If we want to get the best mortgage offer as a first-time buyer, we want to join up three sides of a triangle. On one side is our deposit, made up of what we earn then save.
On the second side is how much the bank wants to throw at us based on our earnings and deposit.
The third side has a property in a price band that lets the other two meet. Finding that magic property that the bank thinks is “affordable” for us is likely going to hinge on three things. One, the location. Two, whether it’s a fixer upper or something more stately. Three, how much of our wish list we let fall by the wayside. (A walk-in wardrobe for our first house might be a bit ambitious).
I’m not trying to buy the perfect property, I hear you cry. Any property will do. This is precisely the point. If you can find the one dodgy house somewhere you don’t hate that lets deposit and lender join forces, then it shall be the perfect property. Or the only property.
I speak from experience. My house was really the only one in many months that my deposit and mortgage agreement in principle would cover. Have patience in joining the sides of the triangle. You shall be a happy bear when it finally comes together.
By the same token, you might think the “best” mortgage offer is a pipe dream. You just pray that anyone will let you have a mortgage at all. Not only did I manage to get a mortgage on a low salary (see the averages below), but I actually had a choice of deals. This was because I had gone hell for leather on the deposit side of the triangle and found a safe property for the third side. More on that later.
I don’t know what coronavirus is going to do to the housing market in the long term yet. No one does. The crisis has demonstrated that we need savings more than ever. We need flexibility in case we need to work from home, or change income altogether. It’s tested our ability to make do with what we’ve got, and guarantee a roof over our head.
If I was still saving for a deposit during these weird times, I would keep going. Abandon hope now and you’ll be even further behind in your goals when/if housing returns to an even keel.
If you find any glaring mistakes in my maths below, then please let me know politely in the comments. As the mahusive word count might indicate, I prefer words to numbers (and sometimes I like to make up words).
Also I am not a broker or any kind of financial advisor. Any information is to share my experience if that’s helpful, or it’s a launchpad for your own research. I can’t tell you where to put your deposit. (Although I hope you end up putting it towards somewhere that changes your life for the better. Best of luck! I’m more of a mascot than a mathematician).
Here’s what I’ve covered below:
- Why Averages Are Meaningless
- How Do We Know When We’ve Saved Enough
- Fixing The Earnings Side Of The Triangle
- Fixing The Property Side Of The Triangle
- Other Variables To Rocket Our Progress
- How To Find The One Mortgage Offer To Rule Them All
- Comparing Mortgages
- Why You Need A Mortgage Broker
Remember, folks, I’ve been through the trial by fire. I have stared at the abyss that is a future of damp furnishings because you can only afford to rent a flat where the landlord won’t replace anything mouldy. I’ve lived with noisy neighbours upstairs who think it’s okay to rollerskate on wooden floors.
I spent a long time joining up my sides of the triangle. Mending my earnings on one side. Tweaking the deposit on the other. Then waiting like a hawk for the fixer upper that would save the day. If you’re desperate to have your own home, I’m sure some of these tweaks will bring you closer to safe and dry.
Why Averages Are Meaningless
No one wants to be average, and I’m about to demonstrate why. The following information will either make you:
Sad that you earn less than average
Pleasantly surprised that you earn more
Or a bit of both if you earn higher than average and still feel you are recreating the sinking Titanic weekly
It’s not my life mission to make you sad, so afterwards I will attempt to buoy you up again.
Your pittance/gift of a salary
So there’s this box that people work inside known as the Office for National Statistics. It’s ONS for short, or as I like to call it Oh No Statistics. They did a survey of Hours and Earnings in 2018 because they’re crazy that way. ONS concluded that average Jo earns £550 weekly before tax and other bits get lopped off. This equates to £28600 per annum. Even after pay rises and promotions, many of us are still miles off this salary. This is why it’s called an average; loadsa employees will be earning more than this and plenty will be earning less.
Of course the ONS are not really crazy; they did the survey because they do it every year. This is how they know that in 2018 £28.6k meant we’d had a 2.2% increase in our wages. Wondering what happened to your 2.2%? Then you were not one of the souls that had a pay rise.
The average also depends wildly on where you live. Other factors include gender, and working hours (quite often linked). Include also whether you have been indoctrinated into the personality cult created by your latest manager.
According to the ONS, inflation also means you might technically be earning less after a pay rise. Your penny travels less far.
