Moving out of home
In a series of articles about managing your money and financial affairs, we asked our guest expert, Peter Johnson from Homes of Hampshire, about getting a mortgage.
Buying a house is probably the biggest purchase most of us will ever make. With typical first-time house-buyers having to find an average of £216,000*, it’s no wonder most people turn to a loan for help; who has that sort of cash lying around?
A mortgage is a particular type of loan taken out to buy property (or land). It is usually secured against the value of the property you are buying as a guarantee for the lender. That is, if for any reason you couldn’t keep up the mortgage repayments, the lender is entitled to take back the property and sell it in order to get their money back. This sounds scary but most mortgage providers will only use this as a last resort; they don’t really want to see their customers homeless. In fact, lots of us take out a mortgage; about nine million* homeowners in the UK currently have one.
How do you get a mortgage?
Firstly, it’s important to start saving up a deposit. Very few mortgage providers will lend you the full value of a property and they will typically expect you to provide a minimum of 10% of the purchase price yourself. Taking our typical average purchase price of £216,000, that means you will need to find a minimum deposit of £21,600 before you will be able to take out a mortgage for the balance of £194,400.
Next, do shop around and see what mortgage deals you can get. Your own bank may be a good place to start but you don’t have to stick with an establishment you already know; there are many providers out there. It’s also worth thinking about whether you take out a mortgage in your own name or jointly with a partner or guarantor; this may impact on the terms available to you.
Find out how much you could borrow. The value of the mortgage you are likely to be loaned is usually calculated as a percentage of your salary. The average loan size granted is typically 3.5 times your annual salary, although it can be a higher multiple depending on your circumstances. Once this is clear, it is a good idea to have a ‘mortgage agreement in principle’ in place with your lender. This is an ‘in principle’ offer that lasts between 30 and 90 days. Although it is not a guarantee, it is a useful indication of how much you are likely to be able to get and therefore helps to give you an idea of your house-shopping budget (and useful to show estate agents that you are not wasting their time!).
Some people may be eligible for the Government’s ‘Help to Buy’ scheme, aimed at getting first-time buyers and key workers onto the property ladder. It’s worth using the ‘Am I eligible?’ checker on the U-Switch website.
What types of mortgage are there?
There are several different types of mortgage typically available to first-time buyers:
Fixed rate Mortgages: This is where your monthly repayments are fixed for an agreed period of time, perhaps 2,3,5 or 10 years. Many people like the stability of a fixed-rate mortgage. At the end of the fixed period, you can usually choose to either switch to a tracker mortgage or to take out another fixed-rate term. Fixed rate mortgages are the most popular currently available.
Tracker mortgages: These follow the Bank of England Base rate of interest, which means your repayments are variable and will go up and down over time.
Offset Mortgages: Some lenders will allow you to link your savings and current accounts to your mortgage so that you only pay interest on the difference. You still make a mortgage every month, but your savings act as an ‘overpayment’ which can help to clear your mortgage earlier.
Don’t forget that you don’t just need money for the house…
Remember it’s not just savings for your deposit that you will require, buying a house will bring additional costs too: Property search (conveyancing search): when you have found a property you want to make an offer on, it is sensible to have a ‘search’ done to check the condition of the building or for any legal or financial terms attached to the building you might not be aware of. Most lenders will insist at least a basic search is conducted before they will hand over any money.
Mortgage arrangement fees: most lenders will charge a fee to set up the mortgage, typically around £1,000, but do check with your lender before you commit.
Solicitors fees: you will need to use a solicitor (or licensed conveyancer) to ensure the sale of your home is completed legally. They can also help you conduct a search. Legal fees can cost up to £1,500 (VAT will be extra) depending on the size of the property you are buying. Again, do ask for a quote first.
Home and contents insurance: it will be a condition of your mortgage that you take out insurance on your property, so that any damage can be repaired. Whether you choose to take insurance on your contents as well is up to you but it’s probably a good idea. Many lenders will offer combined home and contents insurance at a slightly better rate than buying them separately but do check the small print to see that you will have cover for everything you need.
Removal costs: if you are moving from one house to another, you may want to pay professional removers to do all the heavy lifting for you (literally!). Many removals companies also offer a professional packing service too. Do shop around but expect to pay up to £900 for removals for an average house and up to £300 for packing. If you are a first-time buyer and don’t have too many belongings or furniture, it may be cheaper to ask your friends and family to help you move and buy them dinner to say thanks!
Furniture/white goods: of course, if you are a first-time buyer, you may well need to factor in buying a cooker, a fridge, a sofa and everything else you need to furnish your new home too.
*statistics correct as of May 2020
10 top tips to getting a mortgage
1. Save to get a big deposit
2. Avoid surprises by knowing your credit score
3. Pay off unsecured debts and close any unused accounts
4. Avoid any evidence of regular gambling, too many unsecured loans or County Court judgements
5. Avoid properties that Banks may be reluctant to lend on. e.g. flats over commercial shops or houses built by unconventional means.
6. Ensure you have all relevant documents ready for checking (Passport, Driver’s License, utility bills, three months of bank statements, evidence of employment and salary)
7. Know the type of mortgage you require
8. Ensure you are on the electoral roll
9. Ask both your bank and an Independent mortgage broker for a competitive quote
10. Most importantly, make sure you can afford the mortgage payments
Homes of Hampshire are a small and independent Estate Agent offering a local bespoke service, but also part of a huge network through Keller Williams offering clients the best of both worlds. Founded by husband and wife team, Peter and Jane Johnson, Peter is also a qualified independent mortgage consultant.