Getting your finances in order when buying a new home
Buying your first home or stepping up on the property ladder is likely to be the largest financial investment of your life. That’s why it’s important to breakdown the costs and truly weigh up what you can and can’t afford, before you leap in. Once you’ve done this, you can decide how you might take advantage of Government-backed financial incentives or developer offers to make your new home an affordable reality. We asked L&C’s mortgage advisors to share their top tips to help you get your finances in order.
Getting your finances in order
When going through the process of buying a new home, you’ll go through a routine check to see whether you meet lender financial requirements. The amount that you’ll be able to borrow is not just based on your income, but outgoings as well. Using an online affordability calculator will help give you an idea of what lenders might offer. L&C’s mortgage advisors are on hand to help you with financial advice if you’d prefer to speak to an expert.
What you’ll need
Affordability calculations will vary from lender to lender, but all will ask your income and what your outgoings look like. This will include both committed expenditure and other forms of credit, like car finance, loans and credit cards. Evidence of payslips and bank statements will be required to prove your income and outgoings.
Putting the effort into preparing and understanding what your monthly purchasing commitments and expenditure habits look like will help you prepare for what kind of mortgage might be available to you.
If you’re an existing homeowner, the deposit you originally put in – plus any growth in the property value during the period of ownership – can be used for your next purchase. As with first-time mortgage options, the principle remains: the bigger your deposit, the better the mortgage rates that may be on offer. This could unlock the opportunity to buy a more expensive property.
Of course, you can bolster that with any additional savings you’ve managed to accumulate. If you’ve been putting money away on a regular basis, or you’ve put a lump sum aside over the years, that can strengthen your deposit.
There are several government schemes available that can help you get on the property ladder or make that step up. Although Help to Buy equity loans are often used by first-time buyers, they are not exclusive. Until 2021, the scheme enables existing homeowners to benefit as well. You will need a minimum 5% deposit to qualify and there is no maximum household income to qualify for the scheme. The Help to Buy Equity Loan scheme is exclusive to new-build homes and you can purchase a property with a maximum value of £600,000 in England, £300,000 in Wales and £200,000 in Scotland. This could be an option to explore if you are looking to step up the property ladder but are feeling affordability pressures.
Developers such as Barratt Homes may offer Part Exchange schemes whereby they purchase your existing property – within certain terms and conditions – which means you have a guaranteed buyer, no chain and no estate agent fees. This route to sale and purchase can help you move into your new home faster as the developer becomes the cash buyer of your property.
Currently the mortgage market is really competitive, which is helpful if you’re looking to take on a larger mortgage. The lower rates will help to mitigate the rising cost of a bigger mortgage versus your current debt. If you shop around, you will find that there are some attractive deals on offer, and you can lock in your rates if you’re worried about escalating cost or future interest rates.
Stamp Duty is a land tax you pay on your purchase, payable to the government. Currently, Stamp Duty relief is available for first-time buyers purchasing homes of up to £300,000. For existing homeowners, Stamp Duty rates vary from 0% to 12% depending on the property value. You can calculate the Stamp Duty cost via online Stamp Duty calculators.
Finally, there are a few one-off costs which are often overlooked when buying a property. Such as conveyancing costs, survey fees and insurance. It’s a good idea to keep a lump sum aside for these additional expenses.
There are many things to consider when investing in property. The Barratt Homes interactive affordability guide has everything you need in one place, to help you budget your move realistically.