Have some happy pills
If you earn beyond £28000 but you still struggle, then you should read:
The Only Wealth Philosophy You’ll Ever Need?
Also read How I Saved Half My Wages Renting In London
If you want to achieve the average salary or better, then I have an easier happy pill. Just ask for a pay rise. Do me a favour though and adhere to the two following rules.
- Don’t dare suggest a pay rise to your boss on the grounds that you want to buy something outside work. A house, a phone, a car. They don’t give a flying squirrel. Your pay rise should be because of your value to the workplace.
- Don’t stick your head in a tiger’s mouth, as Churchill would say (not that your company are fascists or anything).
He means don’t try and negotiate when you’re already being eaten alive. If the company is in financial trouble then you need to go for a walk instead. Same if you are on some kind of performance management track towards the exit. Walk over to another job that pays you better. Try to turn up on time so you don’t get performance managed out again.
When your timekeeping is impeccable but you’re being performance managed out because you and your manager don’t have anything in common e.g. you’re not an extroverted narcissistic bully, then aim for a job that pays more. Then do the same merry dance there. When you realise like me that office politics are neverending, you can always start a side hustle. Once you have a house, you can go full time with your own business where you can be whoever you want. I didn’t start my own business until after I bought my house. It’s painful trying to get a mortgage when you’re self-employed.
The point is we have more options than we think. That’s why it’s called earnings potential. Take control of the potential instead of waiting for someone else to unlock it for you.
I don’t have any pills that will cure inflation. Just get on with it.
I’m not going to tell you the average property price and the average age of a first time buyer. Again, it will either make you sad, or you’ll think ‘I’m not completely up pit’s creek without a shaddle. Yet.’ Whether you’re five years younger than the average age or five years older is irrelevant though.
You could be five years older and ready to buy this year. Or five years younger and ten years away from buying. By then, the average age will have shifted again. The only important thing is how far you are along in your savings and earnings journey.
How Do We Know When We’ve Saved Enough?
This depends on whether you know where you want to buy. I say where, not what, as you can change a house, but you can’t pick it up and move it (unless it’s a prefab. Fist bump if you find land and put up a prefab, and it costs less than buying like normal).
To find a clue where you would like to put down roots, then read:
The UK’s Best Place to Live
I knew I wanted to be in the same region as my immediate family. I didn’t think even the cheapest property would be in my price range though. So I put my county and the next into Zoopla. Sorting from low to high I eventually found a town that:
a) had any housing stock at all with less than three bedrooms
b) had property for under £200 grand (partly because of point a)
c) was a 30 minute drive from my parents house.
This was the maximum commute I wanted to have from a pair of people who insist on getting older, not younger. They also like to do things like fall over in the snow and have health scares, and sometimes parties too. I like to be nearby for all these events. Preferably they don’t happen all at once, but I suppose that would be efficient…
The joy of backwards maths
Having our heart set on a particular city, town or county means we can do some backwards maths. This is like forwards maths, only just as painfully enjoyable.
Take the price of the cheapest property you can conceivably imagine living in. If there seems a confusingly large variation in what you get, then go with the market’s lower end. E.g. in my town there are two bed terraces listed for anywhere between £220000 and £300000. Use the £220k listing as your baseline if you’d rather die than live in anything smaller.
For £300000 you would expect more house, more garden, and for everything to have been decorated top to bottom. Let’s assume you can’t afford those three extras. Especially a stranger charging you a premium to decorate your house to their taste…
- Times your salary by four. This gives a rough idea of how much mortgage the world has decreed you can have.
- Subtract the potential mortgage amount from the asking price. This leaves what you need as a deposit.
- Work out how much you are saving annually. Ideally you are saving more this year than last, changes in circumstance not withstanding. If the amount you save annually varies wildly, then for once, you might want to listen to your average.
- If this is the first time you are doing this maths, then you probably won’t be buying this year. Add your current savings to what you can also save over the next two years. Keep in mind that even during the purchase process you should ideally still park some of your wages each month.
An example in action
Let’s take the above £220k house as an example to work out how long we have left to save:
Asking price £220000
Current savings: £20000
Annual savings: £4000
Potential mortgage: 25000 x 4 = £100000
220000 – 100000 = £120k deposit needed
Savings in 2 years time: £28000
Shortfall: £92000 a.k.a a hilarious amount of money
Hang on a coco. In the above example, we are digging miles below the deposit needed, so Houston, we have a problem.
