So you’re a first time buyer! Never had a mortgage or bought a property and need to know the basic in’s and out’s?
In this article we’ve tried to put together your mortgage need to know guide as a first time buyer. However, we know that we can’t answer every single question in one document as every first time buyer’s situation is different.
With this in mind, if you have any questions that we haven’t covered here please let us know. We can put you in touch with an experienced mortgage advisor who will be happy to help.
How much deposit do I need?
First things first, the deposit.
The average deposit for first time buyers in the UK is around 15%.
This means that if the value of the property is again £250,000 your 15% deposit would be £37,500.
However, we know at Option Finance that is not always possible save a large deposit especially if you already renting.
There are plenty of lenders who will often offer a mortgage for first time buyers worth up to 95% of the property value as a maximum. This means you would only need to find 5% of the cost of the house as a minimum (100% mortgages are hard to come by and are usually reserved for exceptional circumstances).
Therefore, if the value of the property is £250,000 and a lender offered you a 95% LTV mortgage you would need a £12,500 deposit.
However, if you have a bigger deposit you lower the risk to the lender and therefore stand to gain better interest rates and lower your payments.
You can find more information on first time buyer deposits here.
What types of mortgage are available to me?
There are two main types of mortgages out there, repayment and interest only.
As a first time buyer chances are you’ll be offered a repayment mortgage. A repayment mortgage is probably the most conventional and widely available method of repaying a mortgage. It means you can pay back the capital (loan) and the interest together in the monthly payments to your lender. The capital to interest ratio will vary throughout the term of your agreement as your loan amount decreases (but your monthly payment amount will stay the same).
More information is available on repayment mortgages here.
When you take out an interest only mortgage the payments you make every month cover the interest on the loan as set by your lender. You won’t pay any of the capital back on the loan itself until the end of the mortgage term. This means that you won’t own your property outright until you have paid back the capital, also why it is more popular amongst buy to let landlords.
For more information see our interest only article here.
There are advantages and disadvantages to both options so you should take careful consideration when looking at options and choose what suits your circumstances.
How do mortgage rates work?
Again there are generally two types of rates, fixed and variable.
Fixed Rate – gives you a bit more certainty around your payments as your rate will be fixed. This means that regardless of whether the Bank of England base rate goes up or down, you will still continue to pay the agreed rate with your lender. However, fixed rates may only be fixed for a given period of time, usually between 2 – 5 years. Once this term is over your lender may change your rate and revert you to a variable rate.
Variable Rate – Or otherwise known as tracker rates. These rates follow the Bank of England base rate, meaning your rate could increase or decrease. Some lenders also have their own standard variable rates instead of the Bank of England base rates. Either way, your mortgage payments could go up or down. It is worth noting though, that some lenders offer capped rates so you never pay over a certain amount.
Making a decision on which option is best for you really boils down to how much certainty you want/need on your payments.
What other costs do I need to consider?
It’s important to note that you will need more than just a deposit to cover the costs of buying a property.
Other fees related to buying a property include:
- Mortgage fees – booking or arrangement fees and mortgage surveys
- Legal fees – you will need a solicitor to handle the transfer of deeds and carry out due diligence on the purchase
- Stamp duty – only if the property you intend to buy is valued over £300,000
- Insurance – lenders will require you take out building insurance as a minimum
- Home moving costs – movers fees and any furnishings you may need to budget for
Important things to remember before you apply for a first time buyer mortgage
When considering how much they will let you borrow, lenders take into account other variables such as:
- Credit rating
Knowing what your credit rating is and ensuring it is correct as well as knowing exactly how much your expenditures are will be paramount when applying for your first mortgage.
You should also remember that there are government incentives out there that could help you get onto the property ladder. Whether it’s Help to Buy, Right to Buy, Shared Ownership or Government worker mortgages it’s worth doing your research you see if you qualify for any assistance.
How can a mortgage advisor help?
We know that helpful and insightful advice can put your mind at ease at a time that could be stressful and daunting.
Mortgage advisors work hard to understand your personal circumstances and match you with lenders specific to those circumstances. A lot of them are a whole of market brokerage, so will have access to high street lenders right through to specialist lenders.
An advisor will also be able to help you crunch the numbers in terms of how much deposit you need, how much you could potentially borrow and they can tell you what governments schemes you might qualify for.
Expert advisors have helped many people in getting their first mortgage secured. Depending on your circumstances they will talk you through anything you’re unsure of and recommend the best mortgage for you from the wide range of mortgages on the market for house movers, such as the lowest fixed rate mortgages or base rate tracker mortgages.
Contact us at Online Mortgage Guru on 0345 3669799 or email us via firstname.lastname@example.org and we will put you in touch with a suitable specialist to handle your enquiry.