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
I showed you in Chapter 2 how to increase your buying power. In summary it was:
- Increasing your deposit you actually have
- Increasing the mortgage you’re able to get
This is in effect increasing your Status Ranking. Status Ranking is made up of 3 factors:
- Your level of savings
- Your level of income
- Your creditworthiness
So you have to increase any, some or all of the above to increase your Status Ranking. Below is how you increase these factors thus increasing your Buying Power.
- A) Your Level Of Savings
You need cash to put down for a deposit. So you need to raise cash to put in the bank. You can do this in one of three ways:
- Liquidize assets you have now
- Save some of your income you earn now
- Take on another job or work more hours
- Liquidize Assets You Have Now
Here is a list of assets that you may have that have some value to someone. That is to say that you could sell, liquidize or cash in on these assets and raise cash, as there is a ready market for these type of assets. The best place to advertise these items are in the local press, internet or papers such as loot or Ad-Trader. If you cant be bothered then take the items to dealers in your area.
|How important is the car you have for your day to day activities? Do you commute to work by public transport Monday to Friday, drink at the weekends and only use the car to ferry your weekly household shopping? Have you ever considered getting a taxi or shopping online? All the major supermarkets offer online shopping – some offer free delivery.If the car’s not that important you can raise cash from the sale of the car plus save on the ongoing running and maintenance costs. Running a car costs anywhere from £50 to £500. This can easily rise to above £1,000 if you take in to account the HP payment if its on HP. Selling a car can have a dramatic impact on cashflow as not only does it raise cash - it saves cash.
If the car is important to you why not consider trading your car in for a cheaper alternative? Consider this – how impressive is it if you’ve got a top of the range Ferarri but still live at your parents?
|Do you have any jewellery that you no longer and never intend to wear? It is a waste to have these items. Look at these items as if they are cash. There are plenty of jewellery shops out there that have cash ready and waiting. Don’t worry if all it raises is £150 – its still £150! This all goes in to the kitty. Remember, you’ve got to start somewhere.
|Furniture, Collections & Other Household Goods
|Do you own an expensive record collection that you never touch? I know I do – but I don’t need the money now! When I was younger though I used to DJ. I would sell my old records (and when I say old, I mean 6 months out of date) to raise cash to buy up to date records. This kept me getting booked for gigs.Unused goods, collections, furniture or other items can just sit there and eventually end up in a boot sale, jumble sale or even worse – the rubbish bin. Are any of your goods that you no longer use that have a value now? Not only can you raise cash but you can also de-clutter you living space.
|Endowment Policies, ISAs, Stocks & Shares
|You could surrender an endowment policy or liquidize a current share portfolio to raise the cash. I do recommend you talk to your financial advisor and stock broker before taking this action as you could be better off holding out on some of these policies or shares. But it could be time to let go of some poorly performing stocks and enter the property arena as so many of the share market investors are doing now.An ISA can only ever offer you base rate performance. Forget the interest penalties you may incur. The maximum you could lose if you took a full hit on the penalty is £120 of lost interest. Thinking about it, you’re better off making £12,000 on a future capital gain on the property you’ve bought than a measly £120 in interest.
|TVs, Videos, DVD Players, Hi-Fis are easy ways to raise cash. Also the actual cassettes can raise you more than you think. There are many second-hand exchange type of stores, such as Cash Converters, that will pay you for these type of goods.
|Look around your house and garage. Is there anything that you don’t use? Now does it have value? The best way to gauge if it has value is to ask yourself – how much did I pay for this thing! If it was substantial, say over £100, and you could imagine someone else using it then its probably worth something to somebody.
- Saving Some of Your Income You Earn Now
There are really only two core ways of saving money:
A Going without i.e. not spending!
B Cutting costs i.e. spending less!
- A) Not Spending
I’m not going to bore you about how you should stop smoking, drinking, eating or just simply indulging. What you should do is when you get paid put a certain amount aside so you cant get at it. Put it in a separate deposit account, give it to a family member or put it under your mattress – what ever you do, don’t spend it! What will happen is that you’ll adjust to the new level of spending that you have at your disposal.
Always ask yourself – do I really need this item that I’m buying now or do I just want it? Is it a need or a want? If it’s a luxury item then its probably a want. When I was setting up my business I went without. Here a some of the things that I used to buy when I was at work but went without when I was starting self-employment:
- Newspapers & Magazines
- Use of a whole flat to shared accommodation
- Designer clothes
- Meals at restaurants
- Nights out in London visiting trendy bars and nightclubs
It was easy for me to go without. In the back of my mind I knew that if I went without now I would have in the future. This is now the case and I have a lifestyle that most will envy. I hope this inspires you. Remember, saving for a deposit can be very rewarding. When you do actually save enough and buy your first home the results are very tangible i.e. the labours of your scrimping and saving will result in you owning your very own home!
