Getting onto the property ladder is a pretty big deal. It’s often the culmination of years of savings and sacrifice and it is taking us longer and longer to get our toes on that first rung – the average age of a first time buyer is now around 33 (up from 31 in 2007).
And the whole process of buying a property can be quite daunting if you’ve not done it before. So, we’ve pulled together answers to some of the questions that first time buyers often ask us:
1. Where do I start as a first time buyer?
When we think about securing our first home it’s not necessarily the prospect of shopping around for a mortgage that gets us excited! But at Mortgage Confidence, we recommend that before getting carried away with the house hunting you meet with a mortgage adviser to find out what you can borrow and to get the ball rolling on getting a mortgage offer. It’s always worth taking personal recommendations and reviews into account when you choose your Adviser and you should also make sure you know whether they have access to mortgages from the whole of the market or are tied to working with a small number of organisations.
2. How much deposit will I need as a first time buyer?
Ten percent of the property price is ideal but there are lenders that will accept 5 percent. It’s worth bearing in mind that there are sometimes better mortgage rates and deals available if you can put down a larger deposit.
3. What is ‘Help to Buy’?
The government has created the Help to Buy schemes including Help to Buy: Shared Ownership and Help to Buy: Equity Loan to help hard-working people take steps to buy their own home. You can find out more here.
4. Will my credit score affect my ability to get a mortgage?
A poor credit rating can be a barrier to getting a mortgage. Why? Because banks are cautious about who they lend to. It’s all about risk and essentially, they want to know you can a) afford to pay the debt back and b) have a good history of doing so. Which is why they always check your financial history carefully. However, there are some lenders who will be prepared to lend even if you’ve been refused elsewhere so a poor credit score isn’t necessarily a deal breaker.
5. What about student loans?
It can be overwhelming to consider that big figure outstanding at the bottom of your student loan statement. And it might make you feel that it will impact your chances of buying a home. But when it comes to getting a mortgage, lenders are primarily interested in affordability and will be looking at your total monthly costs. So, student loan repayments are unlikely to be a game changer.
6. When will my mortgage be paid off?
The length of your mortgage is called the term. Traditionally mortgages were over 25 years but with the gap between salaries and house prices ever widening, some lenders will now put your mortgage over a term of up to 40 years. Obviously, it’s on a case by case basis and dependent on a number of factors. Often a mortgage can be taken over a long term initially to keep monthly repayments low, and then, as your disposable income increases, the term can be shortened.
7. What is meant by fixed term and tracker?
These are types of mortgage deal. With a fixed rate, the interest you are charged is fixed for the length of the deal (usually one, two or five years). So, if bank interest rates rise, your mortgage payments don’t. Equally, if they fall then you won’t feel the benefit. But you will have certainty. A tracker mortgage usually follows the Bank of England Base Rate. If that changes then so will your mortgage payments – whether that’s up or down.
8. What is an agreement in principle?
Agreement in principle, mortgage in principle or decision in principle. These all refer to a written estimate from a mortgage lender, giving you an indication of how much money you can borrow. An agreement in principle is usually valid for up to 90 days and will give you credibility with estate agents and vendors. It’s reasonably easy to get this extended if you don’t find a property within this timescale.
9. What is leasehold? How does that differ from freehold?
Leasehold generally applies to flats. It means that you own the property but the land upon which it’s built is owned by the freeholder. Leasehold gives you the right to occupy the property for as long as the lease is valid. Leases are usually long term, some for as long as 999 years. If the lease is for less than 70 years, however, it could be problematic when it comes to securing a mortgage. Freehold means that you own the property and land upon which it stands.
Hopefully that has solved some of the mystery around the process of buying your first home. At Mortgage Confidence, our Mortgage Adviser, Jo Jingree has 20 years’ experience in the mortgage industry. And we’ve summarised the home buying process into six simple steps in this handy infographic.
So, if you’re looking to buy your first home and would like some help and advice then why not get in touch? We offer a free 30-minute telephone consultation.