First Time Buyer Mortgages
Buying your first home is an exciting experience that you will always remember. Trying to find the right mortgage for your financial circumstances however can be overwhelming. Some frequent questions first time buyers ask themselves include:
Due to the UK’s ever-increasing property prices, it’s important that you make the right decision on your mortgage. Many first time buyers can only afford to put a small deposit down on their property, so it’s likely that you’ll be making repayments for many years to come. The following guide contains useful information on the kinds of mortgage that may suit you and your circumstances, so you can spend more time enjoying your first home.
What is a First Time Buyer Mortgage?
When you take out a mortgage to buy a property, you are effectively taking out a sum from a lender to pay for your home. You pay this sum back to the lender in monthly instalments (mortgage repayments), along with interest.
Some mortgages differ in that they are interest-only, meaning that you only pay back the interest on your mortgage each month. The outstanding amount borrowed is paid back at the end of the mortgage term. It is however very unlikely that this will be offered to you as a first time buyer, as many lenders will only do this if the general deposit being put down is a large amount. The amount of interest you need to pay back will vary depending on the kind of product you choose. Generally speaking, because interest rates are currently very low, lenders are able to offer competitive mortgage rates. When buying a first home and taking out a mortgage, it is important to remember that you should always try to put down the largest amount that you can as your deposit, because you’ll then be able to get better mortgage rates and a greater selection of products.
When deciding on a mortgage, you’ll need to check the deals that you are eligible for based on the initial deposit you are able to put down on a property. This is known as ‘loan to value’. Loan to value is the cash sum you are taking out with a lender in relation to the value of the property you intend to buy. For instance, if you were purchasing a property that was on the market for £100,000 and you had a £5,000 deposit, you would need to search for mortgage products that offered a 95% ‘loan to value’, as you would need to borrow 95% of the property’s overall value. When taking out a mortgage as a first time buyer, you should also consider arrangement fees. These are fees that the lender charges you for them to set up your mortgage. These fees will vary from product to product, but average arrangement fees are between £1,000 and £2,000. Also worth considering is the stamp duty you will pay on a property, which will depend on the value of the property and where it is based.