FIRST-TIME buyers may be spooked over warnings about the soaring cost of borrowing – but here are the checks you should do now.
Experts have predicted interest rates could spike to 6% next year, which could add thousands of pounds onto mortgage bills.
1Squeeze Team expert explains important checks first-time buyers need to make
This could be a big put-off for first-time buyers wondering if they can really afford a new home during a cost of living crisis.
There are a number of important steps to take if you’re in this position as the cost of borrowing soars, Coreco technical director Nick Morrey says.
Nick is one of the experts on The Sun’s Squeeze Team panel, here to help households through a crippling cost of living crisis.
If you’re worried about how to make ends meet, are struggling to pay off your debts or don’t know how best to manage your cash, get in touch by emailing Squeezeteam@thesun.co.uk.
Build a budget
You’ll want to comb through your finances before signing up to any loan – including a mortgage.
It’s important to see if you can actually afford the repayments alongside your existing bills and outgoings.
“Do a strict budget planner for your finances to genuinely look at what the maximum budget you have for mortgage payments, life assurances and buildings and contents insurance,” Nick said.
Many people build their budget – logging their income and outgoings – in a spreadsheet, but it’s not the only way you can make yours.
If you’re having trouble putting yours together, the Money Advice Service has a budget planner tool to help you get started.
“Armed with that budget, talk to a professional broker to discuss what options you have right now and what the cost of those options would be with an extra 0.5% and 1% and 2% added on to the mortgage payments,” Nick said.
That’s to factor in interest rate hikes, he said.
“If still within your budget then you will hopefully be well prepared should rates continue to rise,” he added.
Line up your mortgage in principle
Make sure you line up a mortgage in principle with a lender.
Also known as a “decision in principle,” this is a statement or letter written by a lender, setting out how much they would be willing to lend.
It gives you a helpful illustration of how much you could borrow, based on an initial assessment of your circumstances.
Things your lender will look at include your income, outgoings, and credit score.
It’s not the same as going through the rigours of a full mortgage application – and it can also give you an idea of how much interest you’ll pay.
Typically, a mortgage in principle lasts for 60 to 90 days but this will depend on the lender.
“Get a lender to approve you ‘in principle’ for when you find a property you want to buy so you know you can get the funding you need,” Nick said.
Speed is key
Once you’ve found a mortgage deal and you’re ready to seal the deal on your first home, speed is key, Nick said.
Ask your broker for a breakdown of what paperwork is needed, and pull it together as quickly as you can.
“Supply all the requested supporting documentation as fast as possible – including payslips, accounts, bank statements and evidence of deposit,” he said.
However, be prepared for hold-ups with your bank.
“Lenders are extremely busy at the moment so decisions may take time,” Nick said.