Financial risks to be aware of when buying a home

*Interest rate changes: Variable interest rate mortgages are particularly sensitive to changes in the Bank of England’s base rate. If interest rates rise, your mortgage repayments will increase, potentially putting strain on your finances. Fixed-rate mortgages offer protection against interest rate fluctuations during the fixed term but may come with higher initial interest rates.

*A common risk is overestimating your ability to afford a property. While lenders typically assess your ability to repay the mortgage, they may not consider other financial commitments. Overstretching your budget to purchase a property could lead to financial stress, especially if unexpected expenses arise or if interest rates increase.

*Buying a house involvesadditional costs such as stamp duty, solicitor fees, surveys, valuation fees, and moving expenses. Failing to account for these costs in your budget can strain your finances.

*Negative equity occurs when your outstanding mortgage balance exceeds the property’s value. This can arise due to declining property prices and home improvements that don’t add enough value or high mortgage interest rates.

*If you default on your mortgage payments, there is a risk of repossession by the lender. This can result in the loss of your home and damage your credit score leading to difficulties securing credit in the future.

*Some properties are sold as leasehold, where you own the property but not the land it stands on. Leasehold properties may involve ground rent and service charges, which can increase over time. Additionally, lease lengths may impact property value and future saleability.

*Homeownership comes with responsibilities, such as maintaining the property and ensuring it is adequately insured. Failing to maintain the property could lead to higher repair costs in the long run, while inadequate insurance coverage may leave you vulnerable to financial losses in the event of damage or disasters.

*The economic health of the country can impact property prices, mortgage interest rates, and employment prospects. This can affect property values and your ability to manage mortgage repayments.

So, assess your financial situation realistically and set a budget that accounts for all costs and eventualities.

*Nick Lawson is Wealth Management Director at Hunter Gee Holroyd, York. www.hghyork.co.uk