As a general rule, mortgage companies will allow you to borrow three times your salary, or two and a half times your joint salaries if you’re buying with someone else.
However, in the current market there are many different types of mortgage available, some of which will let you borrow more than this. For example, some companies will allow two people buying together to borrow three times the greater salary and one times the lesser.
There are also many innovative schemes around, such as those that allow borrowers to add the rental income from letting one room to their salary before their income multiples are assessed.
It’s worth seeking advice from two or three independent mortgage or financial advisers to find the best deal for you. Remember, though, that even if interest rates are low now, there’s absolutely no guarantee they’ll stay that way.
Never keep back any information on debts or county court judgements when securing a mortgage; it could come back to haunt you.
It’s worth trying to save as much as possible for an initial deposit, to secure the best repayment deals. With property prices as they are today, however, saving even a five or ten per cent deposit can be a real problem.
If your deposit leaves you flat broke, some mortgage companies will offer you the incentive of cash-back after completion, but you may have to pay a fee (redemption penalty) if you decide to pull out of the agreement.
If it’s a choice between paying off expensive debts such as credit cards or personal loans and saving a deposit, it’s often advisable to do the former and take out the best 100 per cent mortgage available. The choice and rates of such mortgages have become wider and more competitive in the past few years.
It’s only natural when buying a property to be more concerned with its size than with studying the small print on the mortgage agreement. But the wrong mortgage can cost you tens of thousands of pounds more than it should.
Mortgage providers often offer special deals to encourage people to take out a mortgage with them, and these are usually in the form of short-term introductory benefits on your mortgage. These benefits might be a discounted rate, a fixed rate, or a capped rate for a certain number of months or years, known as a ‘tie-in period’. Mortgage providers will want you to stay with them for as long as possible, and, because of this, many mortgages may contain a ‘redemption penalty’. This means that if you want to pay off your mortgage early, or move it to another mortgage provider, you will have to pay a fee.
Basically, the longer you borrow the money for, the more interest you’ll pay. The other side of this is that the longer you take to pay back the loan, the less you have to pay each month.
The typical mortgage is lent for 25 years, so you need to be in your first property for five years in order to reap the benefits. This is because, if you have a repayment mortgage, most of your repayments during the first years are spent only paying interest. Also the cost of moving (solicitors, stamp duty, and so on) means that it’s uneconomical to move regularly.
For example, if you pay off a £40,000 mortgage in 15 years, rather than the normal 25 years, you’ll have higher monthly payments for those 15 years, but you could save a staggering £20,000 in interest payments.
Do the same sums for your circumstances on the mortgage calculator – and think what you could do with £20,000.
Your other big decision is what type of interest rate to have on your mortgage.
* fixed rate
* variable rate
* capped rate
Definitions of all the above rates can be found at news.bbc.co.uk
Types of mortgage
The basic decision you have to make is how you’re going to repay the money you’ve borrowed. Don’t be confused – there are only two basic types of mortgage:
* repayment, where the capital is re-paid gradually over the term of the mortgage
* interest only, which, as the name suggests, is where you only pay the monthly interest of the mortgage. However, your lender will stipulate that you set up a repayment vehicle, such as an ISA, an endowment policy, or a pension plan which, when it matures, can be used to pay off the outstanding debt. If you take out this type of mortgage, check regularly that you’re on target to pay off the mortgage when it’s due. If not, then increase your savings.