What to check before you buy a more expensive home
The current property market, with interest rates at their lowest levels in almost 50 years, is not only extremely attractive to first-time buyers but is also prompting an increasing number of existing homeowners to consider an upgrade to a bigger or more expensive property.
“Families grow and space needs change, and on top of that many people who were confined to their homes during the recent lockdown or are still working from home are keen to have more elbow room or outdoor space, or simply to move to a better area,” says Berry Everitt, CEO of the Chas Everitt property group.
“And now that these aspirations are aligned with additional affordability due to much lower interest rates, there are many who believe it’s the ideal time to upgrade – especially if they have owned their current home for a few years and built up a healthy amount of equity to use as a deposit on a new one.”
However, he says, if you are planning to upgrade, there are a few things you need to check first, and one of the most important is what sort of “deal” you can get on a new home loan.
“A reputable bond originator will be able to tell you, for example, if you qualify for a much bigger bond now, or a lower interest rate than when you bought your current home, especially if your earnings have increased and you have a strong credit record.
“On the other hand, you need to be realistic about how much more you can really afford to pay for your home each month, especially if your family has grown since your last home purchase and you now have additional monthly expenses such as school fees and higher food, transport, insurance and medical bills costs to consider.”
Writing in the Property Signposts newsletter, Everitt also notes: “It is important to remember that just because a bank approves you for a certain bond amount, you don’t necessarily have to spend that much or stretch your monthly budget to the limit to cover your home loan instalment. You also need to factor in your other debt repayments and expenses, as well as long- and short-term savings goals like university for the children and your own retirement – and then still leave yourself some leeway to cope with emergencies.”
In addition, he says, if you intend to sell your existing home in order to upgrade, you will need to be realistic about how much it is likely to sell for. “Prospective buyers still have a big choice of homes at the moment and, more importantly, are just as value-conscious as you are when you are viewing potential upgrade homes.
“However, there is very strong demand for well-priced properties, so if you work with a qualified and knowledgeable agent to set the correct asking price and market your home properly, it should sell within a few weeks – and leave you free to buy a more valuable property, also at a favourable price, with a home loan that you can comfortably afford to repay.”