- B) Spending Less
There are really only five things you can spend your money on:
- Food & Consumables
- Entertainment & Clothing
- Loans & Savings Plans
Here are some tips on how to cut back on spending on each of these categories:
|FOOD & CONSUMABLES
|Eat in rather than out
|Its so easy to go to down to your nearest Burger chain, Indian restaurant or Chinese take-away. There’s no washing up, it tastes lovely and there is no preparation time involved.However, you do pay for this! I used to make myself sandwiches in the poor days. 2 slices of bread, a bit of lettuce and a chicken slice – total cost 20p! Compare this to an Indian take-away costing £7 at least. Now I’m not saying don’t treat yourself. I treated myself to one Chicken Biryani from my local Indian once a week – but that was it.
Invariably the food you will prepare at home will be healthier too. The irony is that even though I can afford to eat out every night I now choose to eat in as it is healthier. I even look forward to those chicken sandwiches now!
|Go round your Mums!
|Now this may not be possible for everyone. It depends on whether she is still alive, you still see her or if you live close to her. The principle is – don’t be ashamed to ask for help. My mum quite enjoyed seeing me twice a week (or sometimes more!) and likewise – there’s no cooking like your mum’s cooking.Do you have a brother, sister, nan, cousin or good friend that loves to see you? If you let them know what you are doing – trying to get on the property ladder, then you will be surprised, they are more than willing to help.
Do not think you are a sponger! Always remember people who help you get to the top. As thanks my mum now receives an income from me that is in excess of her pension and she doesn’t have do a thing!
|Try non-branded goods
|If you understand how supermarkets work then you will try this. A lot of ‘own brand’ goods are produced by the branded good manufacturers. So sometimes the quality is the same. Now I say sometimes! I have tried some of the non-branded goods and they taste awful but there are some own-branded goods that taste as good if not better than the branded goods. So give it a try. The cost savings can be up to 50%.
|Buy one get one free
|Every supermarket does this. They sell goods at no profit or even at a loss to get you through the door. You can use this to your advantage. If you have the time you can go to every major supermarket and capitalise on all of their deals. I have to admit, I never had the time to justify the cost savings. But if you have a family and you are willing to stock up then I would estimate that you can reduce your shopping bill by 40%.
|Rent a room rather than a flat or house.
|Having your own living space is a costly thing. It can sometimes drain your monthly income by up to 70% when you take in to account the rent, rates, bills and insurances. Why not consider lodging. I did. It cost me £55 per week and I was able to preserve the cash that I had saved. I lodged with someone for 12 months, who is now a good friend, so I could put a deposit down on my first house.Do you really need all that space? Could your social life receive a boost from sharing with others? If you can do this then it will have the most dramatic impact on your level of savings out of all the cost savings mentioned in this table.
|Switch utilities suppliers
|It’s a competitive market out there when it comes to supplying gas, electricity and telephone. Due to deregulation you can save up to 40% on your bills simply by switching and it is an easy thing to do!Look out for new tariffs for your mobile phone. Prices have only come down since there introduction and so there will always be a new tariff being introduced that will trump your existing tariff sooner or later.
|Shop around for contents insurance
|The insurance market is a competitive one. Do not accept the premiums you have to pay just because you paid it last year. Get in contact with a good insurance broker to get you the best deal.Have you ever considered not getting insurance? Sometimes you can pay a hefty premium to insure not a lot – and even then you don’t get a pay out when you make a claim!
|Consider purchasing second-hand furniture
|What’s more important to you – owning a house or owning nice furniture? If you are serious about wanting to own your own house then you will do whatever it takes to do it. This may mean sitting on a second-hand sofa, sleeping on an old bed and eating off a table that your cousin gave you!There are many incentives retailers are offering such as 0% finance, buy now pay later, bank holiday one off sales etc. Do not get tempted! Save the cash now – get the new furniture later. Once you’ve bought your flat or house then you can start thinking of furnishing it properly.
|Sell the car
|Owning and running a car is not cheap. You’ve got HPI payments, insurance premiums, road tax duty, petrol & oil costs, Servicing Costs and Repairs. That’s a lot of expenses! You could save a small fortune if you did sell the car.Do a feasibility test on the car. Work out how much you spend a month on the car and see if it is greater than if you walked, cycled, took the train or bus and took taxis. If it is - then its time to sell the car! Remember a car is a luxury item. Public transport is supposed to be getting better and providing better value for money so be brave – get rid of it!
