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Afford ability when upsizing

Date Published 22 December 2021

Can I Afford to Move to a Bigger House?


Sooner or later, everyone gets itchy feet about where they live. Either you need more space, or simply want more, and you start to consider whether you have the money to move to a bigger house.

The question everyone asks themselves when considering making a move is: can I afford to move to a bigger house?

As much as a 4-bed might appeal when you are only living in a 3-bedroom house, there is a lot to consider. As local estate agents will tell you, it's crucial to ensure your finances are in the best shape possible before making a move to a bigger house.

Owning a bigger house means mortgage payments are going to increase. But that's not the only cost which is going to go up. Take council tax, for example. A larger house in a different area could see council tax costs increase. The cost of heating and electricity might also increase, with a larger home to heat and look after.


Are my finances in shape for a move to a bigger house?

Dreaming of a bigger house is only natural. This is especially the case if you are short on space, your family is expanding, or you've lived in your current home for a while and would like a change - a fresh start.

But one thing is for sure - you really need to sit down and go over your finances first. Not only to see what you can afford, but to find out whether a bigger house with more expensive bills is definitely affordable, something which your local estate agents will confirm. Here are a few signs that you are in the best position possible for moving to a bigger home.


1) Good debt to income ratio

A debt to income ratio is a way of working out how much is going towards paying down debts out of your income. If this is based on a couple's income, then it's worked out overall on joint household income by most lenders.

Say you have a joint household income of £4,000 every month. Out of that, £1,500 goes towards debts, including car payments and your current mortgage costs - that works out as being below 50%, giving you a decent debt to income ratio. The higher you can get that figure, the better chance you've got of getting a favourable mortgage rate, as your affordability rating will increase.

Give yourself an even better chance of being accepted by reducing any debts you can before applying for a new mortgage. Houses are still moving fast, so putting yourself in the best position possible before starting to look is the best way to move forward with house hunting.


2) Good credit score

Even if you've been accepted for a mortgage in the past and have been maintaining payments, there's a good chance your credit score has changed in the meantime. Use a credit score tool, such as Experian or Clearscore, to see where you are with this.

The higher the score, the better chance you've got of being accepted. If you are taking steps before house hunting to increase the score (such as paying down debts), then give these a month or two to update with credit reference agencies. Check again, then start house hunting when you are ready.


3) Ongoing savings

Are you putting money aside every month?

If the answer is yes, then brilliant. It means you can pay a larger deposit or put money into paying more bills. Or even better: start transforming your new house into a home. Decorating and gardening costs money, so the more you have aside for this, the better.

Having consistent and growing savings also goes in your favour with lenders. Every penny helps!


4) Ability to pay higher bills every month

Savings also shows that you can pay higher bills every month. Expect your bills to increase with a larger house. As a minimum, council tax and heating costs are likely to increase. But there could be other costs as well, such as leasehold and other maintenance fees, depending on the type, age, and location of the property.

Work out your income and outgoings. Find out what they currently are, and then maybe add up to 20% or more, including larger mortgage payments. Can you still afford everything comfortably?

If you can, then chances are you are in the best position possible for buying a larger house. Especially if you've got savings, even pensions, and other investments, plus equity in your current home.


5) Equity in your current property

Having equity makes buying a bigger house a lot more affordable. Say your current home was worth £250,000 when you bought it, and you've paid down £100,000 of the capital. Now, because house prices keep on increasing, it's now worth £325,000 - that gives you £175,000 worth of equity in the property (minus fees and applicable taxes).

Having equity increases the affordability ratio, and crucially, the amount you can put into a deposit for a larger house. Buying a new house is always more affordable when your current home is worth more and the amount outstanding on the mortgage is lower.


6) Good Loan to Value (LTV) ratio, affordability

A Loan to Value (LTV) ratio is the way mortgage lenders work out what you can afford. This depends on the amount you can put down on a deposit, the value of the property you are selling, the one you're wanting to buy and your affordability.

Lenders need to take all of that into consideration. Using the example above, you've got £175,000 worth of equity (minus fees and applicable taxes) from the property you want to sell. Plus, a joint household income of £50,000 with savings and a strong affordability rating. This puts you in a great position to buy a new, larger house!

Affordability is usually worked out on your disposable income multiplied on a ratio of 3-4.5x, depending on specific lending criteria. That information is also combined with debt to income ratios and any savings you currently have.


Marshall Property are here to help with your big move

Moving to a bigger house is exciting. As well as giving you more space, it gives you the ability to do more, such as host parties, have guests stay over or grow your family. But ultimately, you need to ensure your finances are in the best shape possible first. We hope this article is useful for those considering the move to a bigger house, to help you work out what you can potentially afford.

As one of the leading local estate agents in Liverpool, Marshall Property can guide you through the process. From mortgage advice in the initial stages to helping you find your perfect property, we're on hand to help every step of the way. Get in touch with us today to find out more.