You know how much your monthly mortgage repayments will be, but many people overlook that rising household bills can add up to almost as much. It’s important to make sure you’ve considered all your costs up front, explains The Money Advice Service.
First-time buyers in particular will be concentrating on getting their deposit together, often not thinking about other home-buying costs, such as Stamp Duty or removal fees.
Striking a balance between the household bills and mortgage payments can have an enormous impact on your lifestyle.
For most people the biggest outlay you’ll ever make is when you buy your home. A typical first-time buyer with a mortgage of £140,000 will have monthly repayments of £749 a month assuming a 3.4 per cent (APR) Annual Payment Rate. For many people this represents a large percentage of their average monthly salary.
Meeting your mortgage repayment commitments should be your first priority especially if you have dependants. Fixing your mortgage interest rate is one option, but these are usually up to a period of five years and you could still come unstuck at the end of the fixed rate period should interest rates go up. For example, even a 1 per cent increase in your mortgage rate would mean you having to find an extra £83 a month based on the example above. A 3 per cent increase would see you having to find an additional £265 a month.
And then there are the household bills to pay and general living expenses to cover. Squaring these outgoings may not always be easy. Money Advice Service research shows first time buyers spend an average of £467 a month on bills – an amount half said was higher than they’d expected.
This gives a total of £1,216 a month – of which household spending accounts for 38 per cent and mortgage payments the remainder.
New rules on mortgage lending were introduced in April to encourage more responsible lending and increase consumer protection. They are designed to ensure consumers fully understand the commitment they are taking on and have thought about how they will make mortgage payments if foreseeable events, such as having a baby or interest rates rises, occur during the mortgage term.
So what does this mean to you? In short, lenders will ask you to provide evidence of your income and disclose your entire monthly spending including things like school fees, gym memberships and outstanding credit agreements.Given the increased number of questions you’ll need to answer, you can expect your mortgage application to take longer than you may expect.
The new rules may sound tough, but if you can satisfy your lender that you can balance the books when it comes to mortgage payments and household bills you can at least rest easy that you are well placed to step on or up the property ladder.
If you are thinking about buying a home, it’s essential to consider all the key costs. The Money Advice Service has a guide explaining what you need to know when buying your home.
House prices stormed ahead by 3.9 per cent during May as demand from potential buyers remained strong, figures showed today.
The increase was the biggest monthly jump since October 2002 and left the average home costing £184,464, according to mortgage lender Halifax.
But the rise followed two consecutive months of price falls, with property values dipping by 0.3 per cent in April and 1.2 per cent in March.
On the less volatile quarter-on-quarter change, house prices were just 2 per cent higher during the three months to the end of May than they had been during the previous three-month period.
Halifax said quarterly house price growth had now remained steady in a narrow range of 1.9 per cent to 2.3 per cent since June 2013.
Annual property price inflation has also remained broadly unchanged during the past three months at 8.7 per cent.
Despite the strong monthly increase seen during May, average house prices still remain well down on their previous peak of £199,612, recorded by the Halifax index in July 2007.
Stephen Noakes, mortgage director at Halifax, said: “On an annual basis housing demand is still strong and continues to be supported by a strengthening economic recovery.
“Consumer confidence is being boosted by a rapidly improving labour market and low interest rates, although growth in average earnings still remains weak.
“However, there are signs of a revival in housebuilding which should bring supply and demand into better balance and curb upwards pressure on prices over the medium and longer term.”
Today’s figures are unlikely to do anything to curb concerns that a bubble could be building up in the property market.
They come after Nationwide said house prices reached a new record high of £186,512 during May, with values rising at their fastest annual rate since June 2007.
The building society recorded a 0.7 per cent rise during May itself – the thirteenth consecutive month in which values have increased.
The European Commission recently called on the Government to reign in its Help to Buy scheme, boost supply and increase council tax on expensive homes to stop property values rising too steeply.
The Bank of England and the Organisation of Economic Cooperation and Development have both also previously warned that rapidly rising house prices pose a risk to the UK economy.
But other data suggests that the property market may be beginning to cool naturally.
Figures from the Bank of England showed that the number of mortgages approved for house purchase dropped during April for the third month in a row.
There was also a 1 per cent fall in property sales recorded by HM Revenue & Customs during April, although at 103,690 transactions were still a third higher than they had been in April 2013.
Matthew Pointon, property economist at Capital Economics, said: “This latest rise in house prices will no doubt play on the minds of the Financial Policy Committee, who are due to meet later this month with the housing market at the top of their agenda.”
“Whether they will take any action to cool the housing market, to prevent it posing a risk to financial stability, is still uncertain.
