Is it ever a good time to buy a property? Brexit is throwing all kinds of uncertainty in the air, but don’t let that put you off. If you know in your heart that a mortgage is cheaper than renting, then it could be time to start getting your finances in check. All you need is a hefty deposit. Easy? No, not at all, but it isn’t impossible. If you’re ready to stop feeding the greedy landlord, then here are some handy tips to get you ready to make the biggest move of your life.
Plan, Organise, Check and Check Again
If you’ve been considering buying a property for a while, chances are you’ve been putting a little bit away each month into an ISA. If you’re under 40, you could be taking advantage of the new lifetime ISA that is promised a Government top-up incentive to help you along. Either way, you won’t have to pay tax on the interest, and the limit is so high you’ll not be penalised. So just how much do you need?
Generally speaking, lenders want you to put in 10% or more of the asking price for the house. The rest is covered by the mortgage they agree. Don’t get too excited, though. You’ll also need cash up front for the following:
- Solicitor’s fees – this includes land search fees, filing fees and other costs to be paid in a lump sum.
- Mortgage arrangement fees – typically around the £800 mark, and you may need to add a broker fee on top.
- Stamp duty – this is payable on more expensive properties and must be handed to your solicitor in advance of the purchase. As it depends on the price of the property, I can’t give you a figure, but it could be thousands of pounds.
- Removal costs – you’ll need a van, and possibly some professional help lifting all your furniture. You may need extra childcare costs and a couple of days off work, moving in costs – a professional cleaner, some new curtains, a bathroom renovation? All of these things soon add up. Don’t forget the new furniture or decorating costs! Warning – you may find plumbing or electrical problems you didn’t know about so keep some cash aside just in case of emergency!
- Yes, it soon adds up to a lot of money. You might be convinced you can save a few quid here and there, but you never really can tell what you’ll get until you’re in the thick of it. Instead, consider saving a little more for a little longer. If you don’t need that extra cash, then you can splash out on that new kitchen. But something tells me you’re going to be glad you set a bit extra aside.
- Moving in costs – a professional cleaner, some new curtains, a bathroom renovation? All of these things soon add up. Don’t forget the new furniture or decorating costs! Warning – you may find plumbing or electrical problems you didn’t know about so keep some cash aside just in case of emergency!
Yes, it soon adds up to a lot of money. You might be convinced you can save a few quid here and there, but you never really can tell what you’ll get until you’re in the thick of it. Instead, consider saving a little more for a little longer. If you don’t need that extra cash, then you can splash out on that new kitchen. But something tells me you’re going to be glad you set a bit extra aside.
How can you get started with planning your purchase? Start by thoroughly assessing your spending. This can be done with a detailed budget sheet. You just need to check through your bank statements and credit card bills to see where all your cash is going. It’s definitely worth jotting all this down in a spreadsheet. You may be quite surprised to see how much it all adds up to.
You’ll also need to list the things you know you’re going to need to buy to furnish your next home. If you’re buying together for the first time you may actually need to consolidate the excess furniture. Perhaps you want to buy a new bed, or you’re certain you will have to have a new bathroom. When you’re adding up all the money you need, be sure to include everything. A long distance move will probably require extra fuel and a couple of overnight stays. Have you thought about the difference in price for things like petrol in your new area?
The last thing to do is check, check, check. Make sure your employment contracts are watertight. Be certain your employer’s business is in a good place financially so that your job is safe for the long term. Check with your boss that they are happy with your performance and see a future for you with the firm. Finally, check that you have no big expenses pending like a new car or other bill.
Frugality is the key to getting the cash behind you that you need. Did you know that frugality also gives you a better chance of getting a cheaper mortgage? Your lender will want to see at least three months of your bank statements. This is an affordability check. They’ll see how much you spend, and what you spend it on. If you can curb some of your excesses now, then you’ll be able to ‘cleanse’ those all-important bank statements.
Here are some of the expenses you might want to stop showing up on your bank account:
Coffee shop bills
Large phone bills
Retail therapy – online and highstreet shopping
With a strict and detailed household budget, you should be able to curb or cut down many of your monthly expenses. Use an energy comparison website to reduce your gas and electric bills. Cut down your nights out and clothes shopping for a few months. Use up your free minutes for phone calls instead of the landline. These simple tweaks could save you a lot of money that could be slipped into your savings account instead. Who knows? You might find you can live quite comfortably without splashing out on all those things.
What The Mortgage Lender Wants From You
Mortgage lenders love to see savings accounts that are regularly contributed to. They’ll see what you can afford to save. Try to make that amount equal to or greater than your potential monthly mortgage repayment. Even a small sum each month will count because they add that to your rent bill to decide if you can afford to pay the mortgage back.
The next thing to ‘cleanse’ is your debt history. Surprisingly, you do actually need to have some credit outstanding to be eligible for the best mortgages. They include your overdraft (providing you’re not using it), your zero-balance credit card, and your up-to-date energy or mobile phone bill. Every loan, car loan, or unpaid credit card will count against the amount a lender will offer. Let’s face it – it’s a bit daft putting money in a low-interest savings account when you’re paying high interest on outstanding debts. Clear them, then consider saving for something else.
When you’re happy you’ve done everything you can to impress a potential mortgage lender, it’s time to start hunting for a property. Generally speaking, it is best to stick with a house that is no more than 3.5 times your combined, gross annual income. Some lenders will go to 4 times, but this is a substantial financial commitment. You should seriously consider what you’re getting into with that amount of debt.
Have an area in mind that you would like to move to, but don’t be too specific, we live in Norfolk, but our children go to school in Suffolk because we are on the border, if you are working in Cardiff maybe consider looking at living in Newport, decisions obviously depend on work location and the types of roads you will have to travel on a daily basis.
You may have to look at cheaper areas. You might even have to consider a smaller property than is ideal. Perhaps you can only stretch to a doer-upper? The first five years are the toughest for your mortgage repayments. Pick a property you will be happy to work that little bit harder for. As your salary goes up and your debt goes down, you might be able to consider upsizing.
Buying a house isn’t easy, and it is never risk-free. It’s a big move and a huge commitment for you and your family. If you’re ready to make a move to home ownership, then start your plan of action. Good luck.