14th June 2024
This month, I wanted to discuss mortgages and house buying, providing some insights and advice to help you navigate this complex market.
Navigating the Property Market
If you’re new to the property market, the ongoing headlines about interest rate changes and property prices might seem daunting. It’s tough making that first step onto the property ladder—I’ve seen my own kids go through it—but it is possible. Property prices have started to come down a bit, and rates are stabilising, offering a glimmer of hope to buyers.
Starting Your House Hunt
When beginning your house hunt, it’s crucial to determine your property priorities and budget. Generally, lenders will lend approximately 4.5 times your income for a mortgage. However, this doesn’t account for existing debt or other factors, so it’s best to speak with your bank, building society, or a mortgage advisor to discuss your specific circumstances. Each lending sum is assessed based on a detailed affordability breakdown using your income and expenditure.
For those in unusual employment situations, such as zero-hour contracts, consulting a mortgage advisor can be helpful as they can offer insights into a range of mortgage products. At esbs, we provide specialised mortgages, such as the Construction Industry Scheme (CIS) mortgage, agricultural tie mortgages, and self-build mortgages. We evaluate each application individually to help as many people as possible move onto or up the property ladder.
Before securing a mortgage, you need to gather your deposit. While common advice includes cutting back on luxury expenses and increasing your income through platforms like eBay or Facebook Marketplace, it’s also important to consider where you keep your savings.
Saving for a Deposit
For those more than a year away from purchasing a house, a Lifetime ISA (LISA) can be a great option. Available to individuals aged 18-39, a LISA allows you to save up to £4,000 annually, with the government adding a 25% bonus, up to £1,000 each year. This can significantly boost your deposit over time. Even if you can’t save the maximum amount, opening a LISA now with a small amount and contributing when possible can help you reach your goal. Just be mindful of the terms and conditions, including the maximum property value allowed for using the LISA funds.
If your house purchase is imminent, an easy-access savings account might be more suitable. There are many options available, and revisiting my previous episode on savings could provide additional insights.
The amount you need to save varies significantly. The more you can save, the better—it increases your overall house budget or decreases the amount you need to borrow. However, if saving a large deposit is challenging, note that more banks have reintroduced 5% or even 0% deposit mortgages.
Remember, the deposit isn’t the only cost you’ll face when buying a house. You’ll also need to budget for solicitors, Stamp Duty, removals, and other fees.
Mortgage Terms Glossary
• Mortgage Term: The length of time to pay off the mortgage. A 25-year term is common, but esbs offers up to 40 years. Longer terms reduce monthly payments but increase total interest paid.
• Interest-Only Mortgage: You pay only the interest each month, not the principal, requiring a separate strategy to pay off the initial loan amount.
• LTV (Loan to Value Ratio): Percentage of the property value you want to borrow.
• Decision in Principle: Indicates how much you could borrow based on income and a soft credit check.
• Porting: Moving your current mortgage to a new property.
• Remortgage: Switching your existing mortgage to a new deal.
Types of Interest Rates
• Base Rate: Set by the Bank of England, influencing UK banks’ interest rates on savings and loans. Tracker mortgages follow this base rate.
• Standard Variable Rate (SVR): Set by your bank or building society, not the Bank of England. This is the default rate after your current mortgage deal ends.
• Discount Mortgage: A fixed percentage below the SVR, varying with the SVR.
• Fixed Rate: Locked in for a set period, offering stability in repayments.
Choosing the Right Rate
Deciding between fixed and variable rates depends on your preference for security and personal circumstances. Fixed rates provide predictable payments, while variable rates might offer lower initial rates but come with uncertainty. Consider your budget flexibility when choosing a mortgage type.
A good mortgage advisor can explain the process clearly, so don’t hesitate to reach out for assistance. What do you wish you’d known when buying your first house? Share your thoughts with us on social media at @earlshiltonbs, and if you have any questions, we’ll do our best to answer.
Happy house hunting!