Homeownership is a dream for many people. It can take a concerted effort, however, to prepare, save the money for a deposit and to find the right property. Once you are all set you will likely need a mortgage or to borrow some money to make up the difference between the cost of your new home and what you have in ready cash. The journey to becoming a homeowner can be fraught with challenge. Read this blog to learn more about how to prepare to make that journey as smooth as possible.
Home Ownership is now affordable
Yes it is no longer unaffordable to buy a home in the UK thanks to new lending rules
According to the Guardian, a major UK mortgage lender is allowing potential homebuyers to borrow up to seven times their income. This is way above the usual maximum of between four and five times your salary. It can make homeownership a real challenge. What this means is that you can buy a property that previously would have been way out of your price range. There is a proviso, however. You will have to take out a ‘fixed-for-life’ mortgage. This locks your monthly repayments at the same rate for up to 40 years. However, the advantage of having a fixed mortgage is that homeowners are protected against fluctuating interest rates.
Another qualifying factor is your profession. To qualify, applicants must work in one of the following professions:
- NHS clinicians such as paramedics or nurses
- a recognised profession in the public sector.
You also must earn a minimum salary of £25,000 per annum. Higher income earners in other professions are also eligible, with a minimum salary bar of £75,000 per year.
How Much Deposit Is Required for a Mortgage?
If you are tired of renting and you want to buy a house or apartment, you’ll need a mortgage. Homeownership is very appealing to many people. Likely in this day and age it will be a large mortgage. The minimum deposit today is 10% of the value of the property. However, it helps to have 15% or more to ensure that you secure the best mortgage rates. First-time home buyers in London will need in excess of £70,000, but, fortunately, the average deposit for a house or flat is lower in other parts of the country.
The larger the deposit, the better because it makes you a safe investment in the eyes of the lender. With a bigger deposit, you will have the advantage of paying lower interest rates. Banks are traditionally less expensive than private loan companies, but they are harder to work with and it is more difficult to get a loan approved. Although private lenders are more flexible, they are generally more expensive.
Choosing a reliable lender
Given that buying a home is the most significant financial commitment you will make in your life, it is important that you choose a reliable lender. There are benefits to lending from a reputable bank. You know you are sourcing your mortgage from an institution that is authorised by the FCA.
There are other types of mortgage lenders all of whom have their particular strengths and weaknesses, so it is essential to ensure that the lender is in good financial and professional standing.
There are resources such as the British Assessment Bureau that make it easy to find out if a company is reputable and if their record is clean. Take your time when choosing a lender, especially if you shop online. A responsible lender will stop you from incurring extra costs and will explain all the fees upfront so you do not get any unpleasant surprises down the line.
Being Creditworthy Helps
While it is not easy to get on the housing ladder there are steps you can take to prepare. These steps will help you ahead of time to avoid problems, such as:
- registering to vote – this boosts your creditworthiness (if you move, remember to re-register!);
- keep your credit in good standing – a major contributor to success when applying for a mortgage, as this can count against you when trying to purchase a home. Even if you have a good credit record, you have to pass the credit criteria stipulated by the lender from steady earnings to a having a big enough deposit.
In summary – Why homeownership is now affordable
If you are deemed to be a risk, your interest rate could be higher, so take time to get your debts cleared and your financial situation in order. With the opportunity to borrow an increased sum of money, this kind of effort is well worthwhile now.