uch has been made of the current housing situation in the UK. There are many who cannot get mortgages at all. There is no denying that it is a struggle to obtain a mortgage at this current stage, but if you are lucky enough to meet the strict criteria you need to make sure you are getting the best deal.
This is something you will not pay off for a whole generation. Even the slightest mistake could lead to you losing hundreds of pounds every year.
We are going to help you understand how mortgages are currently working and what you will need to get one, along with how you can get the best deal.
While I encourage people to save 100% down for a home, a mortgage is the one debt that I don't frown upon.
Why Now is the Time to Get a Mortgage
For years, the media has complained about the difficulties involved with getting a mortgage. It is true that securing a mortgage has never been more difficult. Before the financial crash of 2008, you could obtain a mortgage with minimal checks and as low as a 5% deposit.
The crash of the housing market and many banks getting into difficulty meant banks had to rethink their strategies. It has led to a situation where a lot of banks are now forcing prospective homeowners to gather together a 30% mortgage. They have had no choice but to save up five figures in order to get funding.
And this situation will continue for years to come. Those who can get a mortgage are in a powerful position, though. This current stretch represents the best time to be paying off a mortgage.
For years now, interest rates have gone into decline. They are now being held below 1%, and they have been in that situation for some time. Interest rates are still expected to go down, which means you are paying less than ever before. Together with lower inflation, mortgages are more affordable than ever, but you have to get over those initial hurdles.
What Do You Need to Get a Mortgage?
Getting a mortgage requires you to pass a number of key criteria when it comes to the banks. To begin with, you will need to prove that you have the money to get a deposit. The exact amount required will differ depending on which bank you intend to deal with.
Banks will apply specific rates of deposit depending on how much money you earn and your credit score. The more you earn and the higher the credit score, the better terms you are going to get. This is all about risk and it is all about reassuring the banks that you are not a risk.
There are a number of mortgage calculators online to help you decide whether you can afford a mortgage on a certain property in a particular part of the country. Anyone in London, for example, can expect to pay far more than anywhere else. This is because the housing market is by far the most expensive, the cost of living is much higher, and house prices are always rising at huge rates.
The banks will also conduct a stress test on your finances. In practice, this means they will perform some theoretical calculations. They will increase interest rates by a few percentage points and recheck your financial situation. This is to stop handing out mortgages to people who would not be able to handle them in the event that interest rates rose.
Is a Mortgage the Right Decision for You?
Just because you can get a mortgage and just because you can afford a mortgage does not mean that this is the correct decision for you. There are more factors involved than just your financial health. This is a home you will have to live in for the next few years. If your life circumstances may change, it does not make sense to make such a significant investment.
For example, you could decide that you want children in the next few years. Taking out a mortgage on a two-bedroom house when there is already you and your spouse makes little sense because it will be too small for your growing family.
You also may decide that you want to switch careers in the near future. This could cause you to move to another part of the country. Again, taking out a mortgage on a house you may not be living in come three years makes little sense.
There is nothing wrong with saving your money and putting off the idea of taking out a mortgage for now.
How Should You Compare Mortgages?
Every lender is going to provide you with different quotes and different premiums. Apply for mortgages with multiple banks. You are under no obligation to commit to any bank, even if they make you an offer of a mortgage. By comparing different banks, you can get a rough idea as to the sort of prices you can expect to pay.
What if You Fail to Get a Mortgage?
It is a familiar situation. You apply to every bank you can think of, and they all refuse to give you any form of mortgage. This can put an end to any dreams of ever owning a home. But do not enter a pit of despair over it. Consider why the bank refused to give you a mortgage in the first place. They will often give you a reason as to why they believe you are unsuited to a mortgage.