The term “mortgage stress” is becoming part of our national vocabulary, largely because of the housing affordability issues confronting buyers in Liverpool, especially in our capital cities. However, while people are increasingly using the term in general conversation, it is often used in the wrong context.
There is no absolute definition of “mortgage stress”, but the prevailing wisdom is that it describes a situation where borrowers are paying more than 30% of their pre-tax income in mortgage repayments. With less money in their budget for other expenses, these people are vulnerable to unexpected events like accidents, illness or unemployment.
Avoid Mortgage Stress – A Few Helpful Hints
At Prudential Real Estate we do our best to ensure our clients in Liverpool avoid this situation when they come to us to buy property. We have a free downloadable guide on our website that gives buyers information to help them make the right property choice. We also have our own in-house home loan specialist to help clients access the best home loans, all at no cost to them.
We also offer the following few suggestions to help buyers understand the negative effects of mortgage stress and how to avoid it. The first and most obvious is to save the largest deposit possible. This sounds like a no-brainer, but is often overlooked in the excitement of house-hunting.
Save – Don’t Spend
It means tightening up discretionary spending and saving every last cent. While this may not be a popular move, it is a wise one. Not only will the goal of a larger deposit be reached, but potential lenders have evidence that your spending is under control, and you have a regular savings pattern, making you a better loan risk. At the same time, keep personal and credit card debt to a minimum.
Expect the Unexpected
In the meantime, think about any future plans that will impact on your ability to repay a mortgage. Are you contemplating study to improve career prospects? Is starting a family on your horizon in the next few years? While it is impossible to factor every eventuality into your budget, also recognise that the unexpected will happen.
What Came Down Must Go Up
Also realise that the low interest rates we have experienced in past years will not stay at this level forever. They will eventually rise, and with this will come an increase in mortgage repayments. Would your budget be flexible enough to cope with this? You may need to rethink the type of property you can afford if there is no “wriggle” room left in the budget.
When you have taken all this into consideration and are ready to buy, we will be here to help you find your ideal property in Liverpool.