Every year in January, gym memberships in the UK peak at 12% above the average, according to the Fitness Industry Association.
But what has fitness got to do with financing a home? As it turns out, quite a lot.
The start of the year is a good time to take stock of your financial health as well as your physical health. When you think about buying a new home, moving house or remortgaging, it's the health of your finances that will determine what you can afford, based on the size of your deposit, how much you're able to borrow and whether you can afford to make your regular mortgage repayments over time.
Getting in shape financially is not as hard as you might think. As with fitness goals, it begins with a quick health check (you don't need a professional to tell you when you've reached your target weight), followed by a decision on your goals, making a plan of how to achieve them, and then following up with discipline, consistency and determination until they are achieved. Once you've mastered that, the home of your dreams can be yours. You absolutely can do it – here's how in five steps.
1. Start with a financial health check
No matter how financially sensible you are, most people's finances can benefit from a bit of a detox from time to time. A financial health check can take a few hours, but it's worth it.
You could do things the old fashioned way by working out how you spend your money using a spreadsheet, but there are some great free online tools that have become available since the launch of Open Banking last year. These personal finance dashboards will help you to understand how you spend your money. Moneydashboard and Yolt, for example, are both free tools that help you bring together all the information you need to make informed financial decisions with a clear view of how, when and where you're spending your money. These tools categorise everything automatically and display it back to you to give you the answers with zero effort.
Now that you're armed with the facts, the detox can begin. Be real here. Of course you want it all, but be guided by this question as you go through your detox, item-by-item: Do I want this, or do I really need this?
So, you have a gym membership but you only went twice last year. Do you really need this? You could take up jogging or commit to walking the dog more often. This way you'd be tightening your belt physically and financially. How about those online subscriptions? If you have not switched energy provider for a while you can probably find a much cheaper option with a big saving, and the same when your next car or home insurance renewal is due.
Take a look at the price you're paying for debt. Compare the interest rates and plan to pay off the debts that carry the highest interest rates as quickly as possible.
Now, swing back to the income column. Are there ways to increase your income? You could ask your boss for an increase, earn a bit more in your spare time by outsourcing your skills, or declutter and sell unwanted items on eBay.
Once done, you should have a detailed picture of your financial health, as well as an idea of what you can do to improve your finances. The object of the exercise is to increase your income column if possible, and decrease your outgoings column so that you have enough to cover your expenses and place an amount each month into savings (preferably 10% of your take-home pay at minimum).
The ultimate objective of building your savings and understanding your monthly expenses is to determine how much deposit you can build and how much you can afford in monthly mortgage payments.
2. Set your property ownership goals
Choosing the right property will depend on how much thought you've put into the reason for moving house. For first-time buyers it might be because a lease agreement is coming to an end, you're getting married or thinking of starting a family, or because it costs about as much to rent in some areas of London as it would cost to pay the interest on a mortgage. For homeowners, a change of job, search for schools or a divorce might necessitate a move.
Decide what is necessary and important to you - a three bed with a large garden for your growing family? Or a cozy modern flat as a first step on the property ladder? Additionally, consider where you should be looking - a central city apartment, a suburban semi, or a location dictated by work or schools?
Timing should also form part of your goals. Do you need to vacate your rental in two months? Or is the baby due in six months' time?
3. Access the right resources and advice
As the saying goes, knowledge is power, and you'll need it in spades to negotiate the property market successfully.
If you've carried out steps one and two, you'll have a good idea of how much you can afford in deposit and monthly mortgage payments, and of the type of property you're after and the area in which you'd like to live. Research the market trends in your chosen area. Is property moving quickly or has there been a slowdown recently? Are the prices of the type of property you're after going up, down, or staying flat? How many properties are for sale in that area, and how long do they stay on the market before selling? What is the average percentage difference between asking and selling price?
If you own your home, you'll want to review its value - have property prices gone up since you bought a few years ago? Speak to your local estate agency or try an online property valuation calculator to get a current valuation.
4. Make a plan for getting your dream home in 2019
Now's the time to start making plans to finance your dream home.
Think about this process as getting ‘mortgage fit' - don't do any unnecessary credit checks, as repeated reports on your credit rating will impact your score, and subsequently the likelihood of getting the mortgage you need. Run down any debts or outstanding balances and assess how quickly you can pay those off. Make sure you have a good deposit. This is one of the first things lenders look at when deciding to offer a mortgage deal. The normal minimum deposit is 5% of the price of your new home and few banks will accept lower, but remember, the higher your deposit, the lower your monthly repayment on your mortgage, and the better your chances of being approved.
Before giving you a loan, lenders assess how affordable your mortgage payments will be. They'll look at your total budget and the size of the mortgage you want to borrow to make sure that your income can comfortably cover your bills, living expenses and mortgage repayments. Lenders also decide whether you'll be able to meet your repayments if your personal circumstances change or interest rates rise.
You will also need to decide which type of mortgage is going to best suit your circumstances. A fixed rate mortgage means the interest you're charged stays the same for several years – usually between two and five percent. A variable rate mortgage means the interest you pay will change as bank rates change, so you may get a lower rate to start with but you will need to take a view on where interest rates are going over time to decide on whether this is a more cost effective option than taking a fixed rate over the same term.
5. Now all you need is patience, discipline and determination
Now that you have a clear idea of the type of mortgage that suits your needs and you've put together a plan for financing your dream home, the most important thing to do is to stick to it. It can be tempting, especially in an unstable market, to make impulsive decisions or jump to conclusions, but remember that the habits of patience, discipline, consistency and determination pay off, and ultimately mean you'll get the best mortgage for your own needs and be able to move into your dream home. Remember, this is likely to be one of the most important decisions you'll ever make - so be sure that you're giving yourself the best shot at being approved for the mortgage deal you need.
Let's get your home owning dreams for 2019 on track together
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