This article is aimed at you if you are considering if you can afford moving to a new house. Not just first-time buyers, not just those soon to retire… everyone.
If nothing else, the pandemic has shown us that we can’t predict the future. So, getting professional financial advice can shine a light on how secure your income is. Questions will be raised about the stability of your circumstances and a full analysis of your finances will be made clear.
But keep reading for the crib notes for what you’ll want to consider.
When working out whether you can afford the potential commitment of increased mortgage payments, being honest with yourself about your current and future situation is essential.
You need to be objective about your finances, and a good way to work through this is with a professional mortgage adviser who can offer you some unbiased straight-talking.
A good broker will be able to work out with you how long the payments will need to continue for, whether you’ll need a guarantor, a projection of future incomes, debt analysis, and everything else needed to have the best chance of your application being accepted.
How much can I borrow?
Working out you can afford to borrow takes into account so many factors relating to your personal financial circumstances that this is no longer always a simple question with a simple figure behind it.
Mortgage calculators can give you a guide to how much you might be able to borrow, but the exact figure a mortgage provider might lend will only become clear after detailed lender checks on your income and financial commitments.
Since every applicant’s personal circumstances are completely different, it’s easy to understand why a mortgage calculator can’t be guaranteed to accurately show you the exact amount a mortgage provider might be prepared to lend you.
But using a mortgage calculator to get an idea of what might be available to you – subject to further checks, of course – can certainly be useful in helping you to establish some basic ballpark parameters.
You’ll find a good selection of mortgage calculators online and generally the only information you’ll need is your total income (including provable bonuses and overtime), your second applicant’s income (if relevant), the house price and your deposit.
A more accurate estimate, of what you can borrow, will involve the details of your circumstances being fully reviewed. With so many financial products available now, our aim, at Oportfolio, is to find one that gets you the payments and timeline you’re hoping for.
You can get a pension mortgage when you are retired, but it can be very different from borrowing before retirement. Lenders will want to be sure your pension income is sufficient to cover your loan liability.
If you’re taking on a mortgage that will overlap your dates of retirement, it’s important to understand if your pension will cover your mortgage payments.
Mortgages in retirement are a slightly complicated beast that may potentially involve the Department of Works and Pensions paying your mortgage lender directly, but these products usually attract similar interest rates to those that are available to anyone else.
You should also talk to an independent financial adviser about the best way to approach a mortgage if you are retired or plan to retire in a relatively short space of time.
Having credit history can support your application. So, there’s no need to worry if you’ve had loans, credit cards or student debt. It’s more important for the lender to see how you managed it. If you haven’t had these sorts of things lenders can’t see how you handle your money.
Your lender will conduct a thorough search of your credit history – so find out what yours looks like before you get to that stage. Experian, Equifax and TransUnion are the three main credit reference agencies in the UK. Getting your score from them should be free and you can search it online, but getting the details behind your score may require a fee.
Bear in mind, too, that if your application is rejected on the grounds of affordability, following a credit search, your credit score may be affected going forward – so knowing your credit score before you fill in your application is always a good idea.
Look at your debt – if you have any, are you in a position to pay some of it off to give your lender confidence that you’re responsible with your commitments? This follows on from the credit score discussion – lenders want to see how you manage money, as much as how much you have and are projected to earn.
There will always be more costs than just the price of the house every month. Make sure you find out about council tax bands, parking permits or any service charges.
You’ll also want to consider the physical costs of moving. Things like solicitors’ fees, Stamp Duty, removal companies and cleaners. And if you’re not moving into the ‘perfect’ house, do you have enough set aside to pay for decorating, new furniture or renovations?
Whichever way you look at it, there’s an awful lot to think about when considering whether you can afford to move, so professional support can give you the confidence and insight needed.
Working with a professional mortgage adviser will involve them assessing your financial situation before your application is filled in, giving them the opportunity to tackle any potential problems in advance of an approach to a lender, reducing the risk of rejection.
At Oportfolio we’re here to take the stress out of every element of the process and offer you a chance to get exactly what you want from your application – and hopefully a straight and smooth road to your new home.