CONTENTS: INTRODUCTION, 1 - SO WHY BUY A PROPERTY?, 2 - IDENTIFY YOUR STATUS RANKING, 3 - CALCULATING YOUR BUYING POWER, 4 - UNDERSTANDING THE MORTGAGE GAME, 5 - INCREASING YOUR BUYING POWER BY INCREASING YOUR STATUS RANKING, 6 - INCREASING YOUR BUYING POWER WITHOUT INCREASING YOUR STATUS RANKING, 7 - GETTING VALUE FOR MONEY, 8 - REFERENCE CHAPTER
What is Status Ranking?
Status Ranking is a measure of how financially sound you are. It is a ranking of your financial status, which you give yourself, based on the facts and habits you have with money. It incorporates how you save and spend your money in the present and in the previous 6 years.
Money fits in to two broad categories:
Savings is basically a lump sum of money that you have put away to spend on something that does not form part of your day-to-day spendings. For example a car, a holiday or even……a HOUSE! The existence (or non-existence!) of savings and the amounts can give you a fair indication of how you handle your money.
Income is a sum of money that comes into the pot on a fairly regular basis, usually weekly or monthly i.e. salary, and is spent on day-to-day living expenses. For example food, clothes or even…….a MORTGAGE! How you spend this income and the amounts can give you a fair indication of how you handle your money.
Whenever you require money from someone, like a bank, they need to have an indication on how you handle your money. There are credit reference agencies out there that monitor whether you handle money well or badly.
Now, virtually everyone has a credit history. The only people that don’t are people that have never obtained credit i.e. borrowed money or had a credit card. These people are usually school leavers or students and their credit history will show nil activity. I would suggest getting a credit card or contract phone to kick start your credit file. For the rest of us these agencies record how much credit we obtain and whether we kept to our side of the bargain. In other words have we paid them back and on time!
This information is kept for 6 years and monitors:
- Mortgage repayments
- Loan repayments
- Credit card repayments
- Store card repayments
- Household bill repayments
- County Court Judgements (CCJs)
So to identify your status ranking you need to think about these 3 key factors:
- Whether you save money and how much
- How much you earn, how you spend money and the amounts spent
- Your credit history
The Status Ranking Table
Based on the factors above, how you save and spend your money in the present and in the previous 6 years, you can come up with a table that ranks your status.
|Status Ranking||Name||Credit History||Savings||Income||Description|
|1||Prime Lazy Coward||Good||Enough for a deposit||Enough to afford a mortgage||The highest rank but you should be ashamed of yourself! There is no real reason why you’re not on the property ladder already unless you’re either scared, lazy or both! There is nothing to stop you going out now and buying yourself a property and taking that first step to owning your ultimate dream home.|
|2||Prime Saver||Good||Enough for a deposit||not enough to afford a mortgage||Ok, you can save money, and it seems like you are spending less than you earn. It could be that you’re looking at the wrong types of property, looking in the wrong areas and/or not choosing the right financial products.|
|3||Prime Hi-Flyer||Good||not enough for a deposit||Enough to afford a mortgage||You’re on a good whack but have problems saving any of it! You seem to be spending equal or more than you earn. Ironically, you will have a good income but you’ll have credit card balances and loans to fund your over spending.|
|4||Adverse Lazy Coward||Bad||Enough for a deposit||Enough to afford a mortgage||Again you are either lazy, scared or both. There are many financial products out there that cater for financially sound applicants with previous bad credit history.|
|5||Adverse Saver||Bad||Enough for a deposit||not enough to afford a mortgage||Ok, you can save money, and it seems like you are spending less than you earn. It could be that you’re looking at the wrong types of property, looking in the wrong areas and/or not choosing the right financial products.|
|6||Prime Struggler||Good||not enough for a deposit||not enough to afford a mortgage||You spend all or more than you earn and every property in your area is way too expensive – life seems a constant struggle! You’re looking at the wrong types of property, looking in the wrong areas and/or not choosing the right financial products.|
|7||Adverse Hi-Flyer||Bad||not enough for a deposit||Enough to afford a mortgage||You’re on a good whack but have problems saving any of it! You seem to be spending equal or more than you earn. Ironically, you will have a good income but you’ll have credit card balances and loans to fund your over spending. Knowledge of financial products is limited.|
|8||Adverse Struggler||Bad||not enough for a deposit||not enough to afford a mortgage||The lowest rank and you should be ashamed of yourself! You’ve got no money and you’ve defaulted in the past. However, you too can still get on the property ladder. The choice may be limited and there is above average risk but its still possible.|
Ranking Order Justifications
The rankings 1 & 8 are absolutes. That is Status Ranking 1 is superior to all the others and Status Ranking 8 is inferior to all the others. Status Rankings 2 – 7 are subjective. I have ranked them according to my own experience with dealing with my clients and criterias set out by mortgage lenders.
