Moving is not something that you might tend to do that often. Sometimes there can be a long period of time in between moves and a lot changes in that time. The housing market and the financial markets evolve and house prices and mortgage rates are very likely to have changed since you last moved. If you are planning a move, you may be wondering what your current financial position can afford you. Or, perhaps you are moving for the first time and you are wondering what your budget is.
Working out your budget is pretty straight forward, there are a few steps you need to take to do this. It is always worth going through these before you start looking for your next home as you need to have a realistic idea of what you can afford. There is nothing more disappointing than finding your dream home, only to realise that when you sit down and do the sums – you can’t afford it. The following steps will help you work out your budget:
When looking at what you can afford, one of the biggest considerations will be how much savings you have available to put down as a deposit. The higher the deposit, the less you will need to top up with a mortgage and the better rates you generally get.
In an ideal world 20% or over is the best deposit to aim for as you will achieve better mortgage rates. However, we know this is not always possible and there are many banks that will provide a mortgage with just 5-10% deposit.
If you already own a home, the equity you have in your house can count towards the deposit. To work out how much equity, you have in your house you will need to determine the current value of your property. You can get a rough idea on value through doing bit of research yourself. Have a look at property portals such as Rightmove and Zoopla and look at what houses like yours have sold for recently in your area. See what houses are currently on the market and what the asking prices are. This should give you a guide on what your home could be worth.
There are many online valuation tools around that you can use to gain a rough estimate on what your home is worth. To help, Alexander Taylor have one you can try. Go to https://valuation.alexander-taylor.co.uk/home/543-alexander-taylor and simply fill in the details. This will give you an instant online guide valuation.
For a more robust valuation for your home, speak to an estate agent or surveyor. This is especially important if you have a character or unique home as they can be a little trickier to value and expert advice is better.
Now you have the value of your home you can work out the equity you hold. Take the value of your home and deduct the amount that you still owe on your current mortgage and any other loans against your home. The amount you are left with is the equity you hold in your current home and this can be used as a deposit against your next home.
Don’t forget moving costs and fees. Whatever savings, deposit or income you have, some of this will need to be allocated towards fees. Make sure you take these fees into consideration before speaking to a mortgage advisor as they could take a big chunk of your savings, and so bring down the percentage you can afford to put towards your deposit.
Here is an example of the kind of fees you need to consider:
Land and Buildings Transaction Tax (LBTT) see https://www.stampdutycalculator.org.uk/stamp-duty-scotland.htm for a guide
Estate Agents fees
Bank / mortgage charges
Household running costs for the first month
As a rough estimate on what you could borrow, many banks have online mortgage calculators that will give you a guide on what you can borrow based on your earnings and deposit. The nationwide has one here that you can use https://www.nationwide.co.uk/products/mortgages/our-mortgages/mortgage-calculators. These are great as a rough guide but if you are seriously looking to move home you will need to obtain a mortgage in principle so that you know exactly what the bank will offer you.
A mortgage in principle is official confirmation of what the lender will loan you based on the deposit you have told them you can put forward and your current earnings. A mortgage in principle usually lasts for three months. When making an offer on a house the estate agent will ask you of evidence of finances to support the offer and the mortgage in principle will count towards this.
Now that you have a firm idea on what your budget you are in a good position to see what you can get for your money. This is the exciting bit. At this point it’s a good idea to put your home on the market and see what interest you get. That way when you go viewing homes it shows that you are serious about moving and not just being nosey.
If you are thinking about moving, download our moving guide ‘How to sell your home quicker, easier and for more’ it’s jam packed full of useful tips on getting the most out of your sale. Go to:
For expert advice on moving and to obtain a valuation for your home, speak to Alexander Taylor today. Just give me a ring on 01324 811 233 or email firstname.lastname@example.org
Until next time