So, you’re looking to step foot on the property ladder and purchase your new home, but you have one pressing question: “How do I know I can afford to buy this?” Although buying a new home is a great idea and can save you money as opposed to simply renting, you don’t want to end up with monthly costs you can’t afford. This is where Peabody’s trusted panel of mortgage advisors can assist you.
Benefits of using a mortgage advisor
The role of a mortgage advisor is often misconstrued. Apart from sourcing you the best mortgage deal, they will explain the purchase process to you and assist right through to the day that you get your keys and indeed beyond. Even after you have purchased your first home, your mortgage advisor will help you review your mortgage or help you to move property as your life progresses.
Unfortunately, when you visit a lender direct, the majority can now only give you information so that you can make your own choice. A mortgage advisor, on the other hand, can talk to you, discuss all your options and advise you, making an informed recommendation for the mortgage that is most affordable for you.
Assessing your affordability
Every lender will calculate how much they are prepared to lend in their own way. This is why there is no fool-proof answer to; “What makes me affordable?” Instead, we can look at factors that may influence a lender’s decision, as to how much they are prepared to lend you when purchasing a new home, if anything at all.
Here are some factors, each of which affect your affordability:
All applicants must be at least 18 years old, to legally purchase a home in the UK. 18 is also the minimum age to be suitable for Shared Ownership or Help to Buy.
The further away from retirement you are the higher the amount of mortgage you can borrow. This is because the older you are the shorter the mortgage term will be and therefore the higher the monthly payments. Affordability is therefore compromised by a short term.
When looking at how much you can afford to borrow your mortgage advisor will go through the following with you, before advising on a potential lender:
- Employment Contract type – permanent / fixed term / zero hours or agency
- Basic guaranteed income 100%
- London Allowance & car allowance – 100% if on every payslip
- Regularity & history of any Overtime
- Regularity & history of any Commission
- Regularity & history of any Bonuses
- Self-employed – length of time / sole trader / limited company
There are several factors which mortgage lenders take into consideration when assessing your affordability for a new home. Debt is often difficult to define, but some of the most common financial commitments which are taken into account as debt include:
- Student loans
- Credit card debt & store card debt
- Car finance / Car lease agreements
- Personal Loans
- Any other finance agreements including buy now and pay later
Mortgage lenders will take into consideration the size of your deposit. The higher the value of your deposit, the more successful you will be at securing a mortgage and the lower your interest rate will be. On average, your deposit should be at least 10% of the value of your new home.
Do you want to get on the property ladder sooner rather than later? Your mortgage advisor will be able to recommend lenders who accept Government Schemes like Shared Ownership or Help to Buy. Buying through one of these schemes will usually mean that your deposit can be less than the average amount required.
Number of financial dependents
As mentioned previously, every mortgage lender looks at your affordability differently. Some lenders may take into account your childcare costs, if you are expecting a child or already have children. This can have a dramatic impact on how much you can borrow. While other lenders are more tolerant of borrowers who are expecting or have children already.
Some lenders may even count the child benefit you receive as extra income, boosting the amount you can borrow and your chance of securing a mortgage.
Your mortgage advisor can help by suggesting which lender is right for you.
It is important to note that there are other reasons why you could be declined by a lender that are not affordability related.
Your mortgage advisor will consider all lenders and recommend the one that best suits your needs and that of the property you are buying. The most suited lender will enable you to maximise your ability to borrow, whilst ensuring that you are comfortable with the monthly payments.
Important financials to take into account include “Minimum Household Income,” “Deposit Required” and “Monthly Cost.”Find a home
A special thanks to Helen at Clark Marshall Associates Ltd. for her advice in writing this blog post.