On the hunt for a home? The first-time buyer’s guide to getting a mortgage and climbing onto the property ladder
PUBLISHED:07:53 GMT, 15 February 2013 UPDATED:14:12 GMT, 22 April 2013
Those hoping to climb onto the property ladder may be in for a bit of a shock – mortgage options are vast and can at first seem a little overwhelming.
The key to getting the best deal on your mortgage – and that means the most sensible option, as well as the cheapest – is being armed with as much information as possible… so be prepared!
Having a mortgage secured in theory is also a huge factor as to whether or not your offer on a new home will be accepted.
First steps: what you need to think about before applying for your first mortgage
Are your finances under control,chanel borse? And how much can you afford for a deposit?
To get the best deal you need to makesure your money is in order. The better your credit rating and bigger your deposit, the more options you will have when looking for a good mortgage deal.
It never hurts to carry out a simple credit search on yourself, but just make sure that you don’t do it too often or it may impact your credit footprint. This is Money has a service that you can use to do this,ghd hair straighteners.
Remember, that along with getting a mortgage comes the actual cost of buying. Fees are steep, often running into the thousands, and can cause quite a dent to your downpayment, impacting how much you can afford.
Check out all the buying and moving costs you need to budget for before applying for a mortgage with our .
If you discover that you would be overstretching yourself by buying a home, as frustrating as it may seem, it may bebetter to wait a few months or years while you sort out your finances before taking the leap.
How big is your deposit?
The single biggest factor when it comes to what mortgage rate you can get nowadays is the size of your deposit – how big a percentage of the property’s value you can put down.
To get the full choice of deals raising a decent deposit is still vital. The benchmark figure is 25 per cent, if you have this then you’ll be getting close to the best rates, although for the absolute cheapest deal you’re still likely to need 40 per cent.
However, things are looking up for those who can’t raise those hefty amounts. A selection of better deals for 15 per cent deposits are available and even the 10 per cent deposit market has improved substantially.
if you are saving for a deposit, to see how your money will build up. Plus, for the latest savings news and advice see our
Extra costs worth thinking about
Remember owning a home carries costs that are not incurred when renting. You will need to budget for your property’s upkeep and maintenance and fork out for other essentials, such as buildings insurance.
When it comes to home insurance, just taking out your mortgage lender’s insurance without shopping around could mean you are paying out more than you need to. Read our and .
Once you’ve sorted your finances, you are ready to move on to the next step…
How to get the right mortgage deal for you
There are hundreds,ghd hair straighteners, if not thousands, of options out there. So, as well as doing your own research, this is certainly an occasion to search out expert opinion.
First, read This is Money’s regularly updated analysis This outlines the current state of the market and highlights the current best buy deals.
You can also check the top mortgage deals on offer currently in our .
You should now be armed with some knowledge on what is on offer.
You should also talk to a mortgage broker. They may not be able to actually arrange the mortgage for you,ralph lauren, but,lunette ray ban pas cher, if you choose a good one one, they should be able to explain your options and help you to find the best deal.
Some mortgage brokers offer advice and others offer information only –,ghd sale; go for one who offers advice from the whole market.
Avoid brokers who offer a restricted service based on products from a limited number of lenders.
Both differ from mortgage advisers in banks and building societies – they can be worth speaking to (see below), but will only tell you about their own products.
Always double check with your mortgage broker whether you are being offered information-only or advice. This is because by providing advice they have a responsibility to find you the best deal,scarpe hogan.
Benefits of using a broker who offers advice
Check your broker’s credentials
Brokerswho offer mortgage advice are regulated by the Financial Services Authority (FSA).
All mortgage brokers should be listed on the – if a broker doesn’,cheap ghd;t appear there then they are not authorised to providemortgage advice.
How mortgage brokers charge for their service
As points out: ‘Some mortgage advisers charge a fee and some don’t. Don’t rule out a fee-based service – instead ask the broker what added value they will bring you in return for their fee before making your decision.
‘Brokers who charge a fee may be able to tell you about lender direct deals or have exclusive deals that you won’t find elsewhere on the market. Brokers who don’t charge a fee may still have access to exclusive deals but are less likely to tell youabout lender direct deals.’
Brokers who don’t charge an upfront fee will typically be paid by commission from the lender instead. But, just because they don’t charge a fee, doesn’t mean you won’t get impartial advice.
This is Money’s mortgage partner, broker London & Country, explains: ‘We receive a commission from the lender and this is disclosed to the customer in a Key Facts Illustration (KFI) that they get before they apply for any mortgage deal. This doesn’t affect the advice we give. Unlike with investments, normal mortgage commissions are fairly standard across the board anyway.
