Your home is likely to be the biggest investment you ever make. For many, their home is a nest-egg for their pension and a sizeable portion of any inheritance they may pass on. With this in mind, it’s important when thinking about buying a property to not just fall in love with a house and buy it, whilst perhaps paying over the odds for it or overstretching your monthly payments or, worse, both.
Mortgage multiples
The size of your mortgage you are able to raise will determine what you able to buy. If the ructions of the recent UK property market have taught us anything, it’s to not overextend ourselves with credit. The days of five or six times your salary with little deposit are, hopefully, behind us, however, three times your salary should be more comfortable on a monthly basis, but never assume this; always judge your mortgage abilities conservatively. Ensure you make use of the many free mortgage calculators on the internet and be clear as to the varieties of mortgages available.
Find the value
Once you’ve got your budget in mind, start viewing the property market as a investment market. Like the stock market, the property market will fluctuate, which to a greater or lesser degree will affect the value of your property. Clearly, paying mortgage payments will be a better investment than paying the same on rent but this good work all go to waste if you buy at or near the top of the market before it starts to dip. Analyse historic market trends going back generations. Try to work out the factors that could have caused the rises and the dips such as large changes in interest rates and availability of credit and see if these may have an impact in the near future.
If you are at the top of the market, a good way to minimise the risk of negative equity is to buy an undervalued property with room for improvements and/or to buy at auction. As with all moves in the property game, it’s essential to do as much research as possible before making any decisions. Happy hunting!