A Guide to Mortgage Loans for the First-Time Home Buyer
Our guide to first-time buyers will help you find the mortgage that’s right for you.
Beware of straining your finances so that you can buy a better home. No matter how nice your home is, you’re unlikely to enjoy it if you’re struggling to pay your bills every month.
When it comes to figuring out how much you can afford, first and foremost look at your expenses, including everything from credit card and loans to all other financial commitments.
Then add monthly costs such as council tax, gas and electricity bills, home insurance, as well as food and travel costs.
What remains is how much you can comfortably afford to pay each month on a mortgage, although it is also a good idea to plan for unforeseen changes like an interest rate hike or a layoff.
How much deposit do you need for a home loan?
Once you know what you can afford on a monthly basis, the next step is to figure out how much you can invest as deposit.
Your deposit and income will be the main factors in determining the amount of mortgage you can get. The larger your deposit, the less you will need to borrow and the lower your interest and monthly payments will be.
Many lenders now require a 20% down payment which means you will need £ 50,000 to buy a home worth £ 250,000. However, you may be able to get a mortgage with a smaller deposit if you have a relative who is willing to act as a guarantor or if you are using a government-backed first-time purchase program.
Buying a home also involves other costs. To take out a mortgage, for example, there are generally:
mortgage booking fees of up to £ 250
an arrangement fee, typically around £ 1,000
an appraisal fee of around £ 500
mortgage account fees of around £ 200
legal fees and investigative costs of up to £ 1,000 or more
If you buy before July 1, 2021, you can take advantage of the government stamp holiday, under which homes worth up to £ 500,000 do not require payment of stamp duty.
Apart from these holidays, you will also have to take into account stamp duty on any property valued over £ 300,000 if you are a first-time buyer, or £ 125,000 if you are already a homeowner.
While it may be tempting to put the rest of your savings into the property, it’s also a good idea to set aside a fixed amount of your deposit for contingencies.
For example, if your boiler breaks down in the first few weeks after you move in, you will need some money to fix it.
Mortgage loans for first-time buyers
First-time buyer mortgages come in many forms, including: mortgage guarantor with which a family member promises to pay repayments if you can’t, and family compensation mortgages that involve a parent investing their savings in a linked account.
Otherwise, first-time home buyers have the same choice as those looking for a mortgage, meaning they can choose between fixed rate and variable rate offers.
Fixed rate mortgages
With a fixed rate mortgage, your interest rate is set at a certain level for a set period of time, usually between two and 10 years – after which it will usually revert to the lender’s Standard Variable Rate (SVR).
Fixed rates offer the peace of mind of knowing how much you’ll have to pay each month, but they also tie you down to some degree. Most fixed rate mortgages have a prepayment charge, which means you’ll have to pay if you want to switch to a lower rate deal or if you want to pay off your mortgage on time.
Tracking rates give you an interest rate that changes according to the base rate of the Bank of England. If the base rate goes up or down, your mortgage rate goes up too. However, some offers allow you to cap by how much they can increase.
Variable mortgage rates are reduced rates that are generally based on the lender’s SVR. They can be competitive, but they can also go up and down at the discretion of the lender.
Purchase assistance: equity loan
Government supported Purchase assistance: The Equity Mortgage Program, which will last until 2023, aims to help people with low deposits access the housing ladder by purchasing new homes.
If, for example, you only have a 5% deposit, you can borrow 20% (or 40% in London) of the cost of your house from the government and then take out a mortgage for the rest of the price of the property. .