The first time buyer has never had so much trouble finding mortgages because lenders are now looking for significant deposits. But there are still deals to be had, so why not let us help you.
As we all know last couple of years have been tough for the mortgage market and this is particularly the case for first time buyers. The days of easy access to 100% mortgages have gone and with living costs continuing to rise, saving for that all important deposit is, for many people, a real challenge.
However, if you are a first time buyer there is still a lot you can do to prepare for that first purchase.
In an ideal world you should have a 20 - 25% deposit available. The reason for this is that the lower the relationship between the loan and the value of the property (Loan to Value - LTV) the more mortgage deals are available at competitive interest rates and fees.
There are deals available at higher LTVs but you will pay more for them. It is appreciated that pulling together a deposit is easier said than done but you need to look at all options: is it practical to buy with someone else to share the burden; is there any way parents could help out at this stage?
You might also want to look into the various schemes that are available throughout the country that have been developed to help people get their feet on the property ladder, for example, Shared Ownership (usually run in conjunction with a housing association).
It is also important to ensure that you have a good credit rating. Obviously any lender will want to assess the risk they are taking in lending a significant amount of money. Credit ratings have become more important in the application process in recent years. There are some simple ways you can improve your rating, for example, by registering to vote if you haven't done so already.
Be aware of the real costs involved and be realistic. It is very easy to focus on the cost of the loan. However, there are a large number of associated costs such as land registry fees, estate agent fees, legal fees, valuation costs, survey costs etc. The biggest potential associated cost is Stamp Duty. There is no stamp duty on buyers don't have to pay if the home is under £125,000. Beyond that, rates are as follows:
< £125000 = nil
£125000- £250,000 = 1%
£250,001-£500,000 = 3%
£500,001- £1m = 4%
£1m- £2m = 5%
£2m+ = 7%
Over £2m = 15%
(purchased by certain persons
including corporate bodies from 21 March 2012)
Take advice on the type of mortgage that best suits your circumstances now and in the future. Do you want to fix the interest rate paid and, if so, for how long. Or would you rather it was variable? Do you feel more comfortable with a mortgage that pays off interest and capital each month or do you want to go for one that only pays the interest on the loan?
Finally, understand the application process. Have a look at the bank and building society sites. Many of them have excellent first time buyer guides available that break down what they are looking for and provide loads of useful background information. It can be useful to talk to a financial adviser about mortgages; if you wish to speak to an LGBT-friendly financial adviser, please enter your postcode under the map on your right, to find an adviser near you.
Read about the how the new rules on withdrawing money from your personal pension affect you,
Stamp duty is being abolished in Scotland and is going to be replaced by a new land transaction tax. Find out what you need to know about this change.
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