Rising house prices in recent years have caught the news headlines but there are still plenty of great deals out there for first time buyers. The first small step can seem the hardest but with the right guidance the house of your dreams could be yours sooner than you think. The best mortgage rates are for those able to pay larger deposits but if you can raise just 5% you can get your foot on the first rung of the property ladder.
Your first big decision as a first time buyer is whether to save up to pay a larger deposit and get access to the better mortgage rates or go for broke now with a 95% mortgage. In theory, saving up first makes sense but as house prices keep outstripping savings rates and wage inflation you may find yourself running in circles.
The second big decision is whether you opt for a fixed or a variable rate mortgage deal. A fixed rate mortgage – typically lasting between two to five years, is usually slightly higher than the variable option but guarantees you no nasty surprises for the agreed term. You’ll also have to pay an early repayment charge if you switch to a different mortgage before your time is up. A variable rate mortgage can be linked to the Bank of England’s base rate (called a tracker mortgage) or alternatively, you can get what is called a discount mortgage, and is linked to the lender’s standard rate.
The Government’s Help to Buy scheme has recently been discontinued. Previously it allowed you to make your first property purchase – provided it was worth no more than £600,000 – with a deposit of at least 5%. In return, the Government guaranteed up to an additional 15% of the property price. If you were hoping to apply and are now left feeling confused about the changes and where this leaves you, please call us today to go over your options.
Lenders check your financial income and outgoings and consider your credit score before coming to a final figure. They will also factor in your credit card usage, whether you have any outstanding loan agreements (including student debt), child care costs and more besides.
Lenders are concerned about the effects of possible rate increases in the future, so they expect you to have a cushion in place to ensure you’re not on the edge of your finances. This means many lenders will assess your ability to pay based on a rate that’s actually higher than the one being offered.
There are two main products available; variable trackers and fixed rates. Typically most first time buyers prefer 2 to 5 year fixed rates as they like to know their payments are going to remain the same for that period. It’s important you seek professional advice from a qualified advisor to choose the right option for your circumstances.
With a first–time buyer mortgage, you’re likely to be looking for a 90% or 95% mortgage deal (meaning you’ll need a 5% or 10% deposit saved.) When it comes to borrowing money in any capacity, it all comes down to risk.
There are several government backed schemes to help give home buyers a helping hand onto the property ladder. These can be of significant help, but lenders will check if you can afford your mortgage.
The scheme involves an equity loan, where the government lends both first time buyers and existing homeowner’s money to buy a new build home.
From 2021, there will also be new regional price caps which could reduce the maximum value of homes that can be bought through the Equity Loan Scheme.
If you want to buy a house, it’s likely you’ll buy the freehold, meaning you own the property and land it sits on. If you’re buying a flat, you’ll be buying leasehold, or buying into a share of the freehold.
In England and Northern Ireland, you will have to pay stamp duty if you buy a residential property, or land, if the value is more than £125,000 (or more than £40,000 if it is a second home). Whether the property is a freehold or a leasehold, you buy for cash or take out a mortgage – it makes no difference, stamp duty will have to be paid. If you are a first-time buyer you may qualify for stamp duty relief.
First time buyers qualify for stamp duty relief for properties valued up to £300,000. Any properties above £300,000 you will pay stamp duty on the difference. For example, if you purchased a property for £450,000, you would pay no stamp duty on the initial £300,000, but you would be charged stamp duty on the additional £150,000. Please note – If you are buying a property over £500,000 you will not qualify for the relief and will pay standard stamp duty rates.
No – It is available to both first time buyers and homeowners who are looking to move. With this scheme you have to put in a 5% deposit, the government lends you up to 20% (40% in London) and then you can get a mortgage for the remaining 75%. You do not need to make any payments on the 20% the government has lent you for the 1st five years, after that payments will begin.
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