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Mortgage Amount
Former Member
Posts: 1,876,323 The Mix Honorary Guru
Is there a simple sum that can be done to work out what mortgage amount you can afford?
I'm trying to figure out if there is a chance of getting a foot on the first run of the property laddder:)
I'm trying to figure out if there is a chance of getting a foot on the first run of the property laddder:)
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Keep in mind that, when you buy, you'll have more expenses in general than you would if you're renting or living with someone else. It's not just the same as swapping a rent cheque for a mortgage payment, unfortunately.
i'd also be careful if i was thinking about buying a house right now because the UK housing market is in a bubble and way over valued, there are a lot of murmurs that we're due for a 'correction' in the near future, of course it's hard to say when but with IRs on the rise etc it's probably worth locking into a longer fixed rate term at the beginning, even if the premium's a bit higher........anyways, do your research before you make any decision.
They used to take three times the top earner and one times the lower earner, but with houses prices the way they are, they work out what your income and expenditures are and see what you can afford. By afford, of course, I mean they look at what they think they can lend and still get security for their lending- they are not out to look after you, and will not prevent you from over-extending yourself if they feel that their security would be protected. Over-extension is encouraged by some lenders, in fact, as you need to buy more and more credit products to keep the mortgage payments going. The further down the food chain you go, the less likely the lenders are to look after you.
We got a £95,000 mortgage on a combined income of about £28,000, with a £5,000 deposit. And we got a very good fixed-rate mortgage too, fixed at 4.85% for five years, with no early redemption penalties. Even with the Higher Lending Charge of about £1700 (added to the advance) we got a very good deal, especially with the way rates are going.
With lenders, check to make sure they are CML, and also see what extra charges they hide in the mortgage, especially upon early redemption of the mortgage. Northern Rock are buggers for hiding some quite nasty stings (£1000 "help with costs" charges which stand far beyond the end of the discounted rate period), and I would honestly avoid lenders like GMAC and GE Money like the plague.
My professional experience is that sub-prime lenders are very hard work to deal with, and the extra expense and hassle you incur when you come to change products or providers is not worth the benefits you get. My experience is in remortgage conveyancing, admittedly, but £100 every time you order a redemption statement and £500 redemption admin fees soon mount up.
I wouldn't worry about the market value if you buy sensibly, I honestly don't forsee a market crash, but I wouldn't stretch yourself to ridiculous lengths just to get on the property ladder. If you can afford it then great, but don't think you have to do it at all costs, because if you over-extend yourself you'll come a cropper.
Interest rates are very low, and are set to rise, so work out if you can afford a rate rise of 2%, but obviously if you take a fixed-rate mortgage you'll be insured against the rises for a bit longer.
I would recommend you seek independent financial advice before choosing a mortgage product, but I would be wary of IFAs who charge you arrangement fees. You can get excellent advice for free (we used the IFA service at Your Move), so paying for it seems daft.
well really that depends on your broker, the ones i use have a very good relationship with lenders like GMAC etc because they throw a fair bit of business their way, i got my agreement in principle through the post 3 days after i sent the email to my broker with the details, so really getting the right people in your team is key......as for changing products and providers, well yes you have to look out for redemption penalties etc, but if your brokers any good they can advise you on that as well.....
as for a market crash, well who does foresee them exactly? the US housing market amongst others is slumping at the minute, if you look there are definitely some parallels and certain factors do point to a correction, although it's impossible to predict the timing......if you look at the graph on this page you can't deny the market is in a bubble, that kind of growth isn't sustainable in the long term so imo it's a matter of when not if......
Besides which, a significant fall in housing prices is only a problem if you want to sell.
Lenders like GMAC and Mortgage Express are fine with you until you want to leave. They're a pain in the backside for us to deal with.
Well yes and no. There are still far too few houses for all the people who fancy living in London and the South East, therefore unless there is a slump in demand (lots of people leaving) I cant imagine there being a crash. Yes, the market will probably stagnate for a while but demand continues to be higher than supply.
I hope so, if they are anything like the Poles then they will be an excellent addition to London, we've really benefited from Eastern European immigration.