One of the more persistent questions around the subject of housing concerns whether it’s cheaper to rent or buy a house. This popular housing conundrum ignores one of the underlying principles of the buying process though – can you afford your mortgage payments.
When applying for a mortgage, the provider you have chosen will be looking at your entire financial history – your income, pensions and savings, your outgoings, your credit report – all to ensure you can repay your mortgage on time and in full if interest rates rise or your employment status changes.
Whereas the mortgage lenders approach has had to change recently, due to the Financial Conduct Authority’s review of the market in 2014, they still base the amount you can borrow on multiples of income which is capped at four and a half times the amount – so if you and your partner have a joint income of £40,000 then the maximum mortgage you could take would be £180,000.
In addendum to this they must also look at your personal and living expenses, on top of your income, in order to assess the level of monthly payments you can afford. In these regards they will also take into account potential interest rate rises, impact of redundancy, and maternity leave in settling on a figure.
Based on the results of these calculations, the mortgage lender can limit how much you borrow depending on whether they think you’ll be able to afford the mortgage payments.
To get a better idea of what mortgages are available, tailored to your needs, comparison websites offer a good starting point. Google in particular offers a mortgage calculator which compares various lenders and can give you some clue as to how much you will be paying over the terms with a typical 4% APR. This will give you a good idea of the kind of payments you’ll have to make on your house.
Sadly, the costs don’t simply stop at the monthly mortgage repayments. With a hint of that figure in front of you, you now have to factor in payments to cover other aspects of the buying process such as survey’s, conveyancing fees and any stamp duty payments – potentially adding five to ten per cent to your buying budget.
The fees add up quickly and there is a lot to take in, so it serves to really pre-plan your approach to buying a house before deciding it is the best thing to do.