Many people hesitate before taking on a mortgage, thinking they’re practically giving the bank free money. If you take out a loan of £200k at an interest rate of 3.5% for 25 years, you end up paying the bank £300k – and many people would view it as giving the bank £100k of free money, but that’s not a fair way to think about it. Imagine how much renting that same property would cost you over those same 25 years, at say £1.5k a month – £450k! Renting a property for 25 years you will get nothing, while with a mortgage you will own your own home.
1. Figure the optimum mortgage conditions
So if you decide that you are done with paying for someone else’s house and want to start paying for your own, the first step would be to calculate the possible expenses versus your financial circumstances. This will allow you to judge what level of monthly mortgage payment you can afford – bearing in mind that it realistically shouldn’t be above 50% of your wage.
The next step is the financial sum for your initial payment – it is usually no less than 10% of the value of your mortgage. Even though there are various help-to-buy schemes which make saving up for the first instalment easier, it is best to start as soon as possible.
2. Find the Bank and the Estate Agent
Once you know where your first payment is coming from, you need to find a bank whose mortgage conditions suit your needs and circumstances as well as an estate agent. Finding a trustworthy estate agent is extremely important, and could be very challenging, so it would be wise to set out some criteria. Those might include a desired level of experience (e.g., 5+ years in the industry), the company/ies they’ve worked for, recommendation from a friend or family member and most importantly, how comfortable you are working with that person.
Finding the right conditions for your mortgage could also be tricky, but there are plenty of online calculators which break down the terms of a mortgage and clearly outline your provisional monthly payment scheme.
Start with a sum that would cover a house bigger than the one you need and decrease it until you reach a monthly instalment that you can sustain. You will need to talk your estate agent through your calculations as the better they understand what you can afford, the better they can help you.
3. Find The House
The next step would be finding the right house – and again, you need to outline the criteria upon which will be basing your choice. These could include location, relative distance to work/city centre, presence of good schools/nurseries, shops – anything that you consider as a priority. Another important thing would be to consider how much money will you have left for renovations and new furniture – and factor this into your choice of home.
As soon as you have made your choice, the job of the estate agent begins – they have to assess the property, check that all prior bills have been paid on time, check that there is no unauthorised redevelopment, ensure that it is safe to occupy, ensure the bill of ownership checks out, and so on. Then you have to notify your bank of the house in question and the bank will send someone to assess the property (to ensure that its value matches up with the value of the mortgage you are taking out). Therefore, it might be wise to instruct an independent company to do an assessment of the house as well – just to be absolutely sure of the property’s value and that you’ll be paying for the right mortgage. No point in being overcharged or oversold!
4. Buy it!
Usually you then have to make a prepayment for the property and buy insurance for it – but that would ordinarily be advised by, and at the discretion of, the bank. After that you would sign your mortgage agreement and buy the property (those are normally done simultaneously). The only thing left is to pay your estate agent and then you can start packing to move to your new home!
Of course, not everyone has enough time to be so rigorous with their planning. They might also not entirely trust the resources (e.g., bank, estate agent) that have been chosen – and in this case asking for help from a professional adviser, who knows the market and has experience dealing with trustworthy parties, would be the wisest option.