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Mortgages & the cost of moving

The subject of mortgages has attracted so much hype and occasionally speculative media comment over the years. As I write this the Northern Rock debacle is continues to inspire more column inches than almost any other story. It's not a surprise that we're all so obsessed, after all the property market is something that effects everyone, whether we're already homeowners or are considering our fist cautious step onto the first rung of the property ladder the state of the housing market is something that affects everybody.

What often get neglected amidst all this media speculation are the basic issues related to buying a home and there are few more fundamental issues, particularly for first time buyers, than the simple question of how much you can realistically afford to pay: How big a mortgage can you reasonably stretch to?

The unavoidable fact is buying a home is an expensive business, probably one of the more expensive things any of us are likely to do. It goes without saying then that the importance of getting it right is not something any of us should underestimate, be ready to invest plenty of time and precaution into establishing exactly how much you can afford to pay. The principle factor in the equation is your salary: The majority of mortgage lenders will be willing to offer you approximately three or 4 times your gross annual earnings. If you're buying with a partner then mortgage companies will probably add their salary on top of what they are prepared to lend you. So, say for instance you're on �30,000 you should probably be able to borrow �120,000, if you're partner is earning �20,000 you might be looking at �140,000. An alternative deal could simply be a calculation of three times your combined salaries - in this case that would make �150,000, a slightly larger mortgage.

It might also be possible to raise a slightly bigger mortgage if you're assessed according to your financial history rather that only salary multiples. Such an assessment will take in to account your statements and outgoings to judge money management skills. Lenders with a good track record therefore stand a better chance of being offered a bigger mortgage than might otherwise have been the case. Conversely, those with a less impressive credit record might be offered less.

It would be naive to suppose that having agreed on the sum you'll be borrowing and the size of your deposit (remember that the more you manage to put down as a deposit the lower you're interest rates are likely to be - it's therefore really worth getting together as big a deposit as you possibly can) this is the last of you're spending. Unfortunately there are numerous extra costs to consider and budget for

Aside from the numerous niggling extra costs including valuation, survey and legal fees (at a rough estimate you should probably budget about �1,500 for these) the largest single extra expense is likely to be stamp duty. This works on a sliding scale as follows: if the property value is under �125,000 then there will be no stamp duty fee, �125,001 and �250,000 will be a 1% fee, �250,001 and �500,000 will be 3% and over �500,001 will be 4%. Of course, for sellers there is also now the added extra cost of a Home Information Pack to factor in, you can probably expect to spend between �400 and �700 on a HIP.

You would be well advised to do a bit of financial self-assessment, don't suppose that because a lender is happy to give you a substantial mortgage you can necessarily afford to pay it. Try to be as realistic as possible and take into consideration your monthly income and outgoings. Don't be over ambitious and commit yourself to a mortgage that you'll potentially struggle to afford - a dream home is not worth bankrupting yourself over. Take a look at one of the many mortgage calculators out there, most big lenders will have one on there website (You can find a Mortgage calculator at A&L Mortgages or the BBC property site for example). In addition you can save money and time by checking out a Mortgage comparison site like the award winning fool.co.uk mortgages center or Moneysupermarket and keeping up to date with the most competitive deals.



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