That’s okay, because I like solving problems. Perhaps it’s the £92k that’s stopped you in your tracks. Or perhaps it’s the “current savings £20000” that’s making you want to punch your screen. I’m not an idiot. I understand these are vast sums of money.
I remember having only a few hundred pounds in savings. Then a few thousand. Then £20000. It didn’t happen overnight, but it is possible. Start from zero. Continue reading. The point of these examples is to show that maths can be very flexible depending on the changes we make. You have more control than you think you do. Bring the future you want closer to you instead of hoping that the nation’s property crisis is going to change.
You’re going to have to do one or all of the following:
Increase your savings
Up your salary so you can borrow and save more
Imagine yourself living in a cheaper property
Fixing the Earnings Side of the Triangle
Now it’s time to fiddle the maths like you’re Good Will Hunting.
First of all, I think we can always save more than we think we’re capable. Did you look at the above example and laugh? Is it because you have more like £2000 in savings or less instead? More like £2?
Until we know we can reliably save £4000 per year, then we probably shouldn’t be looking for mortgages yet in this example. Do some work on your income and outgoings first. Otherwise you are just going to stress yourself out to the point of apathy.
Even with a salary and savings resembling the above, it’s going to take forever at this savings rate. If we double the savings rate to £8000, that’s enough deposit in 12-13 years. Earning compound interest in the meantime would likely shorten this. House prices might have moved on also. We’re in another recession as I write this though, so house prices can also crash. The stock market would have a higher rate of return in theory, but it’s riskier.
What’s this compound interest thingymajig?
In the above example, you could park £28k in a savings account. Around 1% interest would earn something like £280 after a year since this is 1% of £28k. (I say “something like”, as interest rates are usually weird and complicated figures like 1.4 or 1.2. Also if you are paying in throughout the year then the amount earning interest in January will be different to the amount earning interest in December. Let’s keep things simple if life won’t).
Then you would be earning 1% on your new amount of £28280. At the end of the year you reap more than the year before therefore. You’re piling up interest on the amounts you’ve been paid previously by saving in an interest account at all. 1% isn’t a great interest rate. A fixed rate where you don’t access the money for a year or longer will sometimes earn more. It’s fixed so long as you don’t touch it unexpectedly though.
Also the Help to Buy and Lifetime ISAs pay a 25% bonus as well as interest. (The Help to Buy ISA is closed to new applicants). This is way above what you’ll earn in any other savings account. I’ll leave explaining those ISAs to Moneysavingexpert.com. That’s where I go for up to the minute comparisons on financial products. Use it to decide whether you need a LISA if you have a HTB ISA or whether you should get a LISA if you have neither.
Fixing the mortgage offer side of the triangle
Fixing the earnings and deposit side of the triangle usually fixes the mortgage offer by default. Let’s say you switch to a higher paying role. Based on my savings when earning less than the example, I reckon with a £30k payday I could have paid myself £12000. This is taking into account pension contributions and student loan repayments.
If this sounds ridiculous then I suggest you play the why game. Go through all your expenses this month and get someone to ask you why you spent on each item. Small children are experts at this game. You’ll have a justification for every item. After you’ve answered, they ask why again and you have to think of a better justification. They keep asking you why until you lose all ability to make spending decisions ever again. Voila!
Now the example looks like this:
Asking price £220000
Current savings: £20000
Annual savings: £12000
Potential mortgage: 30000 x 4 = £120000
220000 – 120000 = £100k deposit needed
Savings in 2 years time: £44000
Current shortfall: £66000
Savings in 4 years time: £68000
Houston, we have liftoff.
Add in compound interest, and knock a little off the asking price and this saver could buy after around five years. Even better, this bear saver has money towards all the fees associated with buying a house.
But I don’t want to go into outerspace/save £12k/wait 4 years etc
You might have a few objections at this point.
- You don’t know how to get to £30000. Even though your best friend graduated the same year as you and is somehow earning double. I can’t fit my knowledge on overhauling your career into a paragraph. I will have to go away and scribble an opus on that for you. Watch this space.
- If you were earning £30000 you’d want to enjoy more of it and can’t envision funnelling £12000 anywhere. Except that you would be paying your future self. I know not everyone sees the benefit of delayed gratification, but it’s like a muscle. Practice and you learn to enjoy the reward later.
