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First Time Buyer Mortgages
What is a First Time Buyer mortgage?
As someone who hasn’t yet bought their first property, you may be looking for options that would help you get a mortgage that’s right for you. There are first time buyer mortgages that have been developed with you mind, and the following is a description of what could be available for you.
Are you eligible for a first time buyer scheme?
Your eligibility for a first time buyer mortgage is dependant on many factors.
Firstly, your ability to provide a deposit. Saving up for a deposit is the simplest way, but there are government schemes that can help you provide a larger deposit.
Secondly, your credit history can play a big role in getting a mortgage. If you suffer from bad credit there are bad credit mortgages available but you are likely to need a larger deposit. The expert advisers at Promise Money have the experience to help find a mortgage that could be right for you.
Finally, your ability to make the monthly repayments. This will be dependant on salary and other essential information. Therefore it is important to provide our advisers with the correct information that will give them the best chance of finding you the mortgage which is right for you.
How much can a first time buyer borrow?
This is dependant on different figures, such as your financial situation, annual salary and various commitments you may have. Typically you can borrow around 4 times your salary., but with a good credit profile this can be increased to about 5 or 6 times your salary.
This varies between lenders, with some lenders taking into account different incomes. Incomes that may factor could be investment income, overtime, bonuses and more, but not all lenders have the same set of rules. To find out more contact a Promise Money adviser.
The costs involved with taking buying a home can be quite daunting. The primary cost people face is the deposit. The typical minimum deposit accepted by most lenders is 5% of the market value of the property. However, the less deposit you have the less choice of lenders are available and you are likely to pay higher interest rates which increases the total cost over the full term of the mortgage.
So saving up for a deposit is always a good idea – or make use of some of the schemes available to you to help with your home purchase.
Exclusive first time buyer mortgages
There are often exclusive mortgages on offer for first time buyers. These can sometimes have attractive incentives, such as lower rates or cheaper fees. However this isn’t always the case, and some mortgages may be deceiving. Contact Promise Money expert advice to help determine if a mortgage is right for you.
High Loan-to-value mortgage
High loan-to-value (LTV) mortgages are what most first time buyers end up having to get. This is when the buyer can only put down a smaller deposit of generally less that 10%. If the property is worth £100,000, then a 10% deposit is £10,000. This means that 90% of the value will have to be borrowed, and so this is a 90% loan-to-value mortgage. The higher the LTV, the less favourable the other aspects of the loan may be.
How much will you have to pay monthly?
The monthly payments involved with your mortgage depend on three main factors. The first of these is the level of interest agreed. The higher the interest the bigger the payments are going to be, and so the more the mortgage will cost over the full term.
The next factor is the amount borrowed. As expected, the more money that is borrowed the larger the repayments. The only way to negate this cost is to pay a higher deposit.
The final factor on the monthly repayments is the term of the mortgage. This is the length of time agreed to pay back the loan. Mortgage terms have become more flexible in recent years, so it is likely that you’ll find a term to suit you. The best way to find out your monthly repayments is the get in touch with one of our advisors.
Getting good mortgage advice can save you a small fortune.
Loan amount, interest rate and repayment period. Don’t take these three factors too lightly. Whilst a small change in one of them might not seem significant, when combined they can make a massive difference to the total amount you will pay on your mortgage – that’s why the help of an adviser is so important.
Here’s an example – let’s say you are thinking of borrowing £200,000 on a capital and repayment mortgage. (the numbers are purely for illustration so don’t rely on them)
£200,000 at 1.7% interest over 20 years would give you repayments in the region of £983 per month.
But with a lower deposit the rates may rise a little, you have to borrow a little more and may extend the term to make it affordable.
So you now you might be considering: £210,000 at £2.6% over 25 years with repayments of around £950.
The repayments may sound great but the effect of these factors gives you a mortgage, which over its term, will cost you an extra £49,000.
Such a massive difference in cost really highlights why getting the right advice and access to a large choice of lenders is so important
Government Schemes available for first time buyers
Help to Buy Equity Loan
The help to buy scheme can increase your deposit from 5% of the property value up to 25% of the property value. If you put in a 5% deposit then the government will provide an extra 20%, allowing you to get much better interest rates. The first 5 years of this loan are interest free, after which you will pay a monthly interest rate of 1.75% with increases.
