Purchasing a home is inevitably going to be pricey, in all probability
one of the most expensive things any of us are likely to do. Needless
to say, the importance of getting it right is not something any of us
should underestimate. You should be willing to invest lots of time and
precaution into establishing exactly how much you can afford to pay.
The first factor in the equation is your salary. The majority of mortgage
providers are willing to offer you approximately three or four times
your gross annual earnings. If you're buying with a partner then lenders
are likely to add their salary on top of what they are prepared to lend
Lenders could be willing to offer you a larger mortgage if, as is increasingly
common practice, they consider your financial track record in addition
to simple salary multiples. This would involve a lender assessing at
your statements and outgoings and using this as a consideration in their
calculations. Borrowers with a good history therefore stand a better
chance of being offered a more generous mortgage than might otherwise
have been the case. Conversely, those with a less impressive credit
record might be offered less.
Beware that you don't simply assume that once you've verified the amount
you're going to borrow and how much you can afford to put down on the
deposit (remember that the more you manage to put down as a deposit
the lower you're interest rates are likely to be - so it's worth scraping
together any savings you can muster including, if possible, a parental
contribution) this is the end of you're spending.
The first step towards is to find out exactly how much money you can
borrow. This is worked out according to your income. In the UK, it’s
calculated as three times your annual salary before Tax and National
Insurance are taken away. Currently, some lenders will offer up to seven
times your salary. This is due to high demand for property and the low
cost of borrowing. It is unlikely to last. Write up your monthly expenses;
factor in daily, weekly, monthly and yearly outgoings. It's always worth
making a few calculations, using a mortgage calculator, as incomes and
expenditure can vary from time to time, as do interest rates payable.
Allow some leeway for the unforeseen. For joint mortgages, the lender
is likely to offer you either three times the annual income of the higher
earner plus the total second income, or two-and-a-half times the total
joint income. You can add your savings to the amount offered by them
in order to estimate the range of house prices you can afford. TIP:
You may find many lenders offering very low initial rates, but hiding
high additional costs in the small print. Ask the lender to explain
all payment conditions, fees, additional costs and variable rates.
The reverse mortgage industry has hit back at calls to ban the products,
claiming the comments are ''misguided and ill-informed'' and based on
''exaggerated scenarios''. University of Western Sydney academic Steve
Keen this week told Mysmallbusiness the products should be banned because
it put lenders at risk of losses if there is a sustained decline in
house prices in the future. Using a reverse mortgage calculator supplied
by consumer watchdog CHOICE, MySmallbusiness calculated that if there
was a 4 % drop in the property market, a 65 year-old with a 15% equity
reverse mortgage loan on a projected interest rate of 10 % could find
themselves in negative equity territory in ten years. Keen believes
a 4% drop is justifiable, pointing to the Japanese market. It had comparable
levels of debt to Australia before housing prices fell an average of
5% per year as its housing bubble evaporated, he says. Year-on-year
falls continued for 15 years, according to website Global Property Guide.
Under the 'No Negative Equity Guarantees agreed to by SEQUAL members,
lenders who adhere to the mandatory component of SEQUAL's code of conduct
are liable for losses if the total loan exceeds the equity of the property.
I recommend these links about the mortgage calculator: