If you’ve never bought a home before then you are about to undergo a steep learning curve.
And that’s why it’s often a good idea to have a mortgage broker by your side to advise you on which way to turn when you come up against a barrier. For as a first-time buyer with limited financial resources, you inevitably will.
If you’ve never bought a home before then you are about to undergo a steep learning curve.
And that’s why it’s often a good idea to have a mortgage broker by your side to advise you on which way to turn when you come up against a barrier. For as a first-time buyer with limited financial resources, you inevitably will.
You’ll also need a hand to help you negotiate your way around all the government’s special help to buy deals. Which one is best for you – both in the short-term and for the future?
First-time mortgages – the financials
Typically, you’ll need to have a deposit of at least five per cent – and often 10 per cent - of the property’s purchase price. Then it’s a case of looking at the different interest rates – which will affect how much your mortgage payment is each month. It’s worth pointing out here that the bigger the deposit you can afford, the better, since that will reduce your mortgage payments and give you access to more competitive mortgage rates.
After that you’ll work out whether you want a fixed rate mortgage for a set number of years (where your payment is the same every month for the duration), or a variable rate which goes up or down depending on your lenders interest rate. A tracker rate, based on the Bank of England base rate affects your payments in a similar fashion.
What do lenders want to know?
To assess your financial strength for a mortgage lenders need to know what your monthly income is, how much your outgoings are and what your credit history is like. They’ll want to see evidence of this in the form of bank statements, wage slips and your P60 etc.
They will also need proof of identity, such as a passport or driving licence, together with utility bills addressed to yourself.
Government first-time buyer schemes
The government have several schemes aimed at helping people get on the property ladder. Their flagship project is Help to Buy Equity Loan. This allows you to access a mortgage with just a five per cent deposit and to borrow the other 20 per cent as a form of interest-free loan on a New Build for five years. In London, where property is more expensive, it’s possible to borrow up to 40 per cent from the scheme to support your deposit.
Only at the end of five years do you start paying the loan back – at the rate of 1.75% interest on the loan amount. Afterwards you’ll pay the standard inflation rate plus two per cent. Until then though you’ll just pay your monthly mortgage, based on the Loan to Value amount. Not all mortgage providers have signed up to the scheme so it’s best to check beforehand.
The First Homes Scheme provides a 30 percent discount on the market value of new build homes up to the value of £500,000 (£600,000 in London), and which is the same for properties eligible for Help to Buy. Key workers (those who are employed in the area) and army veterans have priority for the First Homes Scheme.
Save a maximum £4,000 annually for your first home via a Lifetime ISA and the government will pay you a 25 percent bonus. If you’re buying with a partner then they can have their own Lifetime ISA to contribute too. You can use the money to buy property worth up to £450,000.
A Shared Ownership mortgage means you’ll pay some money on rent and the rest towards buying your home.
If you’re a first-time buyer earning less than £80,000 a year (or £90,000 in London), you could be eligible for a shared ownership mortgage, with which you buy a percentage of a property – say 25% - and pay rent on the rest.
This can be a good option if you only have a small deposit, as you only have to find say 10% of the value of the share you buy. You can often increase the share of the property you own when it becomes affordable, while stamp duty can usually be deferred until you own 80%.
Additional expenses
As well as saving up a deposit you’ll also need money to pay for solicitor fees, a property survey and fees for taking out the mortgage itself. If your property is worth a certain amount (£300,000 in England and Northern Ireland), then you may have to pay Stamp Duty,and solicitors fees and finally there’s building insurance to pay for, and possibly furniture to buy.
Get in touch today
If you’re considering purchasing your first home then do get in touch with one of our experienced mortgage brokers for advice. We specialise in mortgages and will be happy to discuss your needs. Feel free to call our Norwich-based team during working hours on 01603 574404 or write to us via email: hello@tealfinance.co.uk. We will respond ASAP.