Help to Buy Shared Ownership
If you are unable to afford the mortgage on the full property, you can buy between a 25% to 75% share of the property. You will have to either pay for this share from your savings or get a mortgage. When you can afford the rest of the property at a later date you can buy it. Until this point you will pay rent on the share you don’t own.
Help to Buy ISA (Closed)
This scheme closed on the 30th of November 2019. However if you had the account before this date you can continue saving until November 2029. This scheme means that whatever you save in your help to buy ISA, the government will contribute another 25% towards the purchasing of a property. The maximum bonus you can get from this scheme is £3,000.
Right to Buy
This scheme allows eligible council and housing association tenants buy their home with a large discount up to £82,000 outside of London (£112,300 in London). To be eligible for this scheme you must have rented from the public sector for at least three years. As well as this the property must also be your only or main residence. It must also be self-contained, so not sharing facilities with those outside of your household. There must also be a legal contract between you and the landlord. The discount can be used as a deposit, allowing you to get a 100% mortgage for the remaining amount.
First Homes (Future Scheme)
The first homes scheme is close to being made available to the public, and can offer massive savings. If you are a first time buyer looking for a house in your local area, this scheme could offer a 30% discount. This scheme will also be offered to key workers, therefore second-time buyers may be able to take advantage of it as well. Once the owner decides to sell the property, the 30% discount will be passed onto the next purchaser. Therefore, the original purchaser will not be able to make a substantial profit, but many different owners can take advantage of the 30% discount. It is suggested that this scheme will only apply to new builds.
Parents can help a first time buyer purchase a property through various options. Firstly, they can provide the deposit required either as a gift or a loan. The nature of the payment would have to be specified to the lender, along with proof that the money came from the parents. This can be done with a letter or through various other forms.
Furthermore, parents can take on a responsibilty for the mortgage. The most common of these is as a guarantor, as seen below. Another form of this is a joint mortgage. This is when both the parents and the child are on the mortgage contract as well as the deed of the house. However this option will require the parents to pay second property stamp duty rates if they already own a home. Alternatively, there are joint borrower sole proprietor (JBSP) mortgages. In these circumstances both parties are on the mortgage contract, but only the child is on the property deeds, which results in parents avoiding the stamp duty.
A guarantor is a third party that is added to the mortgage contract to increase security for the lender. Generally, they are a family member but do not have to be. The purpose of a guarantor is if the applicant is unable to keep making payments on the mortgage, then the guarantor will have to keep paying in their place. Different lenders have different criteria for guarantors. Contact a Promise Money adviser to get expert advice.
For more infomation on first time buyer mortgages contact Promise Money on 01902 585020
2 out of 3 borrowers get a lower rate than our representative example of a regulated secured loan below:
Mortgages and Remortgages
£80,000 over 240 months at an APRC OF 4.3% and a discounted variable annual interest rate for two years of 2.12% at £408.99 per month followed by 36 payments of £475.59 and 180 payments of £509.44. The total charge for credit is £39,873 which includes a £995 broker / processing fee and £125 application fee. Total repayable £119,873.
Secured / Second Charge Loans
£63,000 over 228 months at an APRC OF 6.1% and an annual interest rate of 5.39% (Fixed for five years – variable thereafter) would be £463.09 per month, total charge for credit is £42,584.52 which includes a £2,690 broker / processing fee. Total repayable £105,584.52.
£4,000 over 36 months at an APR OF 49.9% (fixed) and an annual interest rate of 49.9% would be £216.21, total charge for credit is £3,783.56. Total repayable £7,783.56.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME
REPAYING YOUR DEBTS OVER A LONGER PERIOD CAN REDUCE YOUR PAYMENTS BUT COULD INCREASE THE TOTAL INTEREST YOU PAY. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Written terms available on request. Loans are subject to affordability status and available to UK residents aged 18 or over. Promise Money is a trading style of Promise Solutions Ltd. Promise Solutions is a broker offering products which represent the whole of the specialist second mortgage market and is authorised and regulated by the Financial Conduct Authority – Number 681423.
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