First time buyers can access any mortgage, provided they have the necessary deposit and meet the criteria, but there are a number of mortgages which are aimed primarily (and in some cases solely) at first time buyers.
Loan-to-Value (LTV) mortgages define the percentage value of a loan in relation to the value of a property. This means that If you take out a mortgage worth £150,000 on a house worth £200,000 (for example) then your loan to value ratio is 75%. Many lenders will offer up to 95% of the property value to first time buyers, and this provides an obvious advantage to those struggling to save for a deposit. With higher LTVs lenders also perceive you be higher risk, and as such the mortgage costs are generally greater. The bigger your initial deposit is, therefore, the more competitive the repayment rates become.
Help to Buy is a government funded equity scheme offering a five-year interest and payment free loan of between 10-20% of a chosen property value. It is designed to reduce mortgage sizes on new-build homes worth less than £600,000 and offer access to lower interest rates for buyers with minimal savings. Buyers must provide a 5% deposit (in addition to the 75% mortgage) and repay the loan within 25 years or at the point of sale.
This is another government scheme whereby buyers take out a mortgage of between 25% and 75% on a housing association property, while paying rent on the other portion. Larger shares can be bought over time (via staircasing payments) until the home is owned outright, and are value determined by the housing association according to the current market worth. This means that buyers will pay more if the value has increased and less if it has decreased. Because the scheme often requires a lower loan and deposit amount, it is extremely useful for low income buyers.
If you are unable to afford a deposit or fall within a ‘high risk’ lending category, you can sometimes borrow up to 100% of a property value with a guarantor mortgage. These mortgages are ‘guaranteed’ by a parent or family member who is legally bound to cover any missed repayments or to repay the full loan if the buyer defaults and are therefore secured against the guarantor’s property or savings. Some Guarantor mortgages place limits on the amount that a parent (or whoever) is responsible for, however, any savings used to guarantee the loan are tied up until the mortgage is paid off and, in some extreme circumstances, the guarantor could have their own house repossessed.
There are two main types of loan rate:
As the name implies, fixed rate mortgages are loans where the repayable interest rate remains the same throughout the term. They are often favoured by first time buyers as they offer a greater peace of mind than their variable counterparts, although fixed rates can be less competitive. Most lenders offer ‘fix’ lengths of between two and five years although ten-year (and even longer) period options exist. The major disadvantage is that they usually carry an early repayment penalty if you choose to leave a mortgage before the end of its term.
There are two main types of variable rate. A Tracker Rate is directly linked to the Bank of England base rate and moves in line with any changes to it (on top of your mortgage rate). If interest rates remain low, then your mortgage payment will reflect this. An increase to the Bank of England base rate will mean your monthly payment will increase. The second variable type, known as Standard Variable Rate (SVR) is pegged to a rate set by the lender. They can change irrespective of the Bank of England base rate.
Other costs can include:
Most lenders ask for a valuation survey. They usually cost between £150 and £1,500 depending on the value of the house.
Fees vary but tend to be around £800 on an average house price purchase.
This is paid to the government on properties worth £125,001 or more. Houses valued between this figure and £250,000 are charged at 2%; at 5% on houses between £250,001 and £925,000. There can also be additional stamp duty if you own more than one property.’
Many lenders insist that you take out home insurance. This usually costs around £20-30 per month.
“As first time buyers, both myself and my partner were both completely clueless about the mortgage process. We were recommended Charles Louis Mortgage Advisers and we were not left disappointed! Michelle was extremely helpful in getting all the necessary information over to us, keeping us updated on where we were up to in the process and also answering any questions which we had. We both feel that by using Charles Louis Mortgage Advisers, the process was made so much quicker and easier and we felt that we were in safe hands in getting the best mortgage for us. We couldn't have done it without them and especially Michelle” ”M Williams
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