Mortgages - Biting off more than you can chew!
Mortgages, like all financial products, are enveloped in their fair share of gobbledegook and confusion. A measure of complexity is inevitable: the aim of the bank and other lenders is, after all, not only to attract borrowers but to make money from interest payments. So the way to avoid the first elephant trap - whether you are a first time buyer or not - is to steer clear of signing any deal which may lock you into something you might find it hard to get out of.
A mortgage is an investment in the future –the largest financial gamble most people ever make. As the small print always says (which is why it is small) there is an element of risk. If you overstretch yourself and sign up for a monthly payment that becomes unaffordable can result in falling behind and risking financial penalties and, eventually, repossession.
On a cautionary note, figures from the Council of Mortgage lenders revealed recently revealed the number of mortgage repossessions in the UK rose from 8,140 in the first half of 2006 to 8,860 in the second half, bringing the total for 2006 to 17,000. This was 65% higher than in 2005, but broadly similar to 2001 levels and representing one in 690 mortgages.
The best way of avoiding this kind of hot water is to make a reasonable assumption of what you can pay, based on your income and expenses. Common sense, yes, but one in 640 pay the penalty and a much larger number fall into serious arrears. Where possible, aim for prudence: perhaps try reducing a other expenses, if possible, firstly to ensure a comfort zone with your existing payments and then to increase your mortgage payment and so shorten your loan term. The knock-on effect on your overall repayments – not to mention your stress level - will be remarkable.
As a first time buyer, in a sense you are in the strongest bargaining position ever than ever: many mortgage lenders are queuing up lend you money and they want to make it as easy as possible.
So, as a new mortagee, the challenges are to make sure you enter the deal fully aware of the commitment, not to overstretch from the start and aim, over time, to shorten the repayment period by increasing the monthly sum (having made sure this is possible without financial penalty before signing the agreement).
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