Factors and costs that need careful consideration
WHEN BUYING A home, the first step is understanding how much you can afford to borrow for a mortgage. Most people aim to purchase as much house as they can reasonably afford without overstretching their finances or having too little money left to cover monthly bills. Determining your borrowing capacity involves several factors and costs that need careful consideration. This includes your income, job security, and prospects for pay rises. Additionally, prospective homeowners should account for moving costs and potential renovation expenses.
ASSESSING MONTHLY LIVING COSTS AND MARKET EXPECTATIONS Evaluating how much money you need each month for living costs is essential. Consider what your expectations are in terms of house prices and mortgage rates. Reflect on the property size you desire and whether you are comfortable being “house poor”—owning a larger house with less disposable income— or prefer a more modest home with more cash available. You should also consider your safety net, including savings or family support, and your risk appetite—how much debt you are willing to take on. Understanding these points will help you calculate the additional costs you’ll incur when you move, how much money you need to maintain your desired lifestyle, and how comfortably you can stretch yourself financially.
“Determining your borrowing capacity involves several factors and costs that need careful consideration.”
WHAT SIZE MORTGAGE CAN I OBTAIN? Lenders typically allow borrowers to access funds up to between 4.5 and 5.5 times their annual salary. However, lenders must also conduct an affordability assessment, considering your outgoings and income. This includes evaluating your ability to manage the monthly payments and other financial commitments.
CONSIDERATIONS FOR INCOME AND OUTGOINGS Your income is a crucial factor in this assessment. Lenders will consider your basic income, any additional income such as overtime, bonus payments, a second job, income from pensions or investments, and child maintenance or financial support from ex-partners. Payslips and bank statements are usually required to provide evidence of income. Two or three years’ worth of tax returns and business accounts are often necessary for self-employed individuals. Your outgoings are equally important. Lenders will examine your monthly household spending, including council tax, utility bills, loan repayments, credit card payments, car payments, childcare costs, school fees, and insurance premiums. Everyday expenses such as food, holidays, and leisure activities will also be considered.
REVIEWING CREDIT SCORE AND FINANCIAL RESILIENCE Lenders will check your credit score to assess your financial reliability. They will also evaluate whether you can keep up with repayments if circumstances change, such as an increase in interest rates or a change in your income. Understanding how lenders assess your financial situation can provide better insight into what you can realistically afford when considering a mortgage. Deciding how much you can afford to borrow for a mortgage is a complex but essential step in homebuying. By carefully evaluating your income, outgoings, and overall financial situation, you can make a more informed decision that aligns with your long-term goals and financial stability.
>> ARE YOU READY TO DISCUSS YOUR MORTGAGE OPTIONS WITH US? << For further information or personalised advice, please get in touch with our team of mortgage experts, who can help guide you through the process. Contact Omni Finance – telephone 01424 236903 – email simon.hickman@omnifinance.co.uk
The Mortgage & Property Magazine is published quarterly for Omni Finance by Goldmine Media Limited. All enquiries should be addressed to The Editor, The Mortgage & Property Magazine, c/o Goldmine Media Limited, 124 City Road, London EC1V 2NX. Please note that The Mortgage & Property Magazine does not accept unsolicited contributions. Editorial opinions expressed in this magazine are not necessarily those of Goldmine Media Limited and Omni Finance does not accept responsibility for the advertising content. Offers and promotions may have limited availability. To discover more, visit the Omni Finance website: www.omni-finance.co.uk. All Rights Reserved 2024. The content of the articles featured in this publication is for your general information and use only and is not intended to address your particular requirements. Due to the devolved administrations of the United Kingdom, the information relates to England only except where explicitly referred to otherwise. Articles should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. AS WITH ALL INSURANCE POLICIES, CONDITIONS AND EXCLUSIONS MAY APPLY. YOUR BUY-TO-LET PROPERTY MAY BE REPOSSESSED OR A RECEIVER OF RENT APPOINTED IF YOU DO NOT KEEP UP PAYMENTS ON YOUR MORTGAGE. MOST BUY-TO-LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY (FCA). EQUITY RELEASE MAY INVOLVE A HOME REVERSION PLAN OR LIFETIME MORTGAGE WHICH IS SECURED AGAINST YOUR PROPERTY. TO UNDERSTAND THE FEATURES AND RISKS ASK FOR A PERSONALISED ILLUSTRATION. EQUITY RELEASE REQUIRES PAYING OFF ANY EXISTING MORTGAGE. ANY MONEY RELEASED, PLUS ACCRUED INTEREST, TO BE REPAID UPON DEATH OR MOVING INTO LONG-TERM CARE. EQUITY RELEASE WILL AFFECT POTENTIAL INHERITANCE AND YOUR ENTITLEMENT TO MEANS-TESTED BENEFITS BOTH NOW AND IN THE FUTURE.
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