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Tips for homebuyers in 2020

Tips for homebuyers in 2020

If you’re thinking about buying a home this year (or any year), it pays to take a strategic approach.  Here are a few tips on how to do so.

Start by researching your preferred area(s)

Think about what you need in a place to live and then think about what you would like to have in your local neighbourhood.  When you’re listing out your wants, try to give them a score so you know how much each one really matters to you.

Look out for places where you could make compromises to get a better deal.  For example, you might need to live in a place where you can reach your work within a certain length of time.  You might want to keep that time as short as possible.  The compromise might be to look at locations where there are expected to be improvements made to public transport within the near future.  If you can live with a longer commute for a short while, over the long term, you could benefit from a shorter commute and an increase in the value of your home.

Keep an open mind about adapting a property to suit your needs

Hopefully, you’ll find the perfect property for you very quickly, but if you don’t then you basically have two options.  One is, of course, to keep looking and the other is to make adaptations to a property so that it is suitable for your needs (and preferably your wants as well).

Obviously, you need to be sensible about this.  In particular, you need to think carefully about what, if anything, you could reasonably do yourself and what would need to be done by a professional.  You’d also have to factor in the cost of making the changes if you decide to put in an offer on the property.  Last but by no means least, if you’re thinking of making significant changes, it would be a very good idea to check whether or not planning permission would be required and if so to confirm at least the likelihood of getting it before committing to the purchase.

Do whatever you can to make yourself an attractive buyer

When sellers can choose from different offers they may focus on price or they may focus on convenience.  In other words, they may accept a lower offer from a buyer whom they believe will be in a good position to take the sale through to completion in the quickest possible time and with minimal inconvenience to them.  This means that the more preparation you do, the more attractive you can make yourself to a seller and the more chance you have of your offer being picked over higher ones because you are seen as a safe option.

Regardless of whether or not you already have a mortgage, you want to double-check your credit record and make sure that it is free of any errors.  This would also be a good time to see if there is anything you can do to improve it, no matter how small of a change it seems.  For example, if you have a credit card you never use but never got around to closing, you should make a point of closing it.

If you’re a first-time buyer/renter, then ideally you want to be pre-approved for a mortgage.  If you already have a property, then ideally you either want to sell it before you put in an offer for another property or be able to demonstrate that you can buy another property without needing to sell your current one.  In other words, try to avoid becoming part of a chain.

Your property may be repossessed if you do not keep up repayments on your mortgage.

 

Maximising your chances of being approved for a mortgage

Maximising your chances of being approved for a mortgage

If you are buying your first home or moving to a bigger one, then there’s a very good chance that you’re going to need a mortgage to help you to do so.  The bad news is that being approved for a mortgage is very far from a formality.  The good news is that it is possible, as evidenced by the many people who successfully do so each year.  With that in mind, here are some tips on maximising your chances of mortgage approval.

Build a deposit

There are two good reasons why mortgage lenders prefer borrowers with larger deposits.  The first reason is the straightforward fact that larger deposit lowers the lender’s exposure to fluctuations in the property market.  In principle, the borrower is responsible for the mortgage, but, in practice, if the worst comes to the worst and the borrower goes bankrupt, it will be the lender who is left on the hook.  The second reason is that the ability to raise a large deposit shows that the borrower can save (or has access to financial support from other sources).

Make sure your credit record looks as good as it possibly can

In addition to checking for any clear errors (and getting them corrected), see if you can go a step further (or several steps further) and actively improve it.  Sometimes even simple changes can make a difference (possibly only a small difference, but every improvement is a gain).  For example, if you’re not on the electoral roll, then get your name added (and if you are on, make sure you’re listed at the address you’ll be giving to your mortgage lender) and if possible, add a landline phone number.  On a larger scale (and with potentially more impact), make the time to pay off any small-scale debts you are carrying, such as credit cards you hardly use, and then actually close them (rather than leaving them in limbo).  In fact, if you still have any credit cards with zero balances, then ask yourself if you really have a compelling reason for keeping them open and if the honest answer is “no” then close them.  If you need any more encouragement to take this step, then remember that every financial product you own is a potential point of compromise and so minimising the number of companies which have access to your financial details should also reduce the likelihood of you becoming a victim of fraud and/or identity theft.

