10) How long should my mortgage run for?
11) How can I find the right deal for me?
12) Are there any schemes to help first-time buyers?
1) The very minimum deposit that lenders will accept is 5% of the property value, but even if you manage to save this much, your options are likely to be pretty limited. Most lenders only offer mortgages to those with a minimum of 10% deposit, which means if you want to buy a home costing £200,000 for example, you’ll need to stump up a £20,000 deposit. Remember that the more you can afford to put down as a deposit, the wider the choice of mortgages you will have access to and the cheaper they will be.
2) As well as saving for your deposit, remember that you’ll have to pay stamp duty when you buy your property. There’s nothing to pay if you’re buying a home worth less than £125,000, but you’ll have to pay 1% of the property price if it costs between £125,001 and £250,000. Stamp duty rises to 3% on properties costing between £250,001 and £500,000 and even higher rates are payable on properties costing more than this.
3) Yes - don’t forget that as well as stamp duty, the mortgage you choose might have an arrangement fee which are typically around £1,000, and you’ll also need to factor in legal bills and moving costs too.
4) The amount you can borrow to buy your first home will depend on how much you earn and how much of a deposit you have to put down. Lenders won’t want to lend more than they think you can afford, so as a general rule, they’ll restrict the amount you can borrow if you’re buying on your own to around four times’ your income, or if you are buying with someone, about three times your combined income. This can vary from lender to lender and will also depend on outstanding debts and other outgoings, so it’s worth asking before you apply.
5) As well as looking at your income, lenders will also want to check your credit history so they can see how you’ve managed any borrowing in the past. That means you’ll have to let them know about any credit cards or loans you’ve had and whether you missed any repayments. You’ll usually have to show them six months’ worth of bank statements, or three years’ of accounts if you’re self-employed.
6) Yes – provided you both have good credit scores and enough of a deposit and income to secure a mortgage. Remember that you’ll need to discuss what happens if one of you wants to sell at a later date to avoid any arguments. You’ll also need to think how ownership of the property will be split between you, especially if one is chipping in more of the deposit. Property can be owned as joint tenants or as tenants in common. If you set it up as a
joint tenancy, the part owned by you passes to the other person in the event of your death. With tenants in common, the ownership of the property can be split down in any percentage you like and your share can be passed to a family member when you die.
7) An interest-only mortgage means you only pay the interest back during the mortgage term, and then pay the capital off in a lump sum at the end. You’re very unlikely to get an interest-only mortgage if you are a first-time buyer, especially as only a tiny number of lenders now offer these deals. A repayment mortgage, where you pay off both interest and capital each month, provides much greater peace of mind that the amount you owe will be paid off in full at the end of the mortgage term. Always do your sums on the basis of a repayment mortgage.
8) That all depends on whether or not you want to be certain that your mortgage payments won’t change over time. Often first-time buyers go for a fixed rate mortgage because this gives them peace of mind that the amount they pay each month will remain the same during the term of the deal (typically between two and five years). But if you don’t mind the fact payments could change, then you might want to look at variable mortgages too.
9) Tracker mortgages tend to be the most popular kind of variable mortgage deal. As the name suggests, the rate usually tracks the Bank of England base rate, plus a set percentage. There are also discounted deals, which typically give the borrower a discount off the lender’s standard variable rate for a set period of time, and capped rate mortgages, which offer a variable rate that cannot go above a certain level.
10) Most borrowers opt for a mortgage that is repayable over 25 years, but you can sometimes choose a longer term than this. Remember, however, that the longer your mortgage lasts, the more interest you will end up paying overall.
11) There are thousands of different mortgages to choose from, which you can compare here. but it isn’t always easy to know which one will be right for you. If you’re struggling, then it can be a good idea to speak to an independent mortgage broker, who can search the whole of the market for you to help you find the best deal for your needs. At MoneySuperMarket, we partner with London & Country – a telephone mortgage broker which is totally fee-free. Call on 0844 209 8725 .
12) Yes, there are several different options available to first-time buyers who are struggling to save up a deposit, including the Help to Buy scheme which you can find out more about here. There are also shared ownership schemes provided by housing associations where you buy a share of your home and pay rent on the remaining part. - which you can read more about here.