Example People with Status Rankings 1 – 8
Status Ranking 1 – Prime Lazy Coward
Mandy is aged 31, lives in Birmingham and earns £28,000 per year. She saves £300 per month and has £8,000 in savings. She has good credit history and pays rent of £450 per month.
Mandy takes home £1,750 per month. After rent and other living expenses she treats herself to a modest trip to the high street, every fortnight or so. She shops in the sales and always clears her credit card balance. She bought her car for cash to get the best discount on the car. She is careful when she goes out and budgets her monthly expenditure with every major expense fully thought out and justified. She is disciplined to save £300 per month. She has no overdraft facility or personal loans.
Is this you? Do you earn a good wage? Do you have savings over £5,000? Do you budget your forthcoming expenditure and save consistently? Think - Do you pay rent that is in excess of your co-worker’s mortgage? Then do not get left behind! Get out to your local estate agents now and join their mailing lists – pronto!
2-bed flats in Birmingham typically go for around £70,000. From reading this book you’ll find out that she can put a 10% deposit down, £7,000, and get a residential mortgage for £63,000. The monthly cost at current rates equate to £236. So Mandy not only gets on to the property ladder but saves herself £214 per month. So based on this example Mandy is either lazy and/or scared. If I was being harsher I would say stupid!
Status Ranking 2 – Prime Saver
David is aged 25, lives in London and earns £25,000 per year. He saves £250 per month and has £6,000 in savings. He has good credit history and pays rent of £350 per month sharing a flat with two collegues.
David is a young professional. He has a good job working as a trainee in an accountancy firm. He’s frustrated that even though he earns okay money, saves well and has good credit history but he still cant even afford a grotty studio flat near his place of work.
Are you frustrated at the current property prices? Can’t understand why you cant get on to the property ladder even though you have a half decent job?
Studio flats in London typically go for around £100,000. He can put a 10% deposit down on a 50% shared ownership flat, £5,000, and get a residential mortgage for £45,000. The monthly cost at current rates equate to £169. He will pay a subsidised rent of £109 per month. Total monthly cost £278. So David not only gets on to the property ladder but saves himself £72 per month. He can also buy the other 50% share when he earns more in the future.
Status Ranking 3 – Prime Hi-Flyer
Zak is aged 30, lives in Croydon and earns £55,000 per year. He saves £nil per month and has £1,000 in savings. He has good credit history and pays rent of £1,000 per month sharing a flat with a friend in Knightsbridge.
Zak is an investment banker. He has a high profile job and he socialises with friends and collegues that earn an income equal or greater than his own. If there is a party – he’s there! If his group plan a high spending holiday – he’s there! He spends what he earns and more. He has several credit cards, several loans and several girlfriends!
Do you lead a life of excess? Is this life of excess proving to be not much fun now? Are your friends acquiring more than you?
1-bed flats in Central London typically go for around £180,000. From reading this book you’ll find out that he can put no deposit down and get a 100% residential mortgage for £180,000. The monthly cost at current rates equate to £675. So Zak not only gets on to the property ladder but saves himself £325 per month.
Status Ranking 4 – Adverse Lazy Coward
Sarah – same as Mandy above but got in to a bit of financial trouble.
