Mortgages for first time buyers have become much harder to secure since the credit crunch. However, this does not mean that there is no point in trying to achieve your goal on getting onto the property ladder – there are still many mortgage choices available to the first time buyer.
But one thing is for sure, you will undoubtedly have to have some sort of deposit to put down to qualify for your mortgage. The size of the deposit will depend on the product offered by the bank and your personal financial situation.
New Bank Mortgages
Some UK banks now base their mortgage offers on new criteria, which the market has not seen before, such as basing the offer on the amount of rent you may currently be paying and/or taking into account the potential for lodger income you may be able to realise.
Research for Mortgage
To get the best info for mortgages for first time buyers, nothing beats good old-fashioned research. Use the internet to read up on mortgage processes and procedures, visit mortgage lenders’ websites and read the small print, and don’t forget that a really smart move is to engage the services of an independent mortgage advisor.
The most important word of the last paragraph is “independent” – a truly independent mortgage advisor will have their finger on the pulse for mortgages for first time buyers and know all the products available on the market. If they are working for a bank, it is likely they will only be able to offer you mortgages from their banking group, and therefore may miss better deals from other lenders. Also, make sure your advisor is offering you the best deal for you and not for them – take time to study a shortlist of the best mortgages they can offer and choose the best one for you.
So, what are the most crucial questions to ask a mortgage advisor: the first is to ask ie are they whole of market, which means that they can compare all mortgages available through brokers. Next, ask if they are a qualified financial advisor (IFA) as then they will have a professional understanding of personal finances and be able to advise on your mortgage with more authority. And finally, ask if they charge a fee. They will earn a percentage from the lender but sometimes an advisor will charge a fee for setting up mortgages for first time buyers. The best advice is to try to find one that does not make such a charge, but it may depend on your credit score, with worse scores attracting a fee due to more paperwork being necessary to secure the mortgage.
According to a recent report on the Times newspaper, the average deposit a first time buyer has to find is over double that which was required just two years ago. In fact, it was published that the rise was 124%. Many lenders now expect a buyer put at least 25%, i.e. offering no more than a 75% mortgage. However, those lenders that require a smaller deposit generally offer a mortgage at a higher interest rate.
As we mentioned earlier, there are many UK mortgage choices for first time buyers. You can get a guarantor first time buyer mortgage whereby your parents or legal guardians agree to step in to pay your mortgage if you run into difficulties. Cash-back mortgages offer a lump sum back from the lender on completion which can help pay for the completion costs.
More Mortgage Choices
A joint mortgage allows you to team up with a family member (maybe a sibling) or good friend to share the mortgage. Graduate and professional mortgages for first time buyers give higher lending rates for those in qualifying careers who will earn more in the coming years. There are also mortgages which offer repayment terms in excess of the usual 25 years, and can be anything up to 40 years, which reduce the monthly repayments.
Shared equity first time buyer mortgages is where you would get a mortgage and a top up loan, but when you come to sell the property you would have to pay away some of the increase in property value to the top up loan lender.
Renting a room first time buyer mortgage can be a solution where the property has a spare room and the income you can get from a lodger is taken into account when determining your mortgage offer.
There are also products on the market where you can obtain a mortgage offer calculated by taking into account how much rent you have been paying over a qualifying period.
First-time buyers can also go for an interest-only mortgage but these only allow the borrower to pay back the interest and not the capital borrowed to buy the property. This means the repayments are much lower, though the you should have a plan or product in place to cover the repayment of the capital.
Home Information Packs, known as HIPs, are compulsory documents that sellers have to produce for potential buyers. The pack includes results of searches and other such information, with the aim of speeding up the process of buying a property.
As a first time buyer, the most important areas of the HIPs are the title and search information to see what the situation is on use and planning issues. Another area to concentrate on is the energy efficiency ratings to see what insulation and other energy improvements are required.
More information can be found on HIPs at YouGov HIPs Information.
To recap, though the market is not as available as before the credit crunch, there are still options, which are increasing all the time. Seek specialist first time buyer mortgage advice and compare the best mortgages for first time buyers.