“But in our minds the rationale to take action is still strong.”
He pointed out that the dip in mortgage lending was likely to have been caused by the introduction of the Mortgage Market Review, and would probably recover in the coming months.
He added that loan-to-income ratios were at record highs, which raisedthe probability that buyers could struggle once interest rates eventually rise.
“Better to act sooner, than to risk leaving it too late,” he said.
Borrowers with interest-only mortgages are being urged to discuss any repayment difficulties with their lender amid concern they’re leaving it ‘very late’ before seeking help.
The warning from the Council of Mortgage Lenders comes amid an increasing focus on the ability of borrowers with interest-only deals to repay their loan.
If they fail to pay off the debt at the end of the term, they run the risk of being evicted from their property.
At the same time, recent figures have showed a rise in the number of official complaints by homeowners about the interest-only mortgages they’ve been sold.
The Financial Ombudsman Service said numbers rose 6 per cent in the past year.
The complaints focused on inappropriate advice given to homeowners taking out interest-only mortgages, and changes to interest rates on standard variable and tracker mortgages.
The CML said: “We welcome the ombudsman’s conclusion that, based on the evidence available, ‘many lenders seem to have been working constructively with customers who had found themselves in this position’.
“We continue to urge any borrowers anticipating a problem in paying their mortgage to contact their lender as soon as possible.”
With average house prices returning to pre-credit crisis levels, it may seem unlikely to find a property with a £50,000 price tag in the mix. But here are five homes that fit the bill.
1. Two bedroom terrace in Blackburn
2. Two bedroom bungalow in Cumbria
3. Studio apartment in Plymouth
4. Grade II Listed quarryman’s cottage in Gwynedd
5. Two bedroom terrace in Rotherham for £50,000
The Government’s controversial Help to Buy scheme is not stoking house price inflation, research indicated today.
Less than 4 per cent of people buying their first home in the six months to the end of March took advantage of the Help to Buy mortgage guarantee, according to Genworth Financial.
The group, which analysed industry and government data, said just 5,843 loans to first-time buyers benefited from a Government mortgage guarantee during the period.
It said that this was too small a proportion of the 148,200 mortgages advanced to people buying their first home during the six months to have an inflationary impact on house prices.
In London, which has seen the steepest house price gains, just 342 mortgages were taken out by borrowers using the second phase of the Help to Buy scheme, or 1.4 per cent of the 25,300 first-time buyer loans.
But the group said the scheme, which helps people buy a home with a deposit of just 5 per cent, had played an important part in encouraging first-time buyers back to the market.
It calculated that it accounted for 16 per cent of the year-on-year increase in people buying their first home.
It added that it had also helped to ensure high loan-to-value mortgages remained available at affordable interest rates.
The Help to Buy scheme has come in for heavy criticism in some quarters, with commentators warning that it was causing steep increases in property values.
Today’s research comes the day after the European Commission called on the Government to reign in the scheme in a bid to prevent runaway house prices.
The Organisation for Economic Co-operation and Development has also previously called for the scheme to be tightened and for buyers to be required to put down bigger deposits.
Simon Crone, Genworth vice president – mortgage insurance Europe, said: “These figures refute the notion that Help to Buy has flooded the market and show it delivering what it set out to achieve.
“What the scheme is doing, as a fraction of total first-time buyer activity, is offering hope to those who struggle to raise the average deposit but can still afford repayments and pass affordability checks.
“Responsible lending at higher LTVs has a vital role to play, especially when it is getting tougher for people on good wages to save a deposit as prices rise.”
The group added that the scheme meant the availability of 90 per cent and 95 per cent mortgages withstood the impact of the introduction of the Mortgage Market Review on April 26.
The number of different mortgages available fell in all LTV categories during May apart from for loans at 90 per cent, which actually recorded a 1 per cent rise in availability.
A total of 337 mortgages were available for people with just a 10 per cent deposit during May, while there were 54 loans for people with just 5 per cent to put down.
There are now 90 more mortgages with a 95 per cent LTV compared with a year earlier, which the group attributed to the impact of the Help to Buy scheme.
Competition in the high LTV market has also helped to limit interest rate increases for these loans.
The average cost of a two-year fixed rate deal on a 95 per cent LTV has increased by just 0.09 per cent since the beginning of the year to stand at 5.14 per cent in April, while a 90 per cent LTV loan has risen by 0.12 per cent to 4.46 per cent.
But the typical cost of a two-year fixed rate mortgage for people borrowing 75 per cent of their home’s value has increased by 0.16 per cent during the same period.