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.
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