Want your Forever home? Figure out your budget! Here’s how...

Buying a home is usually one of the biggest financial decisions you’ll ever make.   The high you get, finding your first home or your “forever home” is such a profound feeling.  However, most of our clients say the mortgage process and the insurance cost are daunting and it can essentially burst their bubble of euphoria and happiness.  We do stress to our clients the importance of a budget that factors in these expenses, before going property hunting on Rightmove, ASPC, Zoopla et al. Getting your mortgage and insurances, with the help of a good mortgage and protection advisor, should be the easy part! A mere formality.  Before talking to your advisor, we suggest you sit down and get intimate with your finances.  There’s no point in looking at properties if you don’t know your budget.

Have you got your pen and paper ready?  Or maybe you’re a fan of a good spreadsheet?We’re about to help you figure out your budget for your forever home.

Firstly, look at your payslips.  Understand what your basic income is and then look at any bonuses, overtime, enhanced rates you may be entitled to.  Your basic income is usually your guaranteed income per month (or however often you’re paid).  Any other income on your payslip can be subject to lenders’ criteria if they accept it or not.  For overtime, the majority of lenders will take around 60% of overtime and ask you for a P60 (the paper which shows the tax you've paid on your salary in the tax year) to verify that it’s a regular amount.  This can be tricky at times as we all know overtime is never guaranteed.  Hence, why lenders are not going to use 100% of that income.

Secondly, look at your bank statements. Some banks will provide a spending overview via your online banking app.  Or you can sign up to various apps and grant them access to your account so that they can analyse your spending for you.  This can be handy to help you find out where your money is going.  Looking at your bank statements you should see what your regular bills are such as utilities, rent, council tax etc.  But, you should also look at gym memberships, direct debits for mobiles and any other regular expenditure.   Doing this will help you understand better whether you will have the ability to pay the £600 mortgage payment that comes with your first home or not.   This is your affordability.  Thirdly, what’s your deposit?  What money has been set aside?  It’s not an easy task to save so don’t be disheartened if you have no deposit or very little.   If your deposit is low and you need some assistance but don’t have a rich relative hanging around, there are other options.

There are some government initiatives to help. The most commonly known one is the First Home Fund (FHF) Scotland.  Due to the popularity of the FHF, it is now closed to further applications.  The Scottish Government announced last week it will not be running the FHF again in 2022.

But, don’t lose heart there are still other options:

• If you’re buying a new build, some builders will offer a 5% deposit as an incentive to buy with them.  
• Low-cost Initiatives for First-Time Buyers (LIFT) scheme is available to people residing in Scotland.  It aims to help those with low to moderate incomes get on the property ladder by providing an interest-free loan towards the cost of a home.  This is between 10% to 40%, the same percentage loaned is recouped by the Scottish Government when the property is sold.
• Help to Buy (HTB) Smaller Developers Scheme is still running.  This scheme from the Scottish Government provides a max 15% loan towards the purchase of a new build.  There’s a maximum purchase price of £200,000 and the purchase must settle by 31st March 2022.   The list of builders partaking in this can be found here (https://www.mygov.scot/help-to-buy/registered-builders)

Lastly, what are all the other costs? Now that you’ve found the “one”, you should start asking more questions such as:

• What’s the council tax banding?  You can find out here via the Scottish Assessors Association (https://www.saa.gov.uk/)
• What are your neighbours like?  There are some websites such as Street Check which give a very clinical breakdown of an area.  However, nothing beats good old-fashioned research.  Drive around your area of choice during the day and evening.  Search for Facebook groups such as community pages that highlight what the locals are doing in the area.  For instance, the area of Chapelton, just south of Aberdeen City, has a wonderful sense of community and a thriving small business collective.  Chapelton has its own Facebook and Instagram, as well as a proactive community council.
• Your legal fees will vary depending on what you need to be done, our advisors generally say £1,000 to £1,500 for the solicitor to act on your behalf for a sale and purchase.
• Land and Building Transaction Tax (LBTT) is the Scottish equivalent of stamp duty.  LBTT is paid if you’re a first-time buyer purchasing over £175k, or a non-first-time buyer purchasing a residential property over £145k.  If you’re buying to let out or to use as a second home then the threshold to pay LBTT is £40k.  Your solicitor will keep you right.  

Most of this might seem overwhelming to you but, your mortgage and protection advisor will take all the stress out of finding the right mortgage, away from you.  A massive part of their role will also be to assess your affordability and determine a purchase price and maximum loan that you can comfortably afford.   A good advisor will also help you protect your new home should anything happen to stop you from earning.  One of our previous blogs delves into the world of Protection Policies; What does a Protection Portfolio look like?, it’s not only a great read.

It’ll help you understand what a protection portfolio should look like. With the right advice, your mortgage and protection advisor can be the key to helping you purchase your dream home.  It’s not about the cheapest rates. It’s about what makes sense for you and your circumstances.  The lowest interest rate on the market may require a 40% deposit.  What’s best for your friend, doesn’t necessarily apply to you and your family.

The key is to understand what you want from a property, then establish how you’re going to pay for it. With that, you can then search within your actual budget.  However, there’s no shame… we’ve all done those property searches where we’ve input a million-plus as the purchase price, 5 bedrooms, a balcony and a pool… what a difference between London and Aberdeen!