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With the threat of repossessions on the rise and an
estimated 30,000 properties in 2007 and 45,000 in 2008 it
becomes ever more important that careful planning is carried
out before undertaking the financial commitment of a
mortgage. To assist with the planning stage the following
document will outline some of the major factors that need to
be taken into consideration.
The Mortgage Approval Process
It is fairly obvious that your income is the biggest factor
into how much you can afford to pay on a monthly basis for
your mortgage. There are two ways to calculate this, the
first is the income multiplier and the second is
affordability. The income multiplier is a fairly rough
guideline as too how much a lender may consider giving you
based on your income. Usually the calculations will be
around 3 times a single income or 2.5 times a joint income,
this can vary and some lenders will use a credit rating to
give you a higher percentage. It may be you would do
anything to have that property you always dreamed of but
over stretching could cause serious financial problems for
you in the future. The other method is by using an
affordability calculator; these take a significant number of
issues into consideration and may give you a more accurate
figure. There are many more lenders that are now using this
method to calculate how much you might be able to afford on
your repayments. Generally when calculating your income the
lenders will take your guaranteed monthly gross Income,
bonuses that are guaranteed, other income such as overtime
that is not guaranteed will often not be taken into
consideration.
Some of the further aspects that the lenders will take into
account are your monthly outgoings you are committed too
already, these will include any loan repayments, credit
cards or store cards. If you are remortgaging then a lender
may give you the option to bundle these into the remortgage
and increase your monthly payment. The mortgage
rates will be significantly lower than any of the high
interest credit options or indeed a personal loan. It is
fairly common that lenders will require a deposit upfront as
part of the mortgage agreement, usually for a residential
property this will be around 5% of the sale price, so for
example if you buy a property for £100,000 then they will
require £5000 deposit. The mortgage calculation will be made
on the property price minus the deposit. Buy to let property
will require a higher deposit and this can be in the region
of 25%, this needs to be taken into consideration if you are
buying a property to rent out. Before you even consider a
mortgage you will need to be able to provide a deposit or
some new build property will give you the deposit as part of
the purchase agreement.
Fixed Rate Mortgage
Your personal income is the part of the mortgage process
that is transparent to you; there are other fees and charges
that may not be so visible. Many mortgage providers will
have fees and charges when you first set up the contracts,
these can range in cost and what you pay. A good example is
with the mortgage interest rates, if you take out your
mortgage over a shorter period of time the rates will be
reduced compared to a longer time period. For example if the
borrower required £100,000 over a 25 year period then the
interest rate may be 8%, if the same borrower wanted
£100,000 over 15 years then the interest rate may be 6.75%.
During the times of uncertainty many people now consider fixed rate mortgage. A fixed rate mortgage remains constant
over the duration that the borrow takes out the mortgage,
these can vary from lender to lender, some are 2, 5 or even
10 years. This provides people with many advantages often
first time buyers will opt for a fixed rate, some of the
benefits include the ability to plan ahead knowing that
their mortgage interest rates will not increase even if the
Bank of England increase the base rate of interest. Some of
the best mortgage rates can be found with a fixed rate deal,
this is especially true if you take out a longer term one
due to this committing you in with the same supplier.
House Prices and Interest Rates
The house prices will have a significant determination on
what you can afford with regards the type of property and in
a mortgage. In the current market many first time buyers are
finding it particularly hard to get their first step onto
the property ladder. The problem associated with this are
the prices are so high in the current market that for anyone
needing a mortgage they will be requiring significantly more
than 3 or 2.5 times their income. Property prices have been
rising faster than inflation which in turn will mean the
affordability has been greatly reduced. But not only are the
property prices affecting the affordability but due to
economic pressures the interest rates have been increasing
over the last year. Anyone locked into a fixed rate mortgage
will not have a problem; however variable rate mortgages or
people trying to obtain a new mortgage can be affected. The mortgage rates are critical to the number of mortgages
that are provided and how much risk a lender is willing to
take on providing new ones and who can afford them. To help
people calculate how much they can afford many of the
lenders provide mortgage calculators to help with the
budgeting. It is possible to find online calculators that
will break down to the type of mortgage that you may require
such as a mortgage rate calculator, first time buyer
calculator or a buy to let calculator. The mortgage
calculator will allow you to determine the amount you want
to borrow, the interest and the term and will provide a
monthly repayment figure. You can compare different types of
mortgages and what will happen to the payments if you make
an over payment. Some will allow you to add in your monthly
outgoings, income, savings and expenditure to give you a
more accurate figure as to whether you will be accepted for
a mortgage from that lender. |
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