With the exception of starting a family, owning your own property remains one of the few aspirations in life that many people share.
However the last crash of the housing market resulted in many homes being repossessed. With this very real threat still in our thoughts, now more than ever people are viewing purchasing a property not just as the romantic realisation of a life-long dream but also a real, long-term and substantial financial commitment. This is leaving many people new to the property market or those considering making the next move up the proverbial property ladder wondering just how much they can afford to spend on their purchase.
The first mistake people make when considering what budget they have to spend is in only calculating their deposit and the effect this will have on their monthly payment. Yes, these things are very important and you do need to make sure that you have sufficient deposit to afford the mortgage and properties you are considering. However, many people calculate their affordability on their initial monthly payments. These payments are based only on the initial fixed term they are offered. Some people do their calculations based on a variable rate, taking advantage of the current low interest rates and some people stop here. When the fixed term ends or when interest rates rise, as they inevitably will these people may find themselves in real trouble when their mortgage payments increase.
The Government mortgage reforms in April 2014 means that there are now much more stringent rules that lenders must follow when calculating affordability. This means that even if you have a very healthy deposit, the lender will also stress test the affordability of your borrowing capacity based on higher interest rates. They will also ask to see records of your monthly direct debit commitments, so any insurance policies, mobile phone payments, loans, store cards, gym memberships, car finance, utility bills and credit cards that you have will all be factored in to the affordability. Some lenders also go so far as to look at your regular spending habits, such as the amount you typically spend on child care, food bills, leisure time and luxuries.
Although it may seem excessive, when you are considering what you can afford to spend on a house it is sensible to look at your spending habits. Consider how much you could comfortably afford to spend on your house each month and not just now but in the future when interest rates will increase. This may sound obvious but it is pointless having the house of your dreams if you are then no longer able to enjoy the lifestyle that you are accustomed to. There are free budget calculators online that can help you with this, or take a look at topcashoffer.co.uk for advice on buying and selling.
If you are one of the rare property buyers who has always lived at home and is considering buying for the first time it is especially important that you really research and plan your budget. As individuals you will not be used to budgeting for household bills and you will need to ensure that you can afford not only the house you intend to buy but also all the bills that go along with it.
With this in mind, remember that larger homes cost more to run, do you really need that third reception room and attic bedroom? Equally, older period properties may be less energy efficient so these properties can also have higher running costs. When you are deciding how much to spend on the house, don’t forget to factor in a reasonable amount for household repairs into your budget. This is one thing that many people forget, it’s not just about buying the grade 2 listed home in the country. You will be financially committed to the upkeep of the property if not forever then at least for possibly quite some time so when considering how much you have to spend, it makes sense to consider the responsibility and cost of maintaining a property after you have purchased it as well. So if you don’t want to spend so much time and money on the house you buy (since there might always be something that needs to be fixed or tweaked as per your tastes), it would be advisable to consult a home builder who can design you an energy efficient house, taking into account all your unique requirements.
Finally, don’t forget to factor in any stamp duty that you will have to pay, the solicitors costs and the moving costs. First time buyers may also have the added expense of furnishing their property. The pool table could wait for a couple of years but unless you intend to sit on a cardboard box for the next year you will need to set aside at least some of the budget to cover some essential purchases like a bed, sofa, wardrobe, table and chairs and kitchen equipment etc to get you started.