But I’ve been paying £1,200pcm in rent for years, why can’t I get a mortgage with the same monthly payments?
This is a question I come across FAR too often!
I have had clients before who have been paying X amount of rent for the past few years, yet when I tell them their maximum affordability on the mortgage and how much this will cost them per month, it often comes in a lot lower. Why is this?
There are quite a few reasons, but one of the main ones is that affordability isn’t just worked out on current rates, but on something called a stress rate. In simple terms, the lender isn’t just looking at what you can pay back now, but what you might be able to afford if rates shoot up, such as what we have seen recently.
As a real-world example, if you had taken out a 35-year mortgage, 2 years ago on a 2% rate with £225,000 worth of borrowing, you may have EASILY been able to afford the £745 payment, but after your initial fixed rate was up, if you needed to remortgage that today, your payments would be closer to £1,100.
It’s highly unlikely that rent would increase that much in 2 years, but with mortgages, this is exactly what can (and has) happened. If you can’t afford the increased rent payments, then you could find another place to rent as you’d only be tied in for (usually) 12 months. With a mortgage, it’s a long commitment, and you can’t always rely on a quick sale if you get into trouble with the monthly payments.
Also, it is often not just the cost of the mortgage that has to be considered. Once the house is yours, all of the responsibilities come with it. If the boiler breaks down, a pipe bursts, or tiles start falling of the roof, then these are all additional costs that a homeowner has to pay, whilst a tenant will contact their agent/landlord, who then must deal with it.
Finally, the big difference between a tenancy agreement and a mortgage is that the mortgage is a loan – probably the biggest loan you will ever take out in your life. Mortgage lenders take a risk and lend (sometimes) hundreds of thousands of pounds, based on the fact that you can pay it all back. To give an analogy, it’s akin to letting a stranger rent out your spare room for a year, or lend that very same stranger £100,000. I’m sure, given the choice, that most people would agree that the former is far less risky.
Part of my job is to make sure that you can afford the monthly payments now, but also for the entire term of the mortgage. As I also work with my clients for this amount of time, I want to do my very best to keep you in that home and protect you from a worst-case scenario. Part of that is making sure you are MORE THAN comfortable with your current payments and will still be able to afford your home if rates were to rise.
Oli Smith (CeMAP)
Mortgage & Protection Adviser
Email: oli@rbmsolutions.co.uk
Mobile: 07306 430212
Direct Dial: 02394 217261
Gatcombe House, Copnor Road, Portsmouth, PO3 5EJ
