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6 Critical Money Making Rules

Tips For Graduates Keen To Get On The Housing Ladder

Personal_Finance / UK Housing Oct 07, 2007 - 08:08 AM GMT

By: Nationwide

Personal_Finance The summer is over, the studying complete, and, for numerous new graduates, full time working life is in full flow. For many, home-ownership will be the next landmark achievement to tick off the list but, with student debts and house prices continuing to rise, this may seem like an impossible challenge.


Nationwide Building Society has put together the following top 10 tips for graduates to help them make their first house purchase a success.

1) Clear your debts
Any existing debts (including store cards, credit cards and personal loans), will be taken into account when applying for a mortgage, so make a start in paying them off. Ensure that any cash you can repay goes towards the most expensive debt first – for example pay off any credit or store cards, which generally have higher interest rates, before your student loan.

2) Economise
For the first time in three or four years most graduates will now have a regular income, and the temptation to splash out after years of scrimping will be strong. However, the more you can save, the quicker and easier it will be to get on the housing ladder, so try to retain some of those student values and economise. A take away pizza can easily cost £10, compared to buying one for £3 at the supermarket and although the free office coffee might not taste as nice as the coffee from Starbucks, addicts could easily spend £40 a month getting a daily fix.

3) Work out a budget and stick to it
Start as you mean to go on. Work out how much net pay you will receive, deduct any monthly rent and bills and set yourself a fixed amount for both spending and saving – and stick to it. If you know you want to go on holiday once a year save 1/12 of the cost each month and accrue some money to cover annual expenses – like getting your car taxed and having an MOT. Sign up for internet banking and keep a close eye on what you’re spending.

4) Save for a deposit
Save, save, save! An average first time buyer now spends £154,394* on their first property, which means you need to save around £8,000 for a 5% deposit. 100% mortgages may seem like a tempting offer, but having just a 5% deposit can make a difference of over £150 a month on a £150,000 home**. So save as much as you can afford – if by some miracle there is any cash left in your bank account at the end of the month move it to your savings account and start the next month afresh – every little helps! Nationwide offers a range of tax free and regular savings accounts.

5) Avoid a higher lending charge
A higher lending charge is a fee some lenders charge for borrowers with a small deposit. Although the borrower pays this fee, they receive no direct benefit as a result, it simply enables them to borrow a higher loan to value (LTV) proportion from some lenders.
In 2007, Nationwide predicts borrowers will spend a staggering £220 million unnecessarily on higher lending charges. Nearly 110,000 borrowers will be affected with each borrower paying, on average, a charge of around £2,000. This can easily be avoided by choosing a lender who doesn’t have a higher lending charge.

6) Don’t overstretch yourself
Before committing to a mortgage, work out what you think you can realistically afford to spend on repayments each month and keep the figure in mind when house hunting. Most lenders’ websites will show you how much you can borrow and what the repayments for that amount will be. Borrowers will take into account any loans or debts that have to be repaid when calculating what they will lend, but only you will know how much spare cash you’d like to have left for shopping, socialising and going on holiday. Staying in might be the new going out, but at some point you’re going to need some spare cash, so don’t overstretch yourself and miss out on other exciting opportunities.

7) Shop around for deals – look for fees as well as rates
When looking for a mortgage make sure you compare more than just the rate. A low rate deal could end up costing more if there are large fees. Make sure you compare reservation fee, valuation fee and solicitor’s costs. Ask lenders to calculate the total amount payable over the life of the deal you have chosen and use these figures to compare – they will give an accurate reflection of what the mortgage will actually cost – in £s.

8) Don’t be lured by ‘graduate’ offers
Some lenders offer exclusive mortgage deals just for graduates – but check the small print before you commit, as they might not always be the best option. Some lenders, like HSBC for example, require graduates taking out the ‘graduate mortgage’ also have a graduate bank account – which pays just 0.10% interest per month compared to Nationwide’s Flexaccount which pays 4.25% if you make a credit of over £1000 a month. The difference could be £27.50 a year***.

9) Consider which type of rate will suit you best
Buying a house is an expensive business and it doesn’t stop once you’ve moved in. Furnishings, utility bills and unexpected costs always crop up. One option available to help gain some certainty is to opt for a fixed rate. You will know exactly what you’ve got to pay back each month, rather than finding yourself worse off if interest rates rise and your payments do too. Alternatively, you can opt for a tracker rate and find yourself with some extra cash to spare if rates go down. If rates go up or your personal circumstances change, all Nationwide tracker mortgages come with the facility to ‘switch and fix’ from a tracker mortgage to a fixed rate deal at any time, without incurring early repayment charges.

10) Buy with a friend
If you’re desperate to get on the property ladder but can’t afford to go it alone consider buying with friends. Lenders like Nationwide offer mortgages for friends who want to buy together. It can be a cheaper and less stressful way of getting started, and, after years of sharing in student digs you’ll be used to a house full of friends already!

For further information:

Zoe Stevens, tel: 01793 655423, email: zoe.stevens@nationwide.co.uk
Natalie Tate, tel: 01793 655354, email: Natalie.tate@nationwide.co.uk

Notes:

* From Nationwide first time buyer house price index, Q2 2007.

** Based on Abbey 2 year fixed rate (100%LTV) 7.34% (£495) fee: monthly payments of £1,092.92.
Compared to Nationwide 2 year fixed rate (95% LTV) 6.25% (£499 fee): monthly payments of £940.03.

***Based on HSBC Graduate account paying 0.10% compared to Nationwide Flexaccount paying 4.25%. Based on a monthly credit of £1000 and assuming average annual balance of £850.

http://www.nationwide.co.uk/


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6 Critical Money Making Rules