Planning to Buy
Looking at how much you can afford is your first step in the process of planning to move house. It’s possible that your circumstances have changed since you bought your first property – you could have a growing family and need more space, or have decided that a garden fit for summer BBQs is a must. Or, you might be wanting to downsize and invest in a low-maintenance property.
Whatever you’re planning, this section takes you through:
• finding out how much you have to spend,
• what help you can get,
• and how to make sure your credit rating is in tip-top condition ready to apply for another mortgage.
How much can you borrow?
Lenders used to base what you could borrow on a simple formula: take your income then multiple it by up to five and a half times. But this is no longer the case. Lenders are much more cautious since the financial crisis and are obliged to assess your ability to pay under rules brought in by the Financial Conduct Authority in 2014.
This means they don’t just look at what you earn, but at what you pay out each month and how that might change in the future. Thus, there are three key areas that lenders look at when assessing what they can lend you: your income, your outgoings and future possibilities.
|Income||Lenders will look at your basic income plus any overtime or bonuses; pensions; investments; child maintenance or income from an ex-partner.
|Outgoings||You’ll need to think about what you spend on basics like bills (utilities, broadband, phone, insurance); credit card payments; loan repayments; committed costs such as gym membership and childcare; living expenses (groceries, eating out, entertainment, holidays).
|Future changes||Lenders will stress-test whether you could still afford to pay your mortgage if interest rates increased or you or your partner were no longer working (because you are ill, taking a career break or having a baby, for instance).
If you’re moving to a bigger property, you need to work out how much extra you can afford. You will also need to budget for any penalties you might have to pay for moving or changing your mortgage. A bigger home may also mean bigger energy, water and council tax bills. You’ll need to make sure you can afford higher running and maintenance costs as this is something your lender will consider when you apply.
Boosting your credit rating
There is lots of advice online for how to boost a credit score. Everything from whether you vote to who you share a house with could have an impact on your report. Most guides suggest four key areas to look at:
Maintain your report
Order a copy, check it for mistakes and correct any you find. Make sure you order from all three major credit reference agencies (Equifax, Experian and Callcredit/Noddle) as they may not have the same information on you.
Boost your score
Take simple steps to ensure you boost your score such as register to vote, pay bills on time and avoid payday loans.
Check who you’re linked to
Be aware of who you are financially linked to: if you have a joint account, mortgage or loan, or pay utility bills with someone, then their financial history will be linked to yours. If you have moved on, make sure all the credit agencies are aware of this and they can disassociate you.
Time things right
That is, time your applications right. Apply before a major life change (maternity leave, new job, career break), after a period of financial stability, and don’t make multiple applications for credit in the few months before you apply for a mortgage as these will leave footprints on your file.
If in doubt about your credit report and score and how it will affect your mortgage, talk to your First Mortgage advisor. If you want further advice or information then check out the sites below:
Money Advice Service
Money Saving Expert
Getting help to buy
If you want to move but are unable to raise enough money to do so, there are government or home-builder schemes to help you move up the property ladder. Ask your First Mortgage advisor about what schemes you are eligible for. Here’s a summary of the most common ones:
|Country||Name of scheme||How it works||Any restrictions?||Maximum value of property||Who is eligible?||Further Info…|
|England||Government Help to Buy
|You borrow money from the Government to help you buy a newly built home.
– You pay in at least 5% of the property price.
|When you sell the property, you pay back the loan plus a share of any increase in value.
In London the upper loan limit is 40% to reflect current property prices.
|£600,000||First-time buyers and existing homeowners.||Help to Buy
|Northern Ireland||Co-ownership||Co-ownership is a large housing association in Northern Ireland. They allow you to buy a share of your home – between 50% and 90% – and pay them rent on the rest. As time goes by and you can afford to buy more, you can increase your share of the property.||You must purchase at least 50% of your property and it must be where you live, rather than an investment property.||£175,000||Buyers over 18 who could not afford to buy without the co-ownership initiative.||More info|
|Wales||Help to Buy – Wales||Shared equity loans allowing you to buy new build properties||You need to contribute at least 5% towards the cost. The Welsh Government give you a shared equity loan of up to 20% and the rest is from a mortgage lender.||£300,000||First time buyers and movers wishing to purchase new-build homes||More info|
|Scotland||The Affordable New Build scheme
and the Smaller Developers New Build scheme
|– the main Help to Buy (Scotland) Affordable New Build Scheme is available to larger homebuilders while the Help to Buy (Scotland) Smaller Developers New Build Scheme is available to smaller house builders.
– the agent administering the scheme will identify which one your application can be processed under.
|The Scottish Government will help you buy a property by taking an equity stake of up to 15% – you need a mortgage for at least 85%.||£230,000 completing on or before 31 March 2017, £200,000 for purchases up to 31 March 2018 and 175,000 for purchases on or before 31 March 2019.||Available to purchasers unable to afford a property without the Government purchasing a stake in the property.||More info|