- You don’t want to wait four years. On the last point, I say tough poop. Guess what? On average, it takes over 10 years to save a deposit. You’re not average. You’re Wonder Woman/Superman, only slightly shorter. (Why is Henry Cavill so tall? Do they keep everything on the top shelf in Jersey’s primary schools?) You can do it in less than 10 years. You can be better than the average. I know you want to own the roof over your head now, dammit. But life is a long game.
- You don’t think the above example includes enough to cover legal fees etc. Again, I don’t have space now to go into that. I will put something together explaining how I moved with less than £2k spent of fees. I’ll write about what it really cost to furnish my first home too.
Subscribe at the bottom of this page if you’ll want to read that when it’s ready.
Fixing The Property Side Of The Triangle
There is something else you can do.
Remember, all those years ago, when we were near the start of this blog post? I asked how do we know when we’ve saved enough? There were a few things you could do to satisfy the Perfect Property Triangle in your location:
Increase your savings
Up your salary so you can borrow and save more
Imagine yourself living in a cheaper property
The last one is a real kicker. I bet the cheapest property you can conceivably imagine living in has a lot of “must-haves”.
I thought I must have an enclosed rear garden and a front garden because that’s what I had growing up. (*waves* Hello, privilege). Here’s the list of reasons why I was wrong:
- When I’m working from home, it’s not actually convenient for me to try and set up in a garden
- If I’m not working from home, then I’m out and about anyway
- My front garden still has space for a bench, a patio and plants
- My front garden has very few plants because I actually have zero interest in maintaining a garden
- Even if I wanted a veg patch, I could grow a vertical one
- I don’t want to own a mower or mow my lawn
- Less privacy doesn’t matter because I don’t sunbathe anymore (more than one person in my family has had skin cancer)
- When I travel, it’s usually somewhere hot and sunny, so I don’t feel deprived
- There is parkland less than a 2 minute walk from my house.
- I don’t BBQ because I never buy meat and I don’t like to spend more than 30 minutes cooking anything
- There is no temptation to fill my garden with “things” like furniture or pointless ornaments
I still have a “shed”. It’s an outside cupboard, but that means I can leave it unlocked when I want for deliveries.
Nothing in the above list suggests I should have paid £30000 to add a garden.
For pets or green-fingered types with no green space nearby, I can totally see why a back garden would be gorgeous. I had a bit of a wake up call when I realised I didn’t really need one.
It pays to think about what we’re taught a house should have, and what features would actually suit our lifestyles.
Why most of us need less space, not more
Perhaps you want extra bedrooms or a garden or a loft for any of the following:
- A lodger or guests
- A home office
- To extend
- To justify your hoarding
It turned out that none of these were essential reasons for me to have more space after all. Let’s take a look at each one in more detail.
When we want a lodger or guests
I thought I must have several bedrooms. I’ve heard that in the US you can often get a bigger mortgage if you plan to have a lodger. Meanwhile, in the UK you have to prove upfront that you can pass the affordability criteria. In fact, what I read suggested that strolling into a bank and saying you’re going to use a lodger to help pay your mortgage is a red flag to UK lenders.
I don’t know who walks into banks to negotiate mortgages anymore because computers make all the decisions anyway, but those extra bedrooms got a lot less appealing when I realised they were adding at least £40 grand to asking prices. The few days out of the year that guests come to stay would not have offset £40000. Especially if you add mortgage interest on top.
When we want a home office
The other reason I thought I needed extra bedrooms is so that I could have a study. I envisioned that I would one day work from home, and I was right. I’d made the mistake in the past of working in my bedroom (not that universities give you much choice). I thought I should separate my lounge from my work also.
I accept the argument that you should keep work and relaxation spaces separate. However, I think you can do this within one room also.
Sit in the same spot every time to work, and sit somewhere else to relax.
Don’t have the computer on while relaxing.
Change your clothes and have a shutdown routine to stop working.
If we can’t remove ourselves from the context, we can use other cues to change the context. This tells the brain work is over, just like going to a bedroom tells the brain to sleep if you never work there.
I have a fold down dining table, so the lounge sometimes becomes a dining room. Because of my childhood keyboard, sometimes my lounge is for jamming. I switch on different lights according to what we’re using the room for. While in bigger houses you might use zoning, this is a chameleon lounge. I prefer it this way because less square footage means less to clean.
When we want to extend
I thought if I can’t buy many bedrooms, then I must have a garden or a loft to extend. See all of the above for why I didn’t need more space!