NB: remember that the UK has three main credit-reporting services Experian, Equifax and CallCredit and you will need to check your record with each of them to get a full picture of how your financial history will look to a lender.

Keep your finances on a steady track

Remember that your credit record is only the first check a lender will make.  If you pass this hurdle, they will want to take a more detailed look at your spending by means of your bank statements.  With this in mind, you want your statements to give the impression of a person who lives their life in a way which is unlikely to give a potential lender a moment’s cause for concern.  So, for example, unless you are really desperate to leave a job you hate, wait until your mortgage is 100% secured before doing so and if your plan is to start your own business, then hold off making any purchases which make this obvious to the lender.  In other words, while you have to answer any questions truthfully, you only have to answer what they actually ask.  Always remember, however, that the onus will be on you to keep up with your mortgage payments and that the consequence for not doing so can be losing your home, so resist any temptation to over-stretch yourself from the start.

Your property may be repossessed if you do not keep up repayments on your mortgage.

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A beginners guide to mortgages

A beginners guide to mortgages

For many people buying a house means getting a mortgage of some description.  At a basic level, a mortgage is just a loan secured against a property, however, once you dive a little deeper there is a level of detail which it can be helpful to understand.  With this in mind, here is a beginner’s guide to mortgages.

Residential mortgages and buy-to-let mortgages are very different

Although the basic principle behind them is the same, they work to very different sets of regulations.  This means that if you buy a house with the intention of living it and then decide you wish to let it out in its entirety, you may well have to change your mortgage unless you are letting it out to a close family member, in which case your mortgage lender may permit it.  Taking in lodgers is more of a grey area and will come down to a lender’s individual policy.

Residential mortgages typically require the property to be occupied

The basic idea behind residential mortgages is that you are buying a property in which to live, rather than one to let out or one to leave empty, both of which carry additional risks.  Obviously, lenders are aware that homeowners are going to leave their property empty some of the time, e.g. to go on holiday, but there will typically be limits to this, again, check your lender’s policy.

Residential mortgage lenders have to abide by the rules of the Mortgage Market Review

In very simple terms, mortgage lenders used to be able to work on rules of thumb based on multiples of income.  These days, however, (post the Mortgage Market Review), multiples of income may still be a handy guideline as to what level of mortgage you could be offered, but always keep in mind that post the MMR, lenders are obliged to look past headline income figures and look into the details of where your money is going now and where it is likely to end up going in the future.  There are two points to take away from this.  One is that you may find yourself being offered less of a mortgage than you expected and the other is that you may have to accept your (financial) life being scrutinized in detail.  Remember, this is nothing about you personally, it’s just the way the rules work these days.

Interest-only mortgages have basically disappeared from the residential market

While making predictions is always dangerous, it’s hard to see how interest-only mortgages could make a comeback to the residential market any time soon.

Offset mortgages are still fairly niche but available

The basic idea behind offset mortgages is that you hold your cash savings with your mortgage lender and these are used to offset the balance on your mortgage.  This means that although you lose out on interest income, you also pay less in interest expense, which should work out as a net financial win for you, especially for higher earners, who will need to pay tax on their interest income.

Fixed-rate mortgages offer security, but usually at a price

The key point to understand about fixed-rate mortgages is that they are priced so that the lender still has a decent chance of making a profit.  They are also time-limited, so the lender has a floor to their potential loss (or even just their loss of profit).  This means that they can actually work out more expensive than variable-rate mortgages (depending on circumstances and whether the fix is absolute or allows you to benefit from reductions in interest rates while capping the extent to which your repayments can be increased in response to them).  The benefit of fixed-rate mortgages is that they offer stability and security.  It is up to each individual to decide if this benefit is worth the price.

 

Your property may be repossessed if you do not keep up repayments on your mortgage.

The FCA does not regulate some forms of buy to let mortgages.

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