Welcome to the second edition of our monthly property column bringing together practical, real-world insights from Tom Simpson, managing director of homes at Yorkshire Building Society, alongside other industry experts.
This month, Tom takes a look at what the journey to homeownership really looks like and the steps involved at every stage of the process.
Are your finances in order?
Before you start, the first hurdle is understanding your finances. This means working out what savings you have, as well as any debts (such as credit card or car finance agreements).
You should also find out your credit score (there are organisations which provide this service for free).
This matters because factors like borrowing too much, missing bill payments or defaulting on a loan, for example, can damage your credit history.
However, keeping up to date with regular commitments or paying off a loan can help your score improve. Having no history of managing regular payments can be an issue, too.
These are the factors which are important to lenders, and many would‑be buyers underestimate how much small, consistent positive financial habits really matter when it comes to showing your reliability. Being on the electoral roll is also important, as it helps a would-be lender to check who you are.
How much can you afford?
When you have a clear idea of your financial ‘health’, the next step is to look at what price of property you can afford.
This involves looking at all your incomings and outgoings and determining how much free cash you have left to commit to a mortgage. Lenders use this to work out how much they can lend to you, which you can comfortably repay without stretching yourself too far.
The typical total lending amount lenders apply is 4.5 times income, but this can go up as high as 5.5 or six times, depending on your circumstances.
Remember that the lender will factor into their calculation how much you already owe on other financial commitments.
There are online calculators you can use to get an idea of how much you are likely to be able to borrow, but they’re no substitute for a tailored affordability assessment.
A calculator can’t understand your career trajectory, your spending patterns, or the nuances of your financial commitments. This is where a broker or independent mortgage adviser could help.
Bear in mind, too, that it’s not just the home itself you’ll need to pay for. You’ll also need savings towards a deposit and other costs associated with buying, such as conveyancing costs (charges associated with the legal process of transferring property ownership from one person to another); the valuation (used by the lender to determine what the property is worth), a survey (optional, but recommended, as an expert’s inspection of the condition of the property), and of course making it your own with things like decoration and furnishing.
Finding your dream home
Once you know how much you can afford, it’s time to house hunt.
When choosing where to live, try making a list of what’s most important to you – for example, how many bedrooms do you need? Do you need a garden?
If you find somewhere you like, visit the property at different times and days of the week. This way you’ll get a good sense of the area and the community, and you’ll be able to find out what traffic, noise and parking are like. Be sure to ask as many questions as you can so that there are no surprises later on.
When you’re settled on a home you love, it’s time to make an offer, and once you’ve had an offer accepted, you can actually apply for a mortgage.
How do I get a mortgage?
The mortgage process itself is often where first‑time buyers feel most intimidated.
Before you start looking for a mortgage, you’ll need to know your loan-to-value (LTV). This is calculated based on the difference between your deposit and the value of the home you want to buy, and will guide you towards mortgage deals which are suitable for you.
Products are usually available from 60% LTV (where the borrower has a 40 per cent deposit and is borrowing 60 per cent of the property’s value), up to 95 per cent LTV (where the borrower has a five per cent deposit and is borrowing 95 per cent of the property’s value).
In terms of the mortgage application itself, first, you need a Decision in Principle, or DIP.
This is a signal that a lender is open to lending to you. To get this, you will need to arrange a conversation with a lender or a mortgage broker and tell them your deposit, outgoings and the price of the home you want to buy.
If your affordability and credit record stack up against their criteria, you will be given a DIP. Once you have that, you can make an offer on your desired property, and once that’s accepted by the seller, you’ll need to hire a conveyancer (to manage the legal side of buying a home).
Next, you’ll submit your full mortgage application via your broker or lender. You’ll need to provide more detailed information and documentation about your finances as well as the home you want to buy. They will also check your credit history and carry out their valuation of the property.
Once your mortgage application is approved, your lender will then issue a formal mortgage offer outlining the terms of your loan and a full breakdown of costs. You’ll pay your deposit, legal costs and any associated fees through your conveyancer.
After that, you’ll sign and return the offer so that your conveyancer can begin the exchange of contracts with the seller’s conveyancer. This is the point at which you become legally committed to the purchase. Finally, completion takes place — the moment ownership transfers to you, and you can collect the keys to your new home.
The bottom line
The first‑time buyer journey need not be mysterious or inaccessible, and if you’re unsure, speaking to a mortgage adviser via your chosen lender, or an independent mortgage broker, can help you navigate the process with confidence.
For more information, visit www.ybs.co.uk/mortgages.
You must be logged in to post a comment Login