You can create 3×3 square metre extensions without planning permission. Since my front garden covered an area larger than this, I could still add a room in future potentially if needed. I’d probably be better off changing the layout inside though. Most internal space problems can be solved by redesigning inside, not extending. I’ve got a blog post to come about this too. Subscribe below to catch that.
When we want to justify our hoarding
I also thought I needed extra bedrooms because I’d accumulated so much that was badly stored in the past. It turns out that decent storage is miles better than the furniture scraps that your landlord abandoned. Moving from my rental to the family home during a limbo and then moving again into my house also made me reassess.
“Why am I going to all this effort to transport you around? To the carboot with you!” I’d grown attached to a lot of things that I wasn’t really using or which had lost their sentimental value. Evaluate your belongings. Keep the stuff that’s important. Sell or swap everything else. Store what’s leftover with clever space-saving design. Sorted.
If you’ve liked this post so far, consider joining the mailing list at the bottom of the post for updates on more in the same vein, and weekly savings tips to your inbox. No face lickers, please.
How to make the bank want to lick your face
Choose your income. Optimise your savings rate. Discover the worst property in the best location. The best mortgage offer shall be yours.
Let’s view a one bedroom with one garden instead of two that hasn’t been decorated lately. Remember the latter is an advantage. We don’t want to pay the previous seller to decorate our house to their taste.
Asking price £180000
Current savings: £20000
Annual savings: £4000
Potential mortgage: 25000 x 4 = £100000
180000 – 100000 = £80k deposit needed
Savings in 2 years time: £28000
Shortfall: £52000 aka another hilarious amount of money
Now get serious about saving in a worst case scenario where you’re denied a pay rise:
Asking price £180000
Current savings: £20000
Annual savings: £8000
Potential mortgage: 25000 x 4 = £100000
180000 – 100000 = £80k deposit needed
Savings in 2 years time: £36000
Shortfall: £44000
Savings in 8 years time: God, I hate maths. You have enough for your deposit though.
It’s worth pointing out that this saver would also have over a 40% deposit. This loan to value ratio (or LTV ratio) will get you the best interest rates. Basically, you’re honey and the bank is Winnie the Pooh.
Earning £30k and saving only £4000 per year on top of existing savings of £20000 could take over 10 years to hit your deposit target depending on interest variables.
If you sleep your way work your way to £30k and save £8000 per year you’d shave off over two years.
Earn £30k and save an extremely frugal £12000 per year and you’ll be ready to buy in less than six years.
Other Variables To Rocket Our Progress
There are some other variables that will speed up/slow down your journey. Don’t worry, I’ve thought of these too.
What if I’m buying with someone else?
Don’t assume that you can borrow four times two salaries. Different lenders have different rules, but usually the multiple on the second salary is smaller. I’m guessing this is gendered. The assumption is that when buying with your other half, one half is going to reduce their earnings soon by getting knocked up.
Basically, for the love of any of the Gods, don’t stick with someone in the hopes that it will get you a home quicker. Yeah, you. Don’t pretend you hadn’t thought about it.
Where will my future children sleep?
Get yourself one of those storage beds with the drawers underneath and roll them away each night. They’ll be fine.
Seriously, where will they sleep?
Ask an advisor what kind of multiple you can both borrow first. Then see the gap you’d need to close between your deposit and the cheapest property you can imagine buying…If you still can’t stretch to a two or three bed property then you can do these things:
Look for a one bed you can extend redesign inside
Research tiny homes and reconsider your definition of a bedroom
Rethink your location
Ask yourself what you plan to do with the extra space if you don’t have children after all
Rethink your dream location again
Seriously, rethink your location
I could have bought a bigger house more easily in the nearest village. Except there is one shop and no public transport. When I visited, I thought I was on an empty film set. I didn’t see a single person and there was no atmosphere.
A few weeks before it had snowed badly enough that if you went anywhere in my county, it was on foot only. It looked very picturesque. This village was several miles from the nearest town centre though, so in bad weather you would become stranded. Otherwise, if you are living with your family and used to driving/cycling everywhere then this would be liveable.
I was spoiled by walking to the shops, cinema, train station etc when I lived in London. I wanted to keep that level of mobility. Although I had found somewhere close to family, I was still moving to a town where none of my relatives and friends lived. If I’d chosen the village I would have had been even more remote.
How do I ask my family for money?
