How to afford a house

Last updated: December 2023 | 3 min read

Embarking on the homeownership journey? Our article unravels the nuts and bolts of buying a house, guiding you through smart mortgage planning and effective deposit-saving strategies. Peek into the dynamic world of buy to let properties and discover the thrills of buying a house at auction. It's all about turning your aspirations of owning a home into an achievable plan.

Setting the foundations: Preparing to afford a house

How much should I aim to borrow for a mortgage?

Mortgage lenders set the limit on how much they'll lend, largely based on your annual income. Generally, lenders offer between 3-5 times your salary.

For example, an income of £25,000 might secure a mortgage between £75,000 and £125,000. But remember, interest rates, other debts, and living expenses also affect this amount. Exploring mortgages work can help you estimate the sum you might borrow.

Steps to assemble a solid house deposit

Entering the property market starts with saving for a deposit. Traditionally, you'd aim for at least a 10% deposit, but a larger deposit increases your buying power.

Saving habits, like setting aside a fixed amount monthly, help accumulate funds. Additionally, consider the "Lifetime ISA" where the government adds a 25% bonus to savings.

Assessing the real price of homes in your area

House prices can be elusive, with some properties seeming out of reach. However, websites like "Rightmove" or "Zoopla" display current listings, giving insights into local prices. Filter results by property type, number of bedrooms, or other criteria to refine your search. Always remember, negotiating can sometimes lead to better deals.

Boost your borrowing potential: Evaluating credit reports and income

Mortgage lenders view your credit report to assess risk. Ensuring it's accurate boosts your chances of approval. Secure a free copy of your report from agencies like Experian or Equifax, checking for errors. Simultaneously, consistent income enhances lender confidence.

If you're self-employed, lenders might ask for additional documents to verify your earnings.

What costs await when buying a house?

Decoding land transaction tax and stamp duty

In England and Northern Ireland, when you buy a house, you might have to pay stamp duty. The amount depends on the property's price, with different bands imposing varied rates. First time buyers receive some relief, paying reduced rates.

In Scotland, it's termed "Land and Buildings Transaction Tax", while Wales labels it "Land Transaction Tax". Each region has distinct rate structures, so ensure you're familiar with local nuances.

Other hidden costs to factor in when buying

Mortgage arrangement and account fees

When you secure a mortgage, there are often associated fees. These include charges for setting up the mortgage and potential account maintenance fees. Shop around, as lenders offer varied fee structures.

Telegraphic transfer and valuation fees

The telegraphic transfer fee covers the cost of transferring the borrowed amount from the lender to the solicitor. Additionally, lenders usually require a property valuation to ascertain its worth, incurring valuation fees.

Legalities: Conveyancing and solicitor’s fees

Buying a house involves legal paperwork, necessitating a solicitor or conveyancer. Their fees cover the property search, legal checks, and handling contracts. They also aid with the property's registration.

Insuring your investment: Home insurance

Once you commit to a property, protecting it becomes paramount. Home insurance, comprising buildings and contents insurance, shields against unforeseen damage costs. Lenders typically demand this insurance before approving a mortgage.

Additional costs: Moving and potential renovations

Lastly, factor in the physical move. Hiring removal vans or services incurs costs. If the property needs immediate renovations, budgeting for these changes is essential to avoid financial strain.

What every first-time buyer should know

Mortgages, in simple terms, refer to loans specifically for purchasing property. They're what many lean on to make the dream of homeownership a reality.

Choose the right mortgage lender for your needs

Different lenders cater to varied needs. Research widely, comparing rates, fees, and reviews. Remember, a favourable rate can save you thousands over the term of your mortgage.

First five years: Understanding mortgage repayments

In the early years, most of your mortgage payment tackles the interest, not the principal amount borrowed. Over time, this balance shifts. Aim to overpay when possible; it reduces the amount of interest paid over the life of the loan.

Optimising your mortgage application for approval

Tidy finances make for a robust mortgage application. Limit your outstanding debts, ensure your credit rating shines, and avoid sudden large expenditures. Lenders want confidence in your ability to pay back the loan.

Engage a mortgage adviser: Get the best rates and terms

Mortgage advisers can offer you a wealth of knowledge. They're experts in finding deals you might miss, often accessing exclusive offers. Yes, there's a fee, but the potential savings usually outweigh the cost.

