First Time Buyers
If you are about to embark on buying a home for the first time
It can feel like an overwhelming experience and affordability is certainly a problem, due to house prices being so expensive. But fear not; if you are a first time buyer you are in a very good position and not part of the dreaded chain.
Undoubtedly saving up enough money as a deposit is vital, so if you have not got enough for a deposit, then save until you do have. Remember that the bigger your deposit, the less mortgage you will need. You should aim for at least 5% of the value of the house you want to buy, since this will make lenders more willing to lend to you.
As a general rule a 5% deposit on an average house is in the region of £6,000 so it isn’t easy. But don’t skimp on the deposit and don’t be tempted to borrow the money for the deposit or put it on your credit card; you need to have saved it because if you borrow it then you will have to declare the amount you borrowed on your application for a mortgage and this will ensure that mortgage lenders are more reluctant to lend to you. So get saving!
Historically many lenders were willing to lend up to 125% of the value of the house that you were buying, but the recession has stopped such levels of borrowing, although they may come back in the future.
In the past mortgage lenders tended to assess the level of money you could borrow against your income, say 2.5 x mortgage lender income or 3.5 times your income but since the price of houses went through the roof this can still leave you short in terms of being able to afford to buy a house.
But it is estimated that many banks or building societies, somewhere around 30, will let you have a mortgage based on how much you can pay back, thus closing the gap between the mortgage and the house price.
So if you have no children a good credit rating and two incomes, many lenders will offer you a higher mortgage simply because you can show that you have a high level of disposable income. Many of the high street banks now follow this principle.
In addition lenders are sometimes willing to offer a higher mortgage if you opt to take out a 5 or 10 year fixed rate mortgage. This is simply due to the fact that the monthly payments are the same for quite a long period, which is easy for both borrowers and the lenders to manage.
One thing that may come as a shock is all the related fees and charges that are incurred when setting up a mortgage. There are application fees, stamp duty and lender calculations and these can add up, often costing in excess of £2,000 and in addition you will need to have solicitor’s fees and also at least a basic survey, land searches etc.
It is estimated that most first time buyers do not put any cash aside to meet these costs, but if you pay these charges and fees out of your deposit, then this will reduce the mortgage options you will be offered. Some lenders will offer fee free or even cash back to first time buyers, which certainly helps with these fees, but remember to save for these fees in any event simply because the rates for fee free or cash back loans tend to cost more in the longer term.
Some lenders will levy a fee called a ‘Higher Lending Charge’ (HLC) if you only have a very small deposit or if you have none. This can be an expensive fee so always ask your proposed mortgage lender if this is applicable, but the best option is to have a reasonable deposit!