Start thinking about buying a home sooner rather than later

The process of buying a house

is one of those things that you don’t know much about until you have to do it.

However, this lack of knowledge may mean that when the time comes to buy a house, you have to wait longer than you’d planned.

Don’t fancy the hold up?

There’s no time like the present to start thinking about

buying your first home

, even if you know that it’s some years off. This is because there are two big things that you may need time to sort out:

  1. Saving up enough money for a deposit and to cover moving costs
  2. Getting your credit score and finances (particularly ‘affordability’ – something we’ll explain later) in good shape

Why give yourself time to save?

According to recent figures, the average home in the UK now costs £226,000[1] – 7.4 times more than the average annual salary for men and 9 times more than the average salary for women[2]. This means that unless your family members are helping with the deposit or you’re loaded, it’s going to take time to save up the money you’ll need. Add in the fact that you’ll have other costs to deal with, such as solicitors fees and decorating your new home, and you’re likely to need a pretty sizeable lump sum sitting in your bank account.

Not convinced it’s time to start saving? Well, here are some stats to help change your mind:-

  • Comparemymove estimates that in the UK it will cost £8,885.66 to move home in 2018 – not including house purchase costs.[3]
  • It will take the typical first-time buyer 8 years to save a 20% deposit on a home, according to Nationwide Building Society.[4]
  • Millennials are currently facing the tightest squeeze on household spending since 2000 and consume 15 per cent less than older working age people[5]. This suggests there may be less spare cash floating around, so if you want to save for something, you’ll need longer to do it.

Looking good to lenders

It’s not just your deposit and moving costs you have to think of when it comes to buying a home – you have to make sure you’re the sort of person a lender would want to give a mortgage to.

Below are some of the things a lender will consider when assessing your mortgage application:-

Your credit report and score

Lenders want to see your history of managing credit and your existing credit commitments. They’ll be looking for:-

  • Missed or late payments
  • Any county court judgements
  • How much credit you’re utilising
  • Whether or not you’re on the electoral roll

Did you know?
However, not everyone has a credit score and report. In 2017, research conducted by Noddle revealed that More than one in three people (36%), primarily those under 35, hold no credit agreements whatsoever. This is up from one in four (27%) people five years ago[6].

 

Unfortunately, if you don’t have any credit agreements, chances are we – or the other credit reference agencies – won’t be able to generate a report for you. Building your credit history can take a little bit of time, so it pays to start doing this as soon as possible and well in advance of trying to get on the property ladder.

 

Affordability

When lenders assess your mortgage application, they will be asking ‘can you afford to take on a new line of credit?’ To answer this question, they’ll look at the following:-

 

  • Your income and the likelihood of this remaining stable
  • Personal circumstances –when assessing affordability, lenders need to know any dependencies you have and your employment status.
  • General outgoings –this covers things like average gas and electricity usage, TV and phone bills, and travel costs.
  • Savings and investment contributions, including pensions – these help lenders do a ‘stress test’ as part of affordability, which is basically asking the question of ‘if something negative happened, such as losing your job, could you cope financially?’
  • Lifestyle costs – this might seem a bit personal, but lenders will often start to askquestions about how much you spend on things like the gym or Netflix to help them understand how you manage your money.
  • Mortgage terms – you’ll be asked what term you intend to take your mortgage over, e.g. 25 years. This helps lenders work out if you can afford the monthly repayments.

 

To get ahead of affordability checks, you need to get your finances in order well in advance of making an application. This might mean waiting for that promotion before you start house hunting so you have more income, or cutting back on any unnecessary expenditure a few months before applying.

The good news is that there are tools out there that give you an idea of your affordability before you get too far down the house buying process. It’s worth checking ASAP and it will help you focus your house search too, because affordability tools will show you how much you’re likely to be able to borrow.

Plan ahead, get ahead

To avoid disappointment and unnecessary stress when you want to get on the property ladder, start getting yourself mortgage-ready now.

For tips to help you along the way, read ‘A millennial’s realistic guide to saving money’ and ‘How your credit score can help you get a mortgage’.

 

[1] https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/january2018

[2] https://www.monster.co.uk/career-advice/article/uk-average-salary-graphs

[3] https://www.comparemymove.com/planning-moving-day/cost-of-buying-selling-moving-house

[4] http://www.bbc.co.uk/news/business-42565427

[5] http://www.resolutionfoundation.org/media/press-releases/young-people-hit-by-spending-squeeze-as-falling-incomes-and-rising-housing-costs-take-their-toll/

[6] Noddle commissioned ICM Unlimited to ask a series of questions of parents and adult children, polling a representative GB sample online. The polling ran between 3-4th April 2012 and again between 25th-28th August 2017 (five year gap) with questions repeated verbatim or near verbatim (some additional questions were added).