With changes to the regulations surrounding the approval of mortgages, as well as the diminishing number of low deposit products, having a clear overview of your financial situation and the costs of selling and purchasing property is more important than ever. If you’re preparing to buy a new home for the first time, or to sell your existing property to move to a new one, you should aim to estimate all of the associated costs so that you have a clear sight of your available expenditure.
Work out how much you can afford to spend
At Rated Financial, we will work out how much you can borrow by carrying out affordability tests at the time of your application for a mortgage, but you need to remember to include the following information in any calculations you submit in order to achieve the highest possible amount:
• your total income, before tax and deductions
• any cash savings or investments you have that you wish to use towards your deposit
• other regular income, such as tax credits and child benefit
• the maximum monthly amount you feel you can afford to repay on your mortgage
This final figure is likely to differ between mortgage applicants according to their personal circumstances, but, as a rule of thumb, a mortgage payment that is one third of net monthly income (from all sources, not just salary) is considered to be proportionate. If you are applying for a mortgage as a couple, remember that you’ll be able to combine your salaries when working out how much you can afford. However, you must take into account other fixed expenses, such as graduate loan repayments, rather than working strictly to the ‘one third rule’.
How much does it cost to move home?
Selling and buying property incurs significant costs that you must build into your budget in order to ensure you don’t end up short of cash on completion. Some of these are debited from your mortgage advance, while others have to be paid up front.
Typically, you can expect to incur the following costs:
• Estate agency fees, if you are selling an existing property on the open market. Fees vary across the country, but are generally between 1% and 3.5% of the sale price of your home. The exact amount will be agreed when you instruct the estate agent, usually on a ‘no sale no fee’ basis.
• Mortgage fees charged by the lender. These may include an initial arrangement fee (which can sometimes be added to the mortgage) and administration fees. Ask for a full breakdown when you apply for your mortgage.
• Conveyancing fees, charged by solicitors to carry out the legal work on the purchase of your new home.
• Stamp duty, payable on property purchases above £125,000.
• Removal costs.
Calculating your existing mortgage commitment
If you already have a mortgage, you’ll probably owe money to your lender, so you need to build this figure into your calculations. You can find out how much you owe by contacting your lender, who should be able to provide you with a figure on the phone.
You will also need to have an idea of how much your property will sell for, as any increase or decrease in its value will have a bearing on how much you can borrow. While your estate agent will be happy to give you a value, remember this may only represent an asking price and not the amount you are likely to achieve in an offer. Always obtain at least three valuations from estate agents.
Making sure your mortgage is affordable
Most importantly, remember that interest rates can change, so if you are applying for a variable rate, discounted or capped product, assume that rates may rise in the future and increase your monthly repayments. A valuable way to achieve the best deal is to consult Rated Financial mortgage brokers. We have access to the range of mortgage products on the market and will help you to choose one that most suits your financial situation and needs, enabling you to budget accordingly without fear of over-stretching your finances.