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How Much Mortgage Can I Afford?

Before you apply for a home loan, you’ll first need to consider whether you’re able to afford to make the monthly repayments. However, there are more factors to bear in mind than just that. Mortgage providers look at your outgoings and income to determine whether or not you’ll be able to keep making payments if the interest rate rises or your life circumstances change.

How Does A Lender Work Out How Much Mortgage You Can Afford?

At one time, a mortgage lender would base how much you were able to borrow primarily on a multiple of your income, known as a loan-to-income ratio. For example, with an annual income of £50,000, a mortgage lender may have offered you a loan of around 3-5 times that sum, resulting in a mortgage of as much as £250,000.

Today, though, when you make a mortgage application, lenders cap that loan-to-income ratio at 4 ½ times your income. Also, they have to asset the level of monthly repayment you’re able to afford, taking into account your living and personal expenses together with your income in an affordability assessment.

Lenders also carry out a stress test into your ability to make repayments in the long term by taking into account the possible effects of rises in the interest rate and potential lifestyle changes. Should the lender believe you’d be unable to afford to make repayments under such circumstances, it’s likely they’ll limit the amount you’re able to borrow.

What Does A Lender Take into Account?

When a lender is working out the amount you’re able to afford to borrow, they look at the following:

  • Your income - including your basic income, any income from investments or pensions, any other earnings from commission, bonuses, freelance work, another job or overtime, and any financial support or child maintenance from an ex-partner. You’ll be required to provide bank statements and payslips to evidence your income. Self-employed individuals must provide business accounts, bank statements, and details of any income tax paid.
  • Your outgoings – these include credit card payments, maintenance payments, loans and existing credit agreements, utility bills, and insurance costs. You may also be asked for an estimate of living costs, including spending on childcare, basic recreation and clothing, and for some bank statements that support those figures.
  • Future changes which could have an impact – lenders will assess if you’d still be able to make your repayments if the interest rate went up, if you lost your job or couldn’t work because of an illness, or if your life changed by taking a career break or having a new baby.

How Much Am I Able to Borrow?

You’ll need to bear the above factors in mind before you consider making an application for a home loan. Although it might be tempting to try to borrow a higher amount, remember that if your life circumstances change unexpectedly, you’ll still be required to pay your mortgage, and this could tip you into debt. You’ll need to bear the above factors in mind before you consider making an application for a home loan. Although it might be tempting to try to borrow a higher amount, remember that if your life circumstances change unexpectedly, you’ll still be required to pay your mortgage, and this could tip you into debt.

Once you know how much mortgage you can afford, take a look at our conveyancing quote tool which will help you get the best deal possible on your conveyancing costs.

Home Improvements: What Are the Costs?

Whether you’re doing up your existing home or whether you’re considering buying a property to fix up, you’ll need to know what the potential costs might be. After all, you’ll need to set yourself a budget to make sure you don’t overspend.

You should also remember that you should put an extra 10% to one side to cover the cost of any unexpected expenses. Here, we take a look at some of the most popular home improvements and how much they’re likely to set you back.

Getting a Home Extension

There are several factors that come into play when considering the potential cost of a home extension. For example, its size, the amount of structural work involved and the location in the country are all important elements to consider. Roughly, though, an extension measuring 4x6m will cost around £26,000 - £34,000.

Loft Conversions

Loft conversion costs begin at about £20,000 but if a lot of work needs to be done, it can cost considerably more. For example, adding a bedroom with dormer windows and an ensuite could cost as much as £45,000.

New Bathroom or Kitchen

On average, a new bathroom will cost about £6,000 although if a lot of new plumbing will be required, it could be more. A new kitchen will be even more expensive, costing around £10,000 - £20,000, with some kitchen renovation projects costing as much as £50,000 but they can also add thousands to your home’s value.

Garage Conversion

Typically, a garage conversion will cost about £6,000 making it a cost-effective solution if you need to add more value to your home while increasing your living space.

Replacing Doors and Windows

If you’re keen to install some double glazing in your home, you can expect the cost to be about £400-£600 for a typical uPVC window. If you’re keen to opt for a metal or real wood window, the cost will be higher.

Installing Central Heating

If your home doesn’t have any central heating, it will cost about £4,000 to have it installed in a typical 3 bedroomed house. If your home already has central heating, however, it requires a brand-new boiler, it will be much more affordable. Replacing your combi boiler will cost about £2,700.

A Roof Replacement

Should your home need a roof replacement, you’ll need to pay somewhere between £4,500 and £12,000 depending on how large your property is and how much work will be required. The cost will also be determined by whether or not the rafters require replacement and which kind of tiles you’d like.

Once you’ve weighed up the costs of the home improvements that you’re interested in, you can decide whether or not the project is worth it. This is especially the case if you’re considering doing up your home before selling it – in many cases, the amount that you’ll recoup on the sale will be less than the amount that you’ve spent on getting the work done!

If the thought of undertaking your home improvements is just too much and you are considering a house move instead, take a look at our conveyancing solicitors and get a quote in under a minute here.

Can You Get a Mortgage with a Bad Credit Rating?

If you have a bad credit rating, you may still be able to obtain a mortgage; however, you’ll need to be aware that it’s likely you’ll have to put down a bigger deposit and pay a higher interest rate. There are some mortgages out there that have been specifically designed for those with bad credit, and some mortgage lenders even specialise in this area.

Known as sub-prime mortgages, adverse credit mortgages or bad credit mortgages, they are a great way for someone who has previously had financial problems to get on the housing ladder.

Bad Credit Ratings – What Are They?

You may believe you’ve got a bad credit rating if you’ve previously been rejected for a credit application in the past. But it’s important to remember that all lenders have their own lending criteria, and some lenders will view you in a more positive light than others. Therefore, there’s no set rule determining ‘bad credit’.

There are, however, some factors that can be found on a credit report that are very likely to make lenders believe you’re a high risk such as loan defaults, too frequent applications for credit and missing credit card payments.

How Does A Bad Credit Mortgage Work?

In essence, a bad credit mortgage is the same as a regular mortgage, but it will usually have a higher rate of interest, a lower borrowing limit, and a higher deposit requirement. This is due to the fact that having a low credit score makes you a higher risk to the lender.

Am I Able to Obtain A Mortgage If I Have Bad Credit?

On making a mortgage application, the lender will look at your credit history for evidence about how well you’re able to handle your finances. They’ll consider your savings, monthly outgoings and income to check whether you can afford to make repayments each month, particularly if your income goes down or the interest rate goes up.

You can obtain a mortgage if you have bad credit; however, it’ll help if you can show yourself in a good light. That means you should budget sensibly and take good care of your credit history. You can do this by:

  • Meeting all of your usual payments in full and on time
  • Reviewing your spending, keeping your outgoings each month consistent and reducing costs wherever possible
  • Reviewing your credit report on a regular basis and ensuring it’s up to date and accurate
  • Adding notes of correction onto your credit report if there is a reasonable explanation for your previous financial problems
  • Only choose a home you’re realistically able to afford
  • Have a guarantor who can reassure your lender that your payments will still be covered in the event of a problem
  • Save a deposit of 20% of the purchase price

If you take the above steps, you’ll be putting yourself in the best position to be able to obtain a mortgage from your chosen lender, even if you have had financial difficulties in the past.

We have a wide panel of conveyancing solicitors who will be able to help you secure the best deal for your conveyancing costs if you have bad credit.