Buying a property is a big step involving a substantial long-term financial commitment, so think hard about what you can afford. You will need to consider the assets you have – like savings – as well as the money that’s coming in and going out.
Although it may reduce your buying options, you don’t want to commit to a mortgage and then realise you can’t afford some of the nicer things in life! It may sound obvious but take time to think of all the things you spend money on throughout the year, even without a mortgage. Using a Budget Calculator to help you determine what you may be able to afford on a new mortgage – this simple calculator could save you a lot of time and pain in the long run.
Once you know what you are able to pay back on a mortgage each month you can use a Mortgage Calculator to find out what total mortgage amount your monthly payments could represent.
In addition to understanding your monthly budget limits, you need to work out your one-off moving costs.
For most people buying a property the biggest ongoing cost is the mortgage (simply a loan secured against a property). You can’t sell the property without paying off the mortgage first and if you don’t keep up the repayments the lender can repossess the property.
Because of the credit crunch, it is vital that you secure a mortgage with a lender before starting the searching process. This way, when you find the right property, you will avoid being beaten to it by another buyer and you will also be in a much stronger negotiating position.
Generally, the best mortgage deals are available to people who put in at least 15% of the property’s value, leaving the mortgage company to lend the other 85%.
If you put in less than 10%, you may have to pay a “Higher Lending Fee” (sometimes called a Mortgage Indemnity or a Mortgage Guarantee Charge) which will add to the cost of your mortgage. As a rough guide, providing the amount you are borrowing is at least 85% of the property value, budget to add 1.75% onto the Bank of England base rate, which will give you a ball park figure of the likely annual interest rate.