house and £380,000 to purchase the three bedroom house out of town centre.

Mortgage types available
There two main types of mortgage that can be utilised effectively to purchase the house are 125 percent and interest only mortgage. 125 percent mortgage is a product that allows the homeowner to borrow 125% of the property value and committing a 10% minimum deposit.

In this case, Kyle will commit 34% or 24% of the one bedroom or three bedrooms respectively. Interest only mortgage are offered at a much lower rate where none of the capital is paid off. In this case, Kyle does not need to deposit his £120,000 to get a mortgage. The interest and mortgage payable are as shown in the excel sheet.

For the most favourable rate for each type of mortgage (interest only and repayment), calculate the monthly payment Kyle would need to make for each of the properties he’s looking to possibly buy if he chooses to take out a 20-year mortgage;
As shown on the excel sheet, the most favourable rate for Kyle is in purchasing the one bedroom house is 125 percent mortgage because the interest rate payable in a month is £20700 while for interest only mortgage £31500. The most favourable rate for Kyle is in purchasing the three bedroom house is 125 percent mortgage because the interest rate payable in a month is £34200 while for interest only mortgage £45000.
Kyle believes it is highly likely that he will receive £75,000 in two years’ time and if he does, he will use the money to make a partial payment of the mortgage. For both options in b) and considering the payments he will have done by then as well as the one-off partial payment, calculate the monthly payments for the remaining 18 years of the mortgage.

The new monthly repayment after paying the lump sum will be lower as shown on the excel sheet.
Make a recommendation on the property Kyle should buy purely on financial terms and identify what other factors should be taken into consideration when making the final decision.
I would recommend Kyle to take the 125 percent mortgage. Financial institutions such as United Trust Bank, Equifinance, Precise Mortgage and Prestige finance provide homeowners with the best mortgage rates in the UK (Trusted Home Loans, 2018).
References
Trusted Home Loans (2018). Compare Mortgages. Retrieved from https://www.trustedhomeloans.co.uk/loancomparison.php?utm_source=google&utm_medium=cpc&utm_campaign=Comparison%20Broad&utm_term=loan%20comparisons%20b&gclid=CjwKCAjw-bLVBRBMEiwAmKSB81Bp8VPWnhPRdFUT2TPSE28x1aH_T4tA8Nq-hh0sMJBIEngqLxAIghoC9I0QAvD_BwE