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Will I ever be able to afford a house?

08th January 2019

This is a question that is voiced a lot amongst young professionals in London. Leaving home and moving into a shared property when starting out on your own is fun for a time but after a while, the freedom and excitement of living and working in London becomes less of a novelty and simply a part of normal, busy day-to-day life. A person in their early twenties may be willing to put thoughts of owning their own property into the back of their mind as something to deal with in the future. However, once they are earning enough to consider it – or they become tired of dealing with landlords and cohabiting with housemates – owning a property of their own becomes more of a priority.

If you are beginning to consider your options and are dreaming of building up to purchasing your own flat or house, this article will help you to get to grips with exactly where you need to be.

Mortgage affordability

In order to establish ‘how much house you can afford’, mortgage lenders will look at the following:

  • Annual income before tax
  • Monthly take home pay
  • Any additional income
  • Monthly outgoings
  • Future changes of circumstance

 

They will also need to know how many people are applying (whether you are a single applicant looking to buy a home with someone else).

How much do I need to earn to get a mortgage of £250,000?

There are a number of online mortgage calculators which you can use to get a rough idea of how much you could realistically borrow. Money Saving Expert also provides an easy to use mortgage calculator. While they are helpful, these calculators should be taken as guides only.

What costs are involved?

One off: deposit and fees

In general, buyers need to provide a deposit of at least 10% of the entire purchase price. (The remaining sum is what you borrow through your mortgage). Deposits asked for by sellers range from 5% and 25% and, in terms of your mortgage rates, the higher the percentage your deposit equals, the cheaper they will be.

You need to factor in the various fees and charges that come attached to most mortgage agreements. These include arrangement fees, booking fees, valuation fees, Clearing House Automated Payment System (CHAPS), broker fees, legal fees and stamp duty. To find out more about the fees you may be paying and roughly how much these will be, make sure you do your research. Again there are plenty of online resources, such as this guide by MoneySuperMarket and our simple and easy to read mortgage fees overview. We always recommend seeking professional guidance to make sure you are made aware of all fees prior to signing any contracts.

Monthly: mortgage payments

Once your deposit is paid and you have taken out your mortgage, you will sign a monthly repayment plan and contract through which you are agreeing to your mortgage rates and how much you will be paying the lender each month. This will continue until you have cleared the debt, then you will own the property. According to MoneySuperMarket data, the average monthly mortgage payments for first-time buyers is £761. However, the amount you pay each month will depend on the size of your deposit as well as your financial history and the economic climate. To learn more about this you can find guides on the different mortgage terms offered, high risk mortgages and loan to value ratio on our blog page.

How much do you need to save?

The main expenses you need to save for are the deposit and the fees. Mortgage repayments – particularly when shared with a fellow buyer – are unlikely to be much higher than your current monthly rental costs. Read about our tips on paying off an interest only mortgage here. If monthly affordability is a problem for you, an interest-only mortgage may be a good option as it provides short-term affordability through lower monthly payments.

What can you ‘go cheap’ on?

In order to increase your chances of getting onto (and staying on) the property ladder, the main thing to consider is affordability. Be realistic about the kind of property you can afford, whether you can afford it independently or need support or to split the costs. The kind of mortgage you opt for should depend on your current and forecast future circumstances – not simply the better deal. It is always best to compare mortgages to find the best deal for you, taking this into consideration. In terms of cutting the costs, this is not possible realistically. The important thing is to plan and formulate a strategy for saving up firstly for your deposit and legal fees and then choose a mortgage repayment plan that your monthly income and outgoings covers (with a little to spare for unforeseen eventualities!).

For contemporary financial news and information and to do your own research before coming in to see us, you can browse our magazines. If it is just mortgages that you are interested in, find out about our mortgage services here.

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