Buying a home can be the biggest financial decision made in our lives, which can make the process of obtaining a new home, a daunting one. However, with the right advice and guidance the process of buying a home can be smooth, hassle-free and even quite enjoyable.
As a first time buyer, the vast array of mortgage products available out there can leave you confused, stressed and anxious. However, obtaining impartial advice from qualified advisers can ensure that you make the right decision when it comes to your mortgage.
How much can I borrow?
Usually one of the first questions asked, understanding what you can borrow is the first step to getting the right house. There are a few factors to consider, but broadly speaking lenders may lend you between 4 and 5 times your household income.
What deposit do I need?
Again, it can differ based on a number of factors but you normally need at least 10% of the property value. Government schemes like Help-To-Buy are available where you may only need a 5% deposit.
What rate will I get?
Your mortgage rate will depend on a number of factors including your credit rating, mortgage term and the loan to value (LTV) of your mortgage. The LTV is the proportion of your property price paid through your mortgage.
For example if your house costs £200,000 and you have a 10% deposit of £20,000, it means your loan to value is the 90%.
The higher your LTV, the higher the mortgage rate you’re likely to be eligible for.
Types of mortgage
The type of mortgage can also impact the rate you get.
Fixed rate mortgage
A fixed rate mortgage is where you pay the same amount at the same rate for a set period of time, usually between 2 and 5 years. Your rate remains the same regardless of changes in the lender’s or Bank of England’s interest rates. At the end of your fixed rate deal, you’ll fall onto your lender’s Standard Variable Rate (SVR) which is often a higher rate than you were paying. It’s often good to ensure you have a new produce in place before this ends.
A tracker mortgage quite literally tracks the Bank of England base rate and increases or decreases your mortgage interest rate as it rises and falls.
For example, if the BofE base rate is at 0.75% and the lender applies an additional 1.25%, your mortgage interest rate will be 2%. Should the base rate rise to 1%, the lender will continue to apply their 1.25% and your mortgage interest rate will be 2.25%.
Things to consider as a first time buyer
There are many things to bear in mind as a first-time buyer, but it’s crucially important to make sure you are realistic when it comes to working out how much you can afford to spend on your new home. You should ensure the intended mortgage is affordable by doing a budget calculation and it is also wise to seek a Decision in Principle certificate.
Whether the house you are buying is old or new, it’s important to factor in all the likely expenses in addition to the purchases price and other fees such as conveyancing and stamp duty. As it’s likely that even new properties will require furnishings and older properties may require extensive work such as re-flooring, tiling or renewing the wiring.
When buying for the first time, there may be a number of details in the houses you are looking at, which you may not pick up. Which is why it can be beneficial to take an experienced home buyer with you for a viewing.
If you have been living at home with parents in the past, it’s important to remember to budget for expenses such as council tax, gas and electricity bills, boiler servicing and other home repairs.
It’s also important to consider that even if you do not have children, a property in the catchment area of good local schools will be much easier to sell on in the future. But this may also be reflected in a higher purchase price.
It’s often best to speak with a mortgage advisor to help find you the right deal. At The Mortgage Consultancy, we work with over 65 lenders to find you the right mortgage.