For many, purchasing a first home will be the biggest financial commitment they ever make. It can be a very anxious time, with the prospect of an expensive, time-consuming and, at times, frustrating process ahead of you. Things are perhaps harder now than ever before, with economic gloom making cheap, easy mortgages a thing of the past. However, this new world of restrictions should be viewed as a positive thing; instead of plunging yourself deep into debt by buying something you simply can’t afford, you are now forced to take a more realistic approach to the housing market and to collect as much information as you can before committing to a mortgage.
The key question is: how much can you actually spend? This will vary depending on how much you earn. Traditionally, it was possible to borrow around three-and-a-half times the main breadwinner’s income or two-and-a-half times the joint income. In recent years, lenders have been adjusting their ‘affordability’ indexes to allow more people to buy more expensive houses. This resulted in the housing boom peak of 2006. Lending criteria from reputable banks are significantly more stringent nowadays, with lenders seeking a larger deposit and thorough proof of a decent credit history. Take a look at the mortgages from Santander for example, and you’ll see that this cautiousness is rewarded in their rates and reliability.
You may well be able to get more than you anticipated out of your mortgage lender. Even so, it’s vital to keep your own ambition in check. Don’t go overboard just because someone’s offered you the chance. Remember, interest rates can shoot up at anytime. Indeed, the historic low they’ve been at in recent years makes it a certainty.
Even if you opt for a fixed rate mortgage, this added security only lasts for a limited time, and rates may end up even higher when the term comes to an end. Whatever you do, approach a large purchase like this with some modesty. If you overreach, you’ll end up having a great deal of stress in your life, but if you have underestimated what you can afford, you can always upgrade to a bigger house in a few years when you are more financially secure.
Remember, always use an established mortgage provider with a good reputation, rather than the first shiny, attractive deal you see on the market. For such a long-term investment, a larger firm – while never being 100% safe – will definitely be more secure than the local small business.