Sarah split from her boyfriend 3 years ago. Joint name credit cards got settled late and there were defaults on their joint mortgage and the telephone bill didn’t get paid. Now she has put this all behind her, settled all outstanding debts, and now has savings and spends less than her income.
Is this you? Had some difficulties but back on track? Do you earn a good wage? Do you have savings over £5,000? Do you budget your forthcoming expenditure and save consistently?
Sarah could buy the same flat as Mandy but pay a higher interest rate. Her monthly cost would be £341. Sarah gets on the ladder, despite her history, and saves £159!
Status Ranking 5 – Adverse Saver
Gavin – same as David above but got in to a bit of financial trouble.
Gavin bought a car on HP 4 years ago. He was young, 21, and wanted a flash car to impress his friends but more importantly – the ladies! After 6 months he wrote the car off – but not the debt! He chose not to pay the debt but the finance company took him to court, and won, to enforce the debt. He now pays £200 per month to clear the debt but has a county court judgement (CCJ) registered against him.
Do you think that you are unable to get a mortgage because of your CCJs? Are you earning good money now? Have you learnt from your past mistakes?
Gavin could get the same flat as David but again pay a higher interest rate. His monthly cost would be £244. Gavin still gets on the ladder, despite his history, and saves £106!
Status Ranking 6 – Prime Struggler
Abdul is aged 24, lives in Rochester and earns £22,000 per year. He saves £nil per month and has £500 in savings. He has good credit history and pays rent of £150 per month to his parents as he lives at home.
Abdul spends all his cash, saves nothing and lives in an area where he is priced out. He lives at home, where its cheap, but is concerned that he cant live at his parents forever and he might miss the boat when it comes to getting on to the property ladder. He feels snookered.
Is this you? Are you priced out? Have no savings? Comfortable where you are but concerned?
Abdul could buy a studio flat outside, but near, his area like Chatham for £52,000 on a 100% mortgage. His monthly cost will be £195 per month. This in excess of his current living costs but he is on the property ladder – come on, you can’t have everything!
Status Ranking 7 – Adverse Hi-Flyer
John - same as Zak but has got in to a bit of financial trouble.
John, trying to keep up with his friends, run up an unmanageable credit card debt a year ago. He settled out of court and now pays £100 per month and the interest charge was frozen. No CCJ was registered but a default was.
Is your credit history possibly not as bad as you think? On a top wage now? Ready to start again?
John could get the same flat as Zak but pay a higher interest rate. His monthly cost would be £975. John gets on the ladder, despite his history, and saves £25.
Status Ranking 8 – Adverse Struggler
Natalie – same as Abdul but has got in to a bit of financial trouble.
Natalie went through a bad period in her life and ran up significant store and credit card debts. She got taken to court and has three CCJs registered against her. She has settled one of them and is paying regularly on the other two. She needs to live in Rochester, which is more than she can afford, and she has been self-employed for only 2 years with no accounts.
Is this you? Do you have CCJs? Are you self-employed less than 3 years with no accounts? Do you need to live in the area?
From reading this book you’ll find out that Natalie could get a self-certified unsecured loan to raise a 10% deposit on an £80,000 adverse credit mortgage to buy a studio in Rochester. The total monthly cost including the loan repayment would be £690. Its a lot more than £150 per month at home but she can afford it but more importantly –. she gets on the property ladder.
So Which Status Ranking Are You?
Hopefully, from the above table and examples, you would have identified what Status Ranking you are. You have to be honest to yourself. Do not rank yourself what you want to be. Rank yourself to who you actually are! If you can’t save, have no deposit and have bad credit then there is no point applying for a mortgage that is out of your reach. You will be wasting a lot of people’s time, and most importantly – YOURS!
Looking at the table it’s not difficult to realise that the aim is to rise up the Status Ranking table. Rising up the table increases your ‘Buying Power’ thus increasing the range of properties available to you. Ways to Increase your Status Ranking are dealt with in Chapter 5 but the next chapter deals with Buying Power.