My fiancé and I have reached a crossroads. We have been renting in London for the last few years but are now ready to buy our first property in commuter land.
We have a sufficient deposit, but cannot decide whether to take a short-term rent outside of London while house-hunting or to move back in with parents who live near to the area we are planning to buy.
We are yet to see a mortgage adviser but have crunched the sums on a mortgage calculator. We currently pay £1,300 per month on rent and can move out by giving one week notice to our landlord. For the house value we are looking at, we expect mortgage payments to be slightly less than our rent.
What we want to know is this: would our current monthly rental payment be seen as a good thing by a lender? IE, we can meet outgoings similar to that of a mortgage and have done so for a while.
Or is it better to have a few rent-free months at our parents first to get in an even better financial position and then start the mortgage process? D.B, via e-mail.
Lee Boyce, property correspondent at This is Money, replies: This is a common question from first-time buyers, many of whom have rented either to test the waters with their partner, live closer to work or cobble together a deposit – or a combination of the three.
A history of paying a monthly rental payment close to what you expect to pay as a mortgage would obviously be a good thing. It shows you can meet the payments and it gives lenders an idea of how you would manage with a mortgage.
However, if you live at home for three months while you are house-hunting, it could save you collectively nearly £4,000, depending on your outgoings. This could mean a healthier bank balance for you both.
Last April, new Mortgage Market Review rules came into place which see lenders now probing outgoings more stringently. It means lenders will look at your spending habits to assess whether you will be able to shoulder higher payments if your mortgage rate rises.
Extravagant spending on your lifestyle could count against you so, if you are to spend a period of time living with family, it's important that you keep on top of your spending and so that you don't burn through any money you save on rent.
Paul Broadhead, head of mortgage policy at the Building Societies Association, says: Generally speaking being able to demonstrate that you have maintained a regular rental payment will be viewed favourably by a mortgage lender.
Whether you choose to maintain this for a period of, say, three to six months or move in with parents shouldn't make any material difference to the lending decision.
Mortgage lenders must assess whether you can afford a mortgage in accordance with regulations set out by the Financial Conduct Authority.
These regulations stipulate that this assessment must be based on your net income (after tax and national insurance) and take into account your committed expenditure (credit agreements and other contractual payments).
This is as well as basic essential expenditure and basic quality of living costs (commuting costs, energy bills, food, clothing etc).
Essentially when granting a mortgage lenders fundamentally want assurance of two things - that you have the ability to repay the loan and you have the willingness to repay the loan.
The regulations set out how lenders assess your ability to pay, your rental track record demonstrates your willingness to pay.
It may be that by moving in with parents for a few months will enable you to put down a larger deposit and reduce your payments slightly or give you an opportunity to start furnishing the property when you move in, anything that improves your financial position is beneficial but ultimately the choice is yours.