What Can You Afford For A House?
Fallen in love with a property? The ability to pay for it is a different story. It stops you falling in love with properties that will ultimately break hearts, have mortgage applications flatly denied and face significant financial stress. How to solve it correctly.
Lenders will often just about lend 4 – 41/2 the amount of your annual salary in a mortgage. On a £40,000 wage you could borrow of between £160,000 to £180,00. Joint income will be considered for a couple. But this is your baseline – your income on paper, and lenders take into consideration what you spend and owe.
Please note, just because a lender will lend you an amount doesn’t mean that it is what you should borrow. As usual, only borrow what you can afford to pay back. For Stonehouse Estate Agents, visit www.tgres.co.uk/stonehouse-estate-agents/
Deposit Requirements
A deposit of at least 5-10% is required for most mortgages, although you will get better interest rates with a larger deposit. For example, a 10% deposit on a £200,000 property would require you to come up with just £20k upfront. Don’t forget, you will need extra cash for solicitor fees, surveys, stamp duty and the cost of moving.
Reality check: Add £3,000 to £5,000 on top of your budget for these additional costs.
Monthly Affordability
Mortgage companies stress test your finances to be sure you can actually afford payments if interest rates were higher. They will go through your monthly spend cycle; credit cards, loans, childcare, travel costs and living expenses.
The 30% Rule
Financial advisers frequently advise that your housing costs not exceed 30% of your gross monthly income. Including the likes of your mortgage, insurance and maintenance – as well as bills. With more than this number, there is barely any wiggle room for emergencies or daily ups and downs in the cost of living.
Forward Thinking: Budget at least £100 a month for servicing and repairs. Boilers will break, roofs will leak and appliances want to ruin you at the worst possible time.
Future-Proofing Your Purchase
Take, for example, your circumstances in 5 years. Are you planning children? Career changes? If necessary, could you pay off your mortgage with one income?
Get Professional Advice
Mortgage brokers also get access to deals you wouldn’t secure independently and know all the ins-and-outs of complicated lending.
Affordable should mean, not just getting approved; but able to buy a house that you can comfortably afford and still have spare money. Financial freedom comes with owning the right asset that you can afford to own and not something where it’s stressful every month.