The other variable would be if you inherit or are gifted money by a relative. I don’t know who you plan to knock off, so I can’t do the maths on what you might inherit.
If you have siblings who haven’t had a gift or who also want to buy in future, then…Can open. Worms everywhere. I think the number one question to answer is: if they say yes and give me the money, will they resent it even though they said yes?
The other option is to enter into a loan with family. However, if you declare this to the bank (as you should), then this might actually reduce the amount you can borrow on the mortgage.
How to Find the One Mortgage Offer to Rule Them All
If you are ready to apply for an agreement in principle then you will have done the two hardest things:
- Saved a deposit that could probably fill your new house to the rafters with the cash you’ve squirrelled away
- Committed some kind of workplace gymnastics to get a high(er) salary.
To achieve the latter I suspect you have people skills. I often wonder what it would be like to have people skills. You could tell me about it one day except that would require us to have a conversation. (I’m joking! Hit me up in the comments, for sure. You can tell I’m joking, right? Because you have people skills…)
Given the work you’ve put in, you should be able to ace the lender’s questions. You want to answer about your outgoings without creating any anomalies on your application by accident. Every lender asks for slightly different evidence, but find your last few payslips as a minimum.
Next, follow this simple checklist
- Join the electoral roll at your current address if you haven’t already.
- Check your credit score. The electoral register influences this. I recommend Martin Lewis’s Credit Club.
- I suspect you are already paying off your credit card in full if you’ve saved a worthy deposit.
- If you’re somehow not paying it off in full then do that. Do it now.
- If you have a low credit score, no black marks, and no credit card, then get one and pay it off in full monthly. To manage suddenly having access to credit, use the card only to buy one routine essential. Then set up a direct debit to pay off the full amount monthly.
- Try to resist any urges to resign until a house sale goes through. Switching jobs after applying but before you exchange or complete is a risk. The bank might say you can’t have the mortgage after all because you haven’t been in the job long enough. Or they won’t know about it, in which case you’ll be committing mortgage fraud by not telling them. The same applies if you know you are likely to be fired or made redundant very imminently. If in doubt, speak to your mortgage advisor.
- Don’t panic if you changed jobs or addresses recently for the sake of your mental health. Some lenders are more lenient than others about how long you need to have been in your current employment. A good advisor will help you navigate this.
- Burn your fake passport and stop hacking into other people’s accounts. Lol, neither of these apply to you because you are not James Bond and you don’t hate yourself.
Close to the next LTV bracket? Then you need to do one of three things (all together now):
Increase your savings
Up your salary and therefore your savings
Rethink your dream home because you are not a character in Inception and this is not a dream
Let’s turn this up to 11
There are two more things you can do to make you attractive to lenders. (Telling Spinal Tap jokes is not one of them, but by all means give it a shot).
Emergency savings are great because they cover your living costs during hard times. Your mortgage advisor will also ask how many months you think you could cover your living costs if you were unemployed. Don’t say “none, I’m ploughing everything into this house!” You look a lot more appealing if you have at least a few months cash stowed away. Even if you were planning to to do work on your new house, if you lose your job, you can postpone your renovations and be happy you’ve got something to live off.
The other way to make yourself more attractive to lenders is to consider a longer mortgage term. It’s not uncommon now to agree to a 35 year mortgage. Your parents probably paid theirs back over 25 years if you descend from homeowners.
Signing up to 35 years doesn’t mean you have to snail crawl your way through all that interest. A crazy long mortgage term can help you get the mortgage initially so that the lender considers it “affordable”. In order for it to be affordable, you’ll usually find it’s less than what you’ve been splashing on rent. Overpay your mortgage for the first few years as if you were still renting. Then you won’t have a mortgage in 35 years as you’ll pay it off early.
Comparing Mortgages
Let’s optimistically assume that you now have a choice of mortgages. The lifetime cost of the mortgage is affected by the interest rate, any fees, and overpayment charges.
Overpayment charges
The majority of mortgages let you overpay a certain amount without any penalties. At the start of your mortgage, your payments won’t make much of a dent because of the overall debt. If you can overpay as much as possible at the start and reduce the original sum you borrowed, then you will in turn reduce your interest bill quicker. Unless you get some kind of windfall, it’s unlikely you’ll be able to afford more than the repayment limit anyway.
Which rate should I rate? Fixed or variable?