|Downsize the car
|Okay, it may not be practical to get rid of the car but how about downsizing it.
|Try walking or get a bike!
|If you don’t have a car but get buses, trains and/or taxis then consider walking or cycling. You will save on the fares and it will keep you fit!
|ENTERTAINMENT & CLOTHING
|Shop in the sales, markets and charity shops
|One of my good friend’s dad told me that he buys his winter suits in summer and his summer suits in winter. The key is to get value for money. If you’re shopping in a glitzy, air conditioned, fashionable part of town then you are paying for it! All their expensive rents, rates and décor they have to pay are ultimately paid by you because they charge you a high mark up on the goods sold.You’ll be surprised how well stocked some of the market traders are now. I still get most of my designer clothes from markets and superstores – not New Bond Street in London W1!
|Think about if it’s a need or a want
|As mentioned above you need to always ask yourself if it’s a need or a want? Do you really need to see the latest releases at the cinema or can you wait a year when they hit the Sky channels? Is the latest Kylie CD single with all the mixes really necessary or can you wait for her album? Do you really need the extra pair of trousers that are half price in the sale or are you buying them because they’re cheap? If you master this thought process alone then half the battle is won.
|When you go out – don’t stay out late!
|I find that when I stay out later I spend more. More on drinks, food, taxis and club entrances. Go home early! I’m not saying just stay out for an hour or so but try to arrive early and go home early. You’ll find out that you’ll come home with some cash in your pocket rather than having to revisit the cash machines on the night out and regretting it later!
|Look out for the deals bars, clubs, cinemas and restaurants are offering
|The entertainment market is a highly competitive one. Virtually every evening spot has an offer going on. Take advantage of this! Look out for flyers or leaflets available at their premises. Scan the local press for a restaurant trying to drum up a bit more business. Pay close attention to the TV ads when Pizza Hut and others are doing a promotion.
|LOANS & SAVINGS PLANS
|Switch credit cards and loans to obtain the best deals
|0% APR for balance transfers – sounds familiar? I’m sure you’ve heard this so many times that it no longer means anything – but it does! It means that you can save a lot of cash as you pay no interest on your borrowing. Make sure you capitalise on these deals to save you real money. But don’t just be happy with saving money – make an effort to clear these balances! You will run out of credit companies eventually so you do need to clear this type of unhealthy borrowing.
|Cash in or freeze payments to endowment policies and pension plans
|Is the endowment policy you are contributing to really going to mature to its estimated value? You could cash it in, raise cash and save cash as you no longer need to contribute to it.It’s the same for pension contributions. You could freeze payments which will result in an instant saving. When I used to work I was tempted to contribute to a pension. But after careful thought I realised that under no circumstances was I going to hand over any of my hard earned cash to company that would ‘play’ with it on the stock market, be unsure of how much I would get back and never access until I was of retirement age.
If you want a real pension fund then invest in property, but that’s another story – or even a book!
- Take on another job or work more hours
See below, B) Your level of income, for how to increase your income - including working harder! When we earn more we can save more – in theory anyway!
- B) YOUR LEVEL OF INCOME
I can already hear you – how do I increase my income? Well this depends on you. You need to be assertive, hard working and be just that little bit cleverer than the rest! There are eight ways that I can think of that will instantly increase your income. This does assumes you have a job or a business in the first place:
- Work extra hours
- Take on another job
- Ask for a pay rise
- Change your job
- Claim all benefits due
- Exchange benefits for cash
- Switch from permanent employment to sub-contractor
- Increase profitability
See, I told you - it depends on YOU! Lets look at these ways in more detail:
|Work extra hours
|Are there possibilities to do overtime, work weekends or do nightshift work and get paid for it? You’ll probably find out that you will get in excess of your normal hourly rate but even if you don’t - still do it! If it means you earn more money then it all goes into building a substantial deposit so you can buy your first home.When I used to work I used to do overtime but I never took payment. I used to take the time off instead to set up my business which now earns me an income in excess of what I was getting paid when I was at work!
As long as the opportunity of overtime exists then do it and use it for either payment or time to do things that will either make or save you money.
|Take on another job
|Do you do a 9-5 office job and have your evenings free? I know people that work in pubs and nightclubs that have an office job in the day. It’s a great way to increase your social circle. It also means you have less time to spend money as you are working! If you find a job that is a bit of fun then it will not seem that you are working day and night.What about setting up a small business? If you’re passionate about vintage clothes then why not start a market stall on a Saturday? If you’re a DJ then go down to you’re local bars and nightclubs and try and get a spot. Even if you don’t get paid you’ll save on the perks you get like free drinks and entrance costs.
