Why it is important to get on the property ladder now

Economy
There is no time better than now to get on the ladder, the future is uncertain and everyday it’s getting harder to get a mortgage. If the Euro collapses the UK mortgage market could really suffer.

You
Cash in your ISA or Savings account is earning you effectively zero with current inflation.

ROI: Calculate with cash surplus over initial investment, not rent over price.
Using this method, an example of one client who invested about £50k deposit, is earning about £10k a year, therefore 20% ROI, more than any savings account out there and even better that most stock markets, with almost zero downside risk. (Mortgage is about £4k a year and rent is £14k)

Till you need the cash you will earn a decent ROI, and in worst case scenario you need the full £50k back and property prices haven’t risen, you could still sell the property at cost price and you will have the Rent-Mortgage saved, in this example £10k a year plus initial £50k equity.

Are you eligible to buy a property?

1. Income: Usually you can get a mortgage of up to 4 times your income, due to the high prices over the last decade it is possible up to 5 times.

2. Affordability: This is a reverse calculation from your mortgage instalment. They use your current expenditures and incomes, if you are saving £1000 a month they use a multiplier, e.g. 60% so £600 so that is the maximum mortgage instalment you can have. That multiplier is set by each individual lender.

3. LTV: They will lend a maximum depending on the value of the property you buy, they will do a valuation, say you are buying a property for £200k, they may only value at £190k and then depending on which mortgage you go for, e.g. a residential product at 80% will mean a loan of £152k

The lender will do these three calculations and give you the lowest number out of the three.

How to get a mortgage? (AIP, affordability, 3 tests)

Mortgage is best applied from your current bank as they are familiar with you and have all your details on record so the process is quicker and less documentation is required. Alternatively you can go to a financial broker.

Credit file is important. You want it clear, not many searches, and showing you spend but also repay immediately. Lenders through brokers will analyse credit file more, and will leave an imprint too that may affect further lending.

Finally only commit to a property once you have an AIP, agreement in principal from a lender.