It can be tough to know where to start with a mortgage, looking up at house prices, the deposit percentages, it can all be very overwhelming. But with professional advice, experts will aim to relieve your worries by providing you with all the right information.
Depending on your circumstances, getting on the property ladder, or moving up it, can require some serious planning, saving, and forward thinking. In this article, we’ll be looking at some of the things to consider before getting a mortgage and what percentage of your salary you should be spending on your monthly repayments.
Deposits
With property prices on a constant increase, saving up a deposit to buy a property can be incredibly difficult, especially for first time buyers. The minimum expected deposit used to be 10% with some lenders expecting more.
As of April 2021, the UK Government has now introduced a scheme to encourage lenders to allow 95% loan-to-value (LTV) mortgages on the market. This means people will be able to get on the property ladder with a deposit percentage as low as 5%, but still enabling you to pay up to 9% if you can’t quite stretch over 10%.
Though this helps those who struggle to save the massive amounts required of a 10% deposit and above, the downside is that the lower the deposit, the higher the monthly repayments will be. So, it is regularly advised to save up as much as you possibly can and go for the highest deposit percentage possible to you.
The 5% deposit scheme will run until December 2022 and be reviewed at a time near this end date to assess the possibility of an extension, if needed.
Get Advice
One of the best things you can do is make an appointment with a mortgage broker or advisor. This can be done in person, over the phone or you can even speak to an online mortgage advisor. It’s definitely worthwhile investing some time and money into speaking to a professional who can access and recommend the best mortgages to suit your needs.
These professionals will take into account all the financial information you can give them and work to advise you on the best strategy to take. They will use software and connections to find mortgages that you may otherwise not find yourself, ultimately matching you with the best mortgage for you. The best part is that they do this all for you while you can set time for other tasks.
Monthly Repayments
As mentioned, the higher your deposit, the lower your monthly repayments will be. You may not be able to put down your ideal deposit amount but still use the 5% deposit scheme as a launchpad, though it will mean limiting housing options like size, age, etc., if you’re unable to make monthly repayments on what would otherwise be your ideal home.
So how much should you spend on monthly repayments? Some experts have suggested something called the 28/36 rule. This refers to the recommendation that you should not spend any more than 28% of your gross income on the total amount you pay for your mortgage monthly.
You should also make sure you don’t go over 36% of your gross income on all borrowing expenses for things like car loans and credit cards, this percentage also includes the mortgage.
The general view is that if you’re spending more than half your income on all total debts, then you could soon find yourself in trouble.
The 28/36 rule helps determine how much debt your household can reasonably handle, taking into account income, lifestyle and other debts. It’s a useful rule for planning a monthly budget, and following it could improve your credit approval as some lenders use this rule to assess borrowers.
Be Smart with Your Money
It sounds obvious but don’t buy a house you cannot afford. Sometimes not buying your dream home now can do you a world of favours in the future, even if you feel like you’ve missed out for a while in the present. One day you’ll look back and realise it was the right decision.
The last thing you want to become is “house poor”, where the home expenses drain your income so much, you have little, if any, to spend on enjoying life such as entertainment and holidays.
So, work out what you can realistically afford monthly and consider consulting a professional mortgage advisor to help you do this.