I have a cleaner, Emma, who comes round once a week and I pay her £35 per week. She also has a full-time job and she also cleans two other people’s houses. She lives in rented accommodation at the minute but I know that she will own her own house within two years. I know this because she is not afraid of hard work and she is determined to do what ever it takes to get on that property ladder.
|Ask for a pay rise
|The reason why men get paid more than women is largely due to the fact that they ask for more! If you think you are worth more then go knock on your boss’ office door and ask for a pay rise. Back your request up with what you have done for the company, market rate for your type of job and the loyalty you have shown to the business.I employ three people and I have one guy that frequently asks me for a pay rise – and I like that! He’s hungry to prove himself so I promise to increase his pay based on results. He’s had two pay rises already and he’s only worked for me for 8 months!
|Change your job
|This is an extreme measure but a valid one. There is no point staying in a job that’s below you’re perceived market rate. It breeds resentment to your employer and it drains your energy and motivation.Put your feelers out. Let your friends and family know that you’re looking. Scan the newspapers for the latest advertised jobs. Write to companies who you would like to work for. Ring up the personnel department and tell them you want to work for them. So get your CV up to date and start making some moves!
|Claim all benefits due
|The government has a multitude of benefits to claim even if you are working. There is the family tax credit for starters. Families can have both adults working and still be eligible for some form of credit. There is about £1 billion worth of unclaimed benefits every year. You’ve seen the TV adverts – ‘Its money with your name on it!’
|Exchange benefits for cash
|You may have a company car that you use. Employers offer cash alternatives instead of the car. You may find that you can run a car cheaper than the cash alternative hence an instant saving and a positive effect on your income.Do you get any benefits from your employer that offer a cash alternative and you could provide to yourself cheaper than them? Its no point having a brand new car and living in rented accommodation!
|Switch from permanent employment to sub-contractor
|Usually this happens the other way round. If you’re a subcontractor earning £70,000 pa, and good at your job, the company offer you full-time employment for £45,000 pa. For this you get job security and access to employer benefits such as their health and pension benefits. This is an expensive price to pay. In this example, which is a real example as one of my good friends did this, you lose £25,000 for not much. Okay, he’ll get a redundancy payment if made redundant but you have to evaluate how likely is this.Its worth asking your employer, if it is an environment for subcontractor work, to consider you switching to subcontractor income from salaried employment. The increase in pay could be quite staggering.
|This is a book in itself! For those of you that have a business you should be looking always on ways to increase profitability. Some obvious ways are:
Now it all depends on your business and how practical this is. But it is worth a think. Look over all the lines of your Profit & Loss account and see if you can either increase turnover or decrease expenditure or even both!
So you can see that there are many ways of increasing your income. But if none of the above get you going then read chapter 6 – ‘Increasing Your Buying Power Without Increasing Your Status Ranking’ to find out how to increase your buying power without having to increase your income.
- C) Your Creditworthiness
Your creditworthiness can be split into two:
- Your past
- The present
There may be an incorrect entry on your credit file. A credit reference agency must investigate your claim that the record is incorrect. If you believe there are incorrect entries, contact the agency immediately and try and give as much proof as possible in order to back up your argument. For example, send copies of any correspondence you had with that lender. If you believe a CCJ has been incorrectly registered, contact your local County Court.
You may have a legitimate outstanding CCJ that you have not paid. You need to satisfy these before anything else. Contact the creditor and arrange to pay this CCJ off as lenders ask you to distinguish between satisfied and unsatisfied CCJs. You will see from the reference chapter that there are many lenders that allow CCJs. There are limited lenders for unsatisfied CCJs so it is in your interest to pay these off to open up a larger number of lenders.
Lenders will look at your current income and expenditure and make a judgment as to whether you can afford repayments on a loan. If they feel that you have insufficient funds to do so it may be time to repay some of those loans.
Consider clearing store cards, credit cards and unsecured loans so that when your case is presented to the lender they can see that you are not strapped up with unmanageable loans and that you can afford the mortgage payments.
The names and addresses of these agencies can be found in the reference chapter.
Credit Repair Companies
When lenders refuse you credit it may be tempting to turn to a credit repair agency. Do not do this under any circumstances! These agencies can actually make your situation worse off than you originally started off at.
Credit repair agencies claim that you can have County Court Judgments (CCJs) or any other records removed – this is completely untrue - this can only be done if they were incorrectly registered or if the action against you has been discharged. However, there are legitimate ways in which Judgments can be set aside - for example if the judgment is paid within a month or if the person did not received the relevant summons.
Credit repair companies are unable to do anything that you could not do yourself! In a report published by The Office of Fair Trading, credit repair companies are bogus brokers trying to sell you an adverse credit loan.