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First-time buyer finances

First-Time Buyers The Guild 24th April 2017

Buying your first home can be daunting, and there is a lot to consider. So, if you are looking for ways to get on the property ladder, read our useful guide:

What can you afford?

  • On average, you will need to raise 10% of the value of the property for your deposit. 
  • The bigger the deposit you can raise, the more mortgage deal options available to you.
  • Other costs will be involved in moving. Stamp Duty is a significant cost to you, alongside conveyancing fees and surveys, so your savings will need to cover your deposit as well as other moving costs.
  • Your mortgage isn’t just about the initial deposit, you will need to think about the impact of the monthly repayments. 
  • Each mortgage lender is different, but you could borrow up to 4.5 times your salary. Your lender will look at the bigger picture though, and your other monthly costs, such as credit card payments and household bills, will also be taken into account.

For many, the finances to get a foot on the property ladder can be a real stumbling block. In response to this, there have been several different schemes created to support first-time buyers.

Help to Buy: Shared Ownership

This is set up by the government as a way to help first-time buyers get on the ladder. In essence, you can buy a share of a property through a housing association. You then pay rent on the portion that you don’t own. When you are able, you can buy additional shares in your home.

 

 

Help to Buy: Equity Loan

With this scheme, the government lends you up to 20% of the cost of your newly-built home (40% if you're in London). This means you’ll only need to pay a deposit of 5% or more and arrange amortgage of 25% or more to make up the rest. You won't be charged interest on this loan for the first five years of owning a property.

 

 

With a Help to Buy: Equity Loan the Government lends you up to 20% of the cost of your newly built home, so you’ll only need a 5% cash deposit and a 75% mortgage to make up the rest. - See more at: https://www.helptobuy.gov.uk/equity-loan/equity-loans/#sthash.hVuVT66m.dpuf
With a Help to Buy: Equity Loan the Government lends you up to 20% of the cost of your newly built home, so you’ll only need a 5% cash deposit and a 75% mortgage to make up the rest. - See more at: https://www.helptobuy.gov.uk/equity-loan/equity-loans/#sthash.hVuVT66m.dpuf

 

Finding the Right Mortgage

Securing the right deal for you is important. Even if you have a small deposit and available mortgages are more limited, it’s crucial to fully research your options. 

  • It is possible to buy a first home without a borrower deposit if your family can provide 10% of the property value as security with a dedicated first-time buyer mortgage, for example. Banks offering this kind of deal will be appealing to people struggling to raise a deposit, however, ensure you have researched this thoroughly, i.e. what are the implications for those helping you? What are the interest rates like?
  • Think about how many years you are prepared to repay your mortgage over. Often, a mortgage will be for 25 years, but if you are seeking lower monthly repayments then you could extend the length of your mortgage. However, if this is your plan, you will end up repaying more interest.

 

There are several types of mortgages to choose from. Here is an overview:

Fixed Rate Mortgage

Regardless of what happens to interest rates, with this type of mortgage the monthly repayments will remain the same for the duration of the deal. The assured nature of this, especially when budgeting for your first time, means a fixed rate mortgage is often popular with first-time buyers.

Capped Rate Mortgage

This is a variable rate mortgage, however a cap is set which cannot be exceeded. This means although the rate and repayments can go both up and down, they will not exceed the limit.

Discounted Mortgages

This is another variable rate mortgage and offers a discount on the lender's standard variable rate.

Tracker Mortgages

This is also a variable rate mortgage which tracks the Bank of England base rate, plus an agreed percentage. For example, if the Bank of England base rate was 0.25% and your mortgage deal included a set percentage of 2%, your payable rate would be 2.25%.

Spend some time researching your options to ensure you are making the most of any help available to you.

If you are seeking free advice on what is right for you, as well as the full details of different mortgage deals available to you, get in touch with L&C on 0800 0731945.


Agreement in Principle

Once you have found a lender, gaining an Agreement in Principle is a sensible next step.

  • As a first-time buyer, you aren’t involved in a chain, so you are attractive to buyers, especially if the seller is looking to move quickly.
  • Prove that you have the finances in place by obtaining an Agreement in Principle from a lender. It can also be referred to as a Decision in Principle or a Lending Certificate.
  • Based on how much you want to borrow, your outgoings and income, a lender can give you an Agreement in Principle.
  • It isn’t a guarantee that the lender will loan to you, you would need to make a mortgage application to confirm this, but it is a sign that you’re serious about buying as well as an indication of your financial position. You can present this to the sellers and/or estate agents.
  • Some banks offer this service online, you just need to complete some details. 
  • Understand whether requesting an Agreement in Principle online will have any impact on your credit score. This is mainly relevant if you are refused a mortgage.

 

For full details, you should contact the lender you are looking to borrow from.

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