As the editor of talkmoneyblog , I am often asked if now is the best time to take on a new mortgage and buy a new home, here are my finance tips. Ask ten people whether they think the time is right to venture back into the property market and you’re likely to get a different answer from every one. Even studying the news reports won’t help much if you want to know whether house prices are on the up or about to sink back through the floor.
At first sight, things seem to be looking promising, with the British Bankers’ Association reporting that 38,181 new mortgages were approved by its members in July 2009 – a jump of 77 per cent on July 2008 and a 17-month high.
These figures have been accompanied by rumours of gazumping and bidding wars making an unwelcome return to some parts of the country, amid speculation that house prices are being pushed up by a shortage of property for sale.
But before you panic about being left behind, bear in mind that mortgage lending is still a long way from its 2007 peak. In July, repayments on home loans outstripped new borrowing for the first time since 1993, when records began, while Bank of England statistics show that the total number of mortgages approved in the same month – 50,123 – was less than half the monthly average recorded in the 10 years to 2007.
With some analysts predicting that the slight recovery over the summer has been an unsustainable blip, the immediate future looks far from certain. So any decision you make about buying needs to be based very much on whether it’s the right time for you – and whether you’ve found the perfect property.
Whatever you decide money saving expert, says it’s never too early to start working on your finances so you can handle the extra commitment when it arrives.
Consider the financial options
- In these days of cautious lenders, even 85 per cent mortgages can be hard to come by, so you need to put as much money aside for your deposit as you can. Maximise your savings by cutting back on household expenditure – using a price comparison site is a quick and easy way of seeing where you can reduce costs.
- Look at your credit report. It’s the personal history of your credit accounts, such as credit card and loans, and will show you how well you are managing them. It will also give you an idea of how much more you can afford to borrow and what you might be able to manage without. You can make a start now and see your Experian credit report online with a free 30-day trial of CreditExpert¬.
- If your parents are in a position where they could help with a deposit if you are a first-time buyer this might be an option to help you get on the property ladder.
- Increasing numbers of people are getting onto the property ladder by buying with family or friends. It’s not an option to be taken lightly, though – you must be sure you can live and share financial pressures with your co-habitees and will need a legal agreement.
- Another alternative is a shared ownership or shared equity schemes, in which you purchase part of a property with support from a housing association or developer. The terms vary, so do your research before committing yourself.
- If you’re prepared to take on lots of hard work, not to mention stress, a self-build project could be an economical way of getting a new home – around 20,000 people are expected to take up the challenge this year. This is an especially good option if you want to make the most of the equity in your current home and is even more cost-effective if you can do most of the work yourself.
Things to do before you start house hunting
- Do your research. Make sure you understand the pros and cons of all the different types of mortgage and keep up-to-date with the financial press and websites so you know what deals are out there. Seek mortgage and finance advice, use the services of a mortgage broker to help you find the best mortgage for your personal circumstances.
- Make sure your credit report is accurate and up to date. A single clerical error could damage your chances of getting the mortgage you need. If there’s anything you believe is wrong, ask the relevant lender to amend the record. You can also add a note of explanation if unusual circumstances explain past problems – for example, if you missed a payment because you were ill.
- Do a cost assessment of all the expenses involved in buying a house, from stamp duty and solicitor’s fees to removal costs, and make sure you include everything in your budget calculations. If you overstretch yourself now, you could end up struggling to pay your mortgage and you may struggle to get out of debt if you then manage to secure a mortgage.
- Pay off as much of your credit card debts and loans debt as you can before you apply for a mortgage. Lenders want to be sure that you can manage the repayments comfortably and won’t be overstretching yourself.
- Register to vote at your current address. Lenders use the electoral roll to check that you live where you say you do as a precaution against fraud.
- If you are a first time buyer and you haven’t taken out any credit, you may find getting a mortgage even more difficult because you don’t have a credit history. Using a credit card for your spending and paying it off in full every month will show potential lenders that you are responsible and know how to manage credit. You can see how you’re doing by checking your credit report regularly.
Improve your chances of getting the best mortgage deal
- It’s always tempting to look at homes for sale just beyond your reach but give yourself a price limit and stick to it. Most lenders require a 25 per cent deposit for their best mortgage deal these days, so you could end up in trouble if you go beyond what you can really afford – especially when interest rates go up again.
- Close joint credit accounts with former partners. Their credit history could affect your ability to borrow if your names are still linked financially.
- Use an independent mortgage broker or financial adviser for finance advice – they can search the whole market for the best deal because they aren’t tied to any individual lender.
- Always read the small print before you sign so you are aware of any penalties, tie-in or fees.
- Don’t make lots of mortgage applications, even for agreements in principle. Each one will leave a record, or footprint, on your credit report that other lenders will see – if there are too many, they may think you are desperate for money or trying to commit a fraud. You can check your Experian credit report for free with a 30-day trial of CreditExpert.
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