Before you decide whether to buy a property, you should consider carefully how much you can realistically afford to repay each month. You need to bear in mind that your monthly repayments may increase considerably if interest rates rise.
Monthly repayments
Working out how much you can afford to repay each month is the most important part of working out how much you can spend. You need to take into account the other expenses you will have as a homeowner, which may include:
- valuations, surveys and legal fees
- mortgage arrangement fees and/or a mortgage indemnity guarantee fee
- insurance to protect your home, its contents and your mortgage
- moving expenses, household bills and regular living expenses
- maintenance and repair costs
- the fees you will have to pay if you buy a leasehold property
- increased interest rates at the end of any special introductory deal you get.
Some of the costs involved are one-off expenses, whereas others are ongoing. Some will be for a fixed amount, but others may vary from year to year and may depend on the value of your home. If possible, try to set some money aside in case your income falls or your monthly payments increase unexpectedly.
Your plans for the future
Buying a home is a long-term financial commitment, so you should make sure that it ties in with your future plans. For example:
- Would you be willing to cut back on non-essential spending such as holidays or going out at night if you had to?
- If you have plans to start a family, would the sort of property you can afford be suitable for your new family, and could you afford the monthly payments on top of your childcare costs?
- If you are nearing retirement age, will you have enough income to pay off your mortgage before you stop working?
- If you plan to move again in the near future, would you have to pay a penalty charge (redemption fee) and will you be able to afford the costs involved in buying and selling all over again?
How much you want to borrow
Almost everyone who buys their own home has to get a mortgage to pay for it. There are lots of mortgage packages on offer, so it's worth finding out what's available through different lenders before you make a decision.
It may be a good idea to be cautious about borrowing a high percentage of the property's value, even if a lender says you can. The more you borrow, the higher the risks involved, because:
- if your income falls, it will be more difficult to afford your monthly payments
- if interest rates rise your monthly payments will increase
- if property prices fall, you run a greater risk of falling into negative equity
- you may have to pay high interest rates and/or a mortgage indemnity guarantee if you borrow a high percentage of the value of the property.
If you can't afford a mortgage that will allow you to buy a property on the open market, a home ownership scheme may help to make buying a possibility. However, although schemes such as shared ownership may mean you don't need such a big mortgage, it may be difficult to keep up with the ongoing expenses involved if you have a very low income.
