As a first time buyer, the property market and process can be very complicated and stressful. To most this might be the biggest purchase or investment they will have to make in their life, so getting it right is very important to avoid unnecessary risk and costly consequences.
The aim of this article is to make you understand the basics of mortgage as a first time buyer and how to get the best mortgage that meets your need and financial circumstance.
We will start with knowing what is a mortgage and the basic requirement for a mortgage application.
What is a Mortgage?
In basic terms, you take out a mortgage from a mortgage lender as a long term loan to make payments on a property.
The mortgage lender has the option of taking possession of the property and selling it on if the mortgage repayments aren’t made. This is so that the lender doesn’t lose money as they would be making it back from the property sale.
Any time you take out a mortgage, the loan is then split into two aspects. One of which is the interest , which is what the lender charges for lending the money. The other is the capital, which is the actual amount of money used to purchase the property.
How much can you borrow?
The actual amount you’re eligible to borrow will be determined by the cost of the property you wish to purchase and by how much money you make.
As a first time buyer, you can borrow up to 95% of the property value. It is advisable to have more percentage deposit if affordable to get the best rates available. Also there are considerable amount of fees to pay during and before completion.
There are even some lenders that will go to 100% – however more often than not, you will be made to pay over the odds for this and will most likely be made to purchase mortgage indemnity insurance in addition.There are some that will, in rare cases, lend over the 100% mark, although there will be circumstantial rules that must apply.
There is a general rule of thumb that you can borrow around three and a half times the amount you earn annually. The actual figures differ between different mortgage lenders.
A little secret: If you have a good credit history and a regular income then you are quite likely to be offered the finance relatively easily.
How to get the best UK Mortgage as a first time buyer?
Well it depends on your need and financial situation. As a first time buyer, you are likely to have some particular requirements.
You will probably have a very small deposit or possibly no deposit at all.
You may be having to push your budget to the limit just to afford a mortgage, but are determined to get a foot on the property ladder.
One thing that applies to almost all types of UK mortgage is whether you should choose a fixed rate mortgage or one with a variable interest rate.
The best choice depends on your own circumstances and to an extent on interest rate levels at the time, but things to consider are:
- Can you afford to have your payments go up each month? This could happen with a variable rate mortgage.
- Are rates generally low at the moment? It could be a good time to get tied into a fixed rate mortgage.
- Do you want the security of a fixed monthly payment for several years? Fixed rate periods from 1 – 10 years are available.
- Are you having difficulty borrowing enough money? An interest only mortgage can mean lower monthly repayments ie you can borrow more against your salary. But there are drawbacks.
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Dennis Bebo – MSC, BSC, DEA, CeMAP