UK
PROPERTY NEWS & ADVICE
The Real Cost of Mortgages
The
subject of mortgages has attracted so much hype and general
media interest over recent years. As I write the press attention
focused on Northern Rock's much discussed collapse shows no
sign of abating. It's hardly a surprise we're all so interested
considering that the property market is something that affects
pretty much everyone, whether we're already homeowners or
are contemplating our fist cagey step onto the property ladder
the state of the property market is something that affects
all of us.
What often get neglected amidst all this media speculation
are the basic issues associated with buying a house and there
are few more fundamental issues, particularly for first time
buyers, than the simple question of how much you can realistically
afford to pay: How big a mortgage can you reasonably stretch
to?
Purchasing a house is inevitably going to be pricey, it's
bound to be amongst the most expensive things one will ever
buy. Needless to say, the importance of getting it right is
not something any of us should underestimate, you should be
prepared to consider long and hard how far your budget can
realistically stretch. The first thing to consider is how
much you earn: lenders will generally be willing to give borrowers
between three and four times your salary. Those buying with
a partner can expect lenders to increase the amount they are
prepared to give to you by your partner’s salary. So,
if you're on £30,000 you could expect to borrow £120,000,
if you're partner is earning £20,000 you might be looking
at £140,000. Alternatively you may be offered something
like 3 times your salaries combined - in this case that would
make £150,000, a slightly bigger loan.
Mortgage providers might be prepared to give you a larger
mortgage if, as is increasingly common practice, they consider
your financial track record in addition to simple salary multiples.
This would involve a lender looking at your statements and
outgoings and using this as a consideration in their calculations.
Therefore, if you are deemed to have managed your finances
well in the past your lender may be prepared to offer you
a larger mortgage that they otherwise would have. Conversely,
those with a poor credit history are liable to be offered
less.
Don't simply assume that once you've confirmed how much you're
going to borrow and how much you can afford to spend on the
deposit (remember that the more you manage to put down as
a deposit the lower you're interest rates are likely to be
- it's therefore really worth getting together as big a deposit
as you possibly can) this is the last of you're spending.
You really need to account for the various additional costs
that are bound to emerge before you can consider moving into
your dream home.
Aside from the multitude of niggling extra costs such as valuation,
survey and legal fees (at a rough estimate you should probably
budget about £1,500 for these) the largest single additional
cost will probably be stamp duty. This works on a sliding
scale as follows: if the property value is under £125,000
then there will be no stamp duty fee, £125,001 and £250,000
will be a 1% fee, £250,001 and £500,000 will be
3% and over £500,001 will be 4%. Of course, for sellers
there is also now the added extra cost of a Home Information
Pack to factor in, you can probably expect to spend between
£400 and £700 on a HIP.
It's also prudent to assess your finances for yourself, don't
imagine that because a lender is happy to give you a big mortgage
you can actually afford to pay it. Look at your monthly income
and expenditure and consider realistically what you can afford.
It's important to be honest with yourself and not commit yourself
to anything that will significantly stretch your funds - a
dream home is not worth bankrupting yourself over. Take a
look at one of the many mortgage calculators out there, most
big lenders will have one on their website (you can find a
Mortgage Calculator at Natwest’s website, on their mortgages
page, or the BBC property site for example). Alliance and
Leicester are also a leading lender, offering the mortgage
calculator service. In addition you can save money and time
by checking out a Mortgage comparison site like Moneysupermarket,
to keep up to date with the best deals.
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