First Time Buyers - Get A Mortgage
Right now it's very difficult to get a mortgage if you don't have a deposit of at least 20% of the value of the property you want to buy.
There are a few providers who will offer a higher loan-to-value (LTV) but on the whole they will do so only to people with an excellent credit score and a solid job with a regular salary and good prospects.
What to do if you can't get a mortgage: Don't panic.
You have time to wait, clean up your credit record (if necessary) and build up your deposit.
If your credit rating is bad...
you have time to clean it up.
Things like making sure you're on the electoral roll, checking your credit record to make sure debts you've paid off are acknowledged and - if you can afford it - taking out a credit card and repaying the balance in full religiously.
You can do it over six months or more.
If your deposit isn't big enough...
you have two options: a) go for a property that is cheaper so that the money you have actually does amount to 20% of the price or b) give yourself some more time and save like crazy to grow your pot of money.
Set up a good, regular savings account if you haven't already and put as much as you can in each month.
It's better to wait than rush in Over the last couple of decades we have become used to thinking that we have to race to buy a property before it goes up faster than our buying power.
Now, however, prices have largely flattened-out and it's quite likely that they will dip again this year and next.
So you have time to wait, work at increasing your savings and spend time looking around, maybe visiting auctions and really thinking about what you want to buy.
Don't think that this temporary change in the stamp duty land tax threshold will suddenly put all the prices up.
It might give them a short boost but it won't last.
When the reality of our economic situation hits home again and the reluctance of lenders to lend money to all but a few brings us down to earth, prices are likely to come down again.
What type of mortgage should you have? There are two main questions you need to ask yourself when choosing what type of mortgage to go for: 1) will you just pay the interest on the mortgage and nothing else each month (an interest-only mortgage) or will you repay both capital and interest each month (a repayment mortgage) and 2) what kind of interest rate will you pay? A fixed rate for a few years, a variable rate where the interest goes up and down according to what Base Rate does or a capped rate where it could go down but it won't go up above a certain level? Everyone is different and it really depends on your circumstances.
However, there are a few rules that hold good for most first-time buyers:
With these you won't be penalised if you suddenly manage to pay off a large chunk of the loan or even pay the entire mortgage off.
So what is a first-time buyer? It may seem obvious but actually there are all sorts of people who might or might not be a first-time buyer, depending on your definition.
In fact, the HMRC (tax office to you and me) have very strict definitions of what a first-time buyer is.
According to them a first-time buyer is 'A person who has not acquired a freehold or leasehold interest in residential property in the UK (except a lease with less than 21 years to run) or an equivalent interest anywhere in the world.
' Also, according to HMRC, you as the buyer 'must intend to occupy the property as their only or main residence.
' So no buy-to-let ambitions right away.
This also holds if your parents are buying the flat for you.
Lucky you to have such generous parents but if they do buy it then they can't benefit from the stamp duty threshold.
There are a few providers who will offer a higher loan-to-value (LTV) but on the whole they will do so only to people with an excellent credit score and a solid job with a regular salary and good prospects.
What to do if you can't get a mortgage: Don't panic.
You have time to wait, clean up your credit record (if necessary) and build up your deposit.
If your credit rating is bad...
you have time to clean it up.
Things like making sure you're on the electoral roll, checking your credit record to make sure debts you've paid off are acknowledged and - if you can afford it - taking out a credit card and repaying the balance in full religiously.
You can do it over six months or more.
If your deposit isn't big enough...
you have two options: a) go for a property that is cheaper so that the money you have actually does amount to 20% of the price or b) give yourself some more time and save like crazy to grow your pot of money.
Set up a good, regular savings account if you haven't already and put as much as you can in each month.
It's better to wait than rush in Over the last couple of decades we have become used to thinking that we have to race to buy a property before it goes up faster than our buying power.
Now, however, prices have largely flattened-out and it's quite likely that they will dip again this year and next.
So you have time to wait, work at increasing your savings and spend time looking around, maybe visiting auctions and really thinking about what you want to buy.
Don't think that this temporary change in the stamp duty land tax threshold will suddenly put all the prices up.
It might give them a short boost but it won't last.
When the reality of our economic situation hits home again and the reluctance of lenders to lend money to all but a few brings us down to earth, prices are likely to come down again.
What type of mortgage should you have? There are two main questions you need to ask yourself when choosing what type of mortgage to go for: 1) will you just pay the interest on the mortgage and nothing else each month (an interest-only mortgage) or will you repay both capital and interest each month (a repayment mortgage) and 2) what kind of interest rate will you pay? A fixed rate for a few years, a variable rate where the interest goes up and down according to what Base Rate does or a capped rate where it could go down but it won't go up above a certain level? Everyone is different and it really depends on your circumstances.
However, there are a few rules that hold good for most first-time buyers:
- Repayment or interest-only? Although interest-only mortgages are a lotcheaper than repayment ones on a month-by-month basis, mortgage providers are increasingly reluctant to offer them.
Also, while interest-only mortgages seemed attractive when house prices were shooting up as fast as Jedward's hair-dos, now that prices are flattening out, and could easily dip down again this year and next year, they're much more risky than before. - We recommend that you go for a safe repayment mortgage if possible.
Although in the first few years the majority of your payments will be interest, at least you will be paying off some of the capital. - If you are the kind of person who has a low basic salary but regular large bonus payments, it could be worth getting an interest-only mortgage and then using your bonuses to pay off lumps of capital.
Only do this if you're a disciplined kind of person, though. - Fixed, capped, offset, variable? When it comes to the type of interest you should go for, again it depends on your circumstances.
However, for first-time buyers it's generally best to go for a cut-price fixed or capped mortgage for the first few years to keep your costs down and help you to budget while you spend out on the buying costs, furniture and decoration.
With these you won't be penalised if you suddenly manage to pay off a large chunk of the loan or even pay the entire mortgage off.
So what is a first-time buyer? It may seem obvious but actually there are all sorts of people who might or might not be a first-time buyer, depending on your definition.
In fact, the HMRC (tax office to you and me) have very strict definitions of what a first-time buyer is.
According to them a first-time buyer is 'A person who has not acquired a freehold or leasehold interest in residential property in the UK (except a lease with less than 21 years to run) or an equivalent interest anywhere in the world.
' Also, according to HMRC, you as the buyer 'must intend to occupy the property as their only or main residence.
' So no buy-to-let ambitions right away.
This also holds if your parents are buying the flat for you.
Lucky you to have such generous parents but if they do buy it then they can't benefit from the stamp duty threshold.
Source...