As far as choosing between fixed and variable rates, you only have to answer one question: do you want to know exactly how much your mortgage will cost you each month so you can predict your expenses? Then choose a fixed rate. You will be locked in for two years max, then you can switch. A variable rate might go down during that time, but it could also go up and surprise you.
Arrangement fees are not always more expensive overall
If one deal has an arrangement fee versus one that doesn’t with a higher interest rate, get your advisor to tell you which one costs more overall, as the higher interest rate might be cheaper than paying the fee or vice versa. Pay any fees upfront; even if you’re persuaded to add it onto the mortgage, call up as soon as you get your mortgage pack and pay it off. Why should the bank earn interest on you twice?
What the hell is the APR?
This is an acronym that stands for annual percentage rate. This tells you how much interest will be charged in a year so that you can compare mortgages. In theory, lenders expect you to put different APRs side by side, but the APR doesn’t tell you the lifetime cost of a mortgage if it comes with other fees. You also likely won’t be on one deal for the entire term.
If you want a two year fixed rate, then just compare what the different choices will cost over a two year period including all fees. When it’s time to switch, if you’re going for another two year fixed rate, then again just compare the costs over the following two years. One mortgage with a low APR might have a four figure arrangement fee that means it actually costs you far more than a mortgage that charges more interest per month, but has no fees.
You forgot to mention interest only
Er, no, if you’re reading this, then you’re not a millionaire. Even if you can get an interest-only mortgage, why would you want to? This will restrict what you’re offered, plus you’ll have to explain why you want an interest-only mortgage. Few lenders want to hear that you want an interest-only mortgage on a low salary or with a small deposit because they expect you won’t be able to pay it otherwise.
You haven’t mentioned government schemes either
I didn’t qualify for anything like the Help to Buy Equity Loan because I didn’t earn enough. These schemes are for small deposits, but I wonder if you have the salary to qualify if it wouldn’t be better to save a bigger deposit and increase your options that way. I also didn’t want to be restricted to a new build because the new builds I went inside were over £100k pricier than my final purchase while being barely big enough to swing a cat. I don’t know who wants to swing cats in their spare time, but I do want to bumble about my home without feeling like I’ve gone potholing.
Why You Need a Mortgage Broker
Who is this advisor person I keep referring to? If you randomly start applying for mortgages off your own back, you’re going to end up like a hole in a wall: screwed.
Every time you apply means a hard credit check and it’s impossible for you to know the criteria the bank uses. Let’s say you get rejected because you’ve gone for a deal that you like but isn’t really suitable. When you apply for another mortgage, you’ll get rejected again even if the second choice was a doozy because they’ll see on your credit report that one bank has already flipped you the bird.
What to do instead
To access the best mortgage rates for your circumstances you’ll want a mortgage broker/advisor to get you an agreement in principle and then your mortgage offer. I used London and Country, so I’m biased in thinking they’re the best place to get a mortgage.
Let me know in the comments if you want me to do a post one day about how I chose them.
Let’s just say for now my attempts to get a mortgage online or through a friend were long and arduous. It took fifteen minutes on the phone to get my agreement in principle through L&C.
One last thing
Just because you get a mortgage agreement or offer through a lender or broker doesn’t mean you have to buy everything else from them. Get income protection if you want and where you want. Get life insurance if you want and where you want. Definitely get buildings and contents insurance because this is a condition of exchange, but do a comparison and get the best quote.
What You Need To Get The Best Mortgage Offer: In Summary
Do three things to form the Perfect Property Triangle:
Save a mighty deposit
Ask for a payrise
Choose the worst house you can afford in the best location
Then you’re ready to search for the best mortgage offer. Again there are four things you can do to optomise this:
Ace your credit score by registering to vote, querying any weird stuff, and managing any credit card debt like a boss
Push yourself into the next LTV ratio if you’re borderline
Go through a broker like London and Country
Play with the length of the repayment term, length of a fixed rate, and any fees until you find the cheapest deal overall
Can we be friends?
If you found any of the above useful then please do let me know in the comments. Think of how much money you didn’t spend while you were busy reading this post! Also go wild letting me know if there are any broken links or typos. Or bad maths. I try to make the maths behave, but it’s pretty carefree.
If you’d like to know more about how I saved a big deposit on a low salary, I’ll be sending weekly tips to the mailing list of the various things I did to boost my income and my savings. I’ll be doing lots of posts on how to save too. As a subscriber you’ll get a round up of what’s new to make sure you don’t miss any posts.
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