Need a leg up? Supportive schemes for first-time buyers

For many, the gap between income and property prices seems insurmountable. Luckily, numerous schemes cater specifically to first-time buyers, easing the ascent up the property ladder.

Grasp the benefits of shared ownership

Shared ownership splits the cost of a property between you and a housing association. You buy a share, say 25% or 50%, and pay rent on the remaining portion. Over time, you can buy more shares. It's a stepping stone approach, letting you gradually increase your ownership.

Guarantor mortgages: Leverage family support

A guarantor mortgage allows a family member to co-sign your loan, essentially promising the lender they'll cover any missed payments. This boosts your borrowing potential, especially if your guarantor has a robust financial standing.

Government schemes to ease your home purchase journey

The UK government recognises the hurdles first-time buyers face and has established schemes to help.

Help to buy: Equity loans and other incentives

The government lends you up to 20% of the property's value (40% in London) interest-free for the first five years. You only need a 5% deposit, making it easier to step onto the property ladder.

First-time buyer incentives in Scotland, Wales, and Northern Ireland

Different regions in the UK offer varied schemes. For example, Scotland has the 'First Home Fund', while Wales offers 'Help to Buy – Wales'. Always investigate local initiatives—they might provide the boost you need.

Alternative strategies for affording a house

House purchasing doesn't have to be a solo adventure. Strategies are aplenty, designed to support individuals and make homeownership feasible.

Joint mortgages: Buy with a partner or friend

Pooling resources with a partner or a close friend increases buying power. Joint mortgages allow two or more individuals to combine their finances, presenting a united front to lenders. This strategy effectively increases the amount you can borrow, as lenders consider the combined income of all applicants.

First time buyer? Fear not. Even if one of the joint applicants has owned a property before, as long as the other is a first time buyer, certain benefits, like stamp duty relief, can still apply.

However, tread with caution. While joining forces with someone can boost your ability to afford a house, it's vital to ensure clear communication and a well-defined agreement. Clarify responsibilities, like monthly payment contributions, and ensure you're on the same page regarding future property decisions.

Benefits of buying in more affordable regions

Not all UK regions brandish the same price tags on their properties. Often, relocating to a more affordable area can be a game-changer.

Highlights of the North East and East Midlands

The North East, known for its rugged coastline and historic sites, boasts some of the most affordable properties in the UK. Towns such as Sunderland and Middlesbrough offer homes that won't leave your pockets feeling pinched.

Equally, the East Midlands, sprinkled with picturesque villages and bustling towns like Derby and Nottingham, provides value for money. These regions offer homes at a fraction of the price compared to London, without compromising on quality or amenities.

Remember, with remote work growing in popularity, living away from big city centres has become increasingly feasible. A move to these regions doesn't necessarily mean sacrificing career opportunities.

Right to buy: Opportunities to purchase your council house

Council tenants, rejoice! The Right to Buy scheme allows eligible council tenants to buy their homes at discounted prices. The longer you've been a tenant with a public sector landlord, the larger the discount you could receive. In England, for instance, you could get a discount of up to 70% for a flat and 60% for a house.

However, bear in mind that selling your home within a certain timeframe after buying through Right to Buy might require you to repay some or all of the discount.

When considering this option, seek advice. Familiarise yourself with the intricacies of the scheme, ensuring you're informed about the responsibilities and benefits of homeownership.

Staying on top: Maintaining your new home affordability

Refining your monthly payments: When to remortgage

Over time, interest rates shift. After your fixed term ends, explore remortgaging opportunities. Switching your loan might lead to reduced monthly outgoings. Always weigh potential savings against any remortgaging fees.

Emergency funds: Prepare for unexpected house costs

Houses sometimes spring surprise costs. Regularly set money aside. This dedicated fund tackles unexpected home expenses, ensuring mortgage repayments aren't at risk.

Maximise disposable income: Tips for continuous saving

Post-house purchase, maintaining financial discipline ensures comfort. Regularly review outgoings. Cancel unused subscriptions and renegotiate bills. This approach preserves your ability to comfortably manage loan repayments and other house-related expenses.

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