‘We don’t have a limited panel of lenders and all customers will get advice from the whole market. There are a few lenders that won’t deal with any intermediaries and we make this clear to customers at the outset.’
Remember: You should always ask your broker to explain exactly how they get paid and whether they can tell you about all the mortgages on offer, even those from lenders who don’t pay them commission. If you have seen what you think is a better rate elsewhere, tell them about it. Don’t be afraid to grill your broker!
How much can I afford?
Mortgages now tend to be assessed on affordability criteria rather than the old-style income multiple, ie three times your salary. This involves a lender looking at your income and all of your essential outgoings and deciding whether you can afford repayments.
Different lenders use different methods and the amount you can borrow will depend ona lender’s affordability criteria, but for someone with fairly standard essential outgoings will typically be in the region of around four times your annual income.
You also need to take responsibility for not overstretching yourself – don’t take on a bigger mortgage than you can afford.
How you repay your mortgage
Capital and interest: Otherwise known as a repayment mortgage.
You make a payment to the mortgage company each month which is made up of capital and interest, keep paying this amount for the life of the mortgage and by its end your debt will be cleared and you own the property outright.
The sums to calculate repayments assume you remain with that mortgage for the entire term. Of course, most people change mortgages or move house – at this point your balance and repayments will be recalculated.
Interest only: This option is increasingly difficult to come by – particularly for any first-time buyers applying for a mortgage.
Because an interest-only mortgage is just that – you only pay interest rather than capital repayments – the practiceis often now frowned upon by lenders because at the end of the mortgage term you still owe them all the money and this is considered more risky.
If you do pick this option, it is up to you to make sure you have the money at the end of the term to pay off the mortgage.
When interest-only initially evolved most people invested in some sort of savings plan to build up the pot to pay it off, as the leading to widespread problems. If you don’t have the money to pay off the mortgage at the end of the term, you will have to sell your home to clear the debt.
Different types of mortgages
When it comes to choosing a mortgage your choice is essentially between a variable rate – one that can change – and a fixed rate, which will not change for a certain period of time.
Tracker and variable rates
There are typically two types of variable rate mortgage: trackers and discount / standard variable rates.
Tracker mortgages mirror the movements of the base rate, the benchmark interest rate set by the Bank Of England. They will rise or fall in line with changes in base rate, usually at a level above it.
Standard variable rates (SVRs) are set by lenders and each lender has it’s own one. These are usually influenced by the base rate but can change independently of it and vary quite substantially. Banks and building societies used to widely offer mortgages set at their SVR but these are much less common nowadays, however, borrowers will typically move to an SVR once an initial deal period on a mortgage ends. Once on it usually there are no major penaltiesfor paying up early.
A discount rate mortgage will follow moves in a lender’s SVR. Unlike a tracker it can therefore move independently of base rate.
With a fixed rate your interest rate and thus payments will be set for a period of time. This could be for two, three years, or five, or even up to 10 years. The rate you pay will not change during this time, but will revert back to the lenders standard variable rate after it finishes. This is often a good time to look for a better deal.
Should you fix or not?
The general choice is between solid budgeting with a fixed rate, or choosing a variable rate deal that may be initially cheaper but increase when interest rates alter.
It’s probablynot a surprise that many first time buyers will elect to go for the safety of a fixed rate. If you do opt for a variable rate then This is Money prefers trackers,Mulberry handbags, as these cannot be changed at the whim of the lender.
If you fix, the next decision is how long to fix for.
The key thing in reaching that decision is balancing security against the fact that fixed rates will typically carry early repayment charges during the fixed rate period. So it is important to think about how long you are happy to lock in for – many are happy to lock in for short to medium term but may feel 10 years is too long.
Most mortgages can be taken to a new property if you move butthere is no guarantee what the lender will offer on any additional borrowing. If you can’t meet the criteria you may end up having to pay to go to another lender anyway.
Remember that while two-year fixed rates tend to be cheaper than five-year fixes, for example, you can incur extra arrangement fee costs by taking out a series of two-year deals rather than one five-year one.
How long does it take to get the mortgage?
Depending on your lender and the type of mortgage you are getting, you should expect the mortgage offer within two to four weeks, provided you have supplied all the relevant information.
When you apply for a mortgage, you will receive two documents – ‘Keyfacts about our mortgage services’ and ‘Keyfacts about this mortgage’.
These will not look like the most exciting things you have ever seen in your life, but it is vital that you read them. A mortgage is probably the biggest financial commitment you will ever make,ray ban sunglasses, so spend some time checking the details and the small print.