Yahoo News Buying a home: how to get your finances in shape, boost savings and win over mortgage lenders
Saving for your first home may feel a little daunting.
To help you on your way, follow these tips to boost your savings and your chances of getting a good deal with a mortgage lender.
Get a healthy deposit together
This may sound obvious, but the key hurdle to buying your first home is a decent deposit. As well as giving you a bigger house purchase budget, it’ll also give you access to a wider range of mortgage deals.
The ideal deposit is 40% of the purchase price of the place you want to buy. This will put you in line for the lowest mortgage interest rates, and you may even get an interest rate of less than 1% for a five-year fix.
However, there are unlikely to be many first-time buyers who can save this level of deposit. If you can get to the 15% mark, you’ll still get access to a range of deals and potentially an interest rate close to 1.5%.
And if you can’t stretch this far, it is possible to get a mortgage with a deposit of 5%. Mortgage providers temporarily stopped lending to first-time buyers with a low deposit during the coronavirus pandemic last year. But deals for buyers with a 5% or 10% deposit have now returned to the market.
So how do you scrape together that all-important deposit? Here, we round up some of your options.
Maximise your income, minimise your outgoings
Some will be fortunate enough to live rent-free at the family home, while others will cut back on socialising, eating out and transport costs to save every penny they can.
In terms of where to put those savings, unfortunately bank interest rates are at record lows at the moment. The highest interest rates are found on regular savings accounts, where you pay money into the account each month.
Another option is to put your money in Premium Bonds. You won’t earn interest, but you will have the chance to win cash prizes worth up to £1m.
You could earn extra money by selling unused clothes or goods, or taking part in online surveys through companies such as i-Say or Swagbucks. An easy way to get more than £100 in free cash is to switch your current account. Santander, for example, is offering £130 to switchers.
Charlie Turner*, 32, saved for more than 10 years to buy her first place and she got the keys to a one-bed flat in east London a month ago.
She left no stone unturned as she pulled together the necessary funds, signing up to money-saving emails for tips, took advantage of bank switching deals and got free cash through a Help to Buy Isa. Charlie and her former flatmate also rented out the parking space that came with their rental flat, earning them £40 each a month.
The mental health support worker says the Covid-19 pandemic gave her the final push to buy her own place, as she was able to save more money during the various lockdowns.
"I’ve only been in the flat for a month but it’s amazing so far. I never thought I’d have my own space in London," she says.
*Name has been changed.
Take out a Lifetime Isa
If you’re saving to buy a home, it’s worth considering a Lifetime Isa. You can save up to £4,000 each year, and the government will boost your savings by 25% (taking the maximum to £5,000).
However, you should only open a Lifetime Isa if you’re not planning to buy within the next year. You cannot withdraw money from the Lifetime Isa for a property until at least 12 months after making your first payment into the account. You must be aged between 18-40 to open a Lifetime Isa.
Use your Help to Buy Isa
The Help to Buy Isa works in a similar way to the Lifetime Isa, except the bonus is less generous. You are allowed to pay in up to £200 a month, and the government will boost this by 25%, but the maximum bonus that can be claimed is £3,000.
The Help to Buy Isa is now closed to new applicants, but if you already have one you can continue paying into it.
How to win over mortgage lenders
Assessing your household income and deposit is just one way lenders will decide whether to loan you money. You’ll also need to meet other requirements to prove that you are a reliable borrower.
To help boost your chances of getting a mortgage, follow the tips below.
Check your credit score
Your credit score will demonstrate to lenders that you are responsible with money. Your score will be generated from your credit report, which lists loans and debts you’ve had in the past, and whether you kept on top of the repayments. The bigger the score, the more likely you are likely to be accepted by a lender.
Check your credit score through one of the credit agencies such as Experian and TransUnion.
Look at your bank statements
Lenders will go through your latest bank statements to verify your income and check the suitability of your finances. They will frown upon any transactions that suggest a gambling habit, or signs of unusual income activity.
"Many gambling companies offer customers the ability to pay via PayPal, so frequent PayPal transactions can raise queries from lenders, even though these may just be transactions from eBay," says Alex Winn, mortgage expert at online mortgage broker Habito.
"We wouldn’t recommend making joke payment references either, as these normally raise queries, could look fraudulent or like a commitment that’s ongoing that you’ve not disclosed to your mortgage broker."
Time your application
Ideally, you want to have been in your current job for at least three months before applying for a mortgage. If you’re self-employed, satisfying lenders may be more tricky. Many lenders will require you to have filed two years’ of tax returns, but some will accept one year.
Work out your budget
As a general rule, mortgage lenders are likely to loan up to 4.5 times your annual salary.
So if you earn £30,000 a year, you may be able to borrow somewhere in the region of £135,000.
If you are buying with someone else, your combined salary will determine how much you can borrow. If they earn, say, £25,000, your combined salary will be £55,000 and you may be able to borrow around £250,000.
Add your deposit to the total, and this gives your rough overall budget.
Read More
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