Counting the costs of your mortgage

There are few issues that have attracted so much ongoing media speculation in recent years as mortgages and the state of the property market. I suppose the reason for our ongoing obsession with housing booms and busts is that we all have a staked interest, whether we're already homeowners or are considering our fist cagey step onto the property ladder the state of the housing market is something that affects all of us.

Away from all the blather and speculation that surrounds the wider housing market, useful advice relating to the actual process of purchasing a house is surprisingly difficult to come by 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?

Buying a property is inevitably going to be pricey, costly. It goes without saying then that the importance of getting it right is not something any of us should underestimate, be willing to invest lots of time and precaution into establishing exactly how much you can afford to pay.  The first thing to consider is how much you earn: The majority of mortgage providers will be willing to offer you around three or four times your gross annual earnings. If you're buying with a partner then lenders will probably add their annual earnings on top of what they are willing to offer you. So, if you're on £30,000 you should probably be able to borrow £120,000, if you're partner is earning £20,000 you should be looking at £140,000. Alternatively you may be offered a deal of 3 times your salaries combined - in this case that would make £150,000, a slightly larger mortgage. 

Lenders may be willing to offer you a bigger mortgage if, as is increasingly common practice, they assess your financial track record in addition to basic salary multiples. This would involve a lender assessing at your statements and outgoings and using this as the basis of their calculations. Lenders with a good track record thus stand a better chance of being offered a bigger mortgage than might otherwise have been the case. Conversely, borrowers with a less impressive credit history could be offered less.

It would be naive to imagine that having agreed on the amount 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 - so it's worth scraping together any savings you can muster and, if possible, a parental contribution) this is the last of you're spending. Unfortunately there are numerous extra costs to consider and budget for

Aside from the many niggling extra costs including valuation, survey and legal fees (at a rough estimate you should probably budget something like £1,500 for these) the largest single additional cost will probably 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.

It's also prudent to assess your finances for yourself, don't assume that because a lender is prepared to give you a substantial mortgage you can actually afford to pay it. Look at your monthly income and expenditure and consider realistically what you can afford. It's important to be honest with yourself and don't commit yourself to something that will significantly stretch your finances - 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 their website (You can find a mortgage calculator Santander’s website or the BBC property site for example).