Mortgages - First Time buyers

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Many lenders now regard a first time buyer as some one that has never owned a property before, or someone that may have paid their mortgage on a previous property over 6 months ago or, in the case of a remortgage, not held your current mortgage for at least a year.  The criteria for qualifying as a first time buyer does vary from lender to lender.

What you're getting into

But let's be clear on exactly what you're getting into here.   A mortgage is usually thought of as a loan to buy a home.   Actually the home doesn't become yours until you've paid the whole mortgage off.   If you fall behind on the loan your home could be repossessed. Maybe you want a mortgage to have your own place and to stop throwing away "dead" rent money.   You can now invest the same - or even less - into your own home.

Buying your first home

Few people find this an easy experience whether they're first time buyers or have vast experience of mortgages. But they all agree that it's worth it.  Our service is designed to help you through the whole process from start to finish, giving you advice all the way through.

Be careful out there

A lot of people find mortgages very confusing and we would suggest that you be very wary about signing up to a deal which may trap you into something you'll find it hard to get out of. This applies to whether you're a first time buyer or not.  Finally, bear in mind that, as a first time buyer, you are in a stronger position than most other purchases as you do not have a chain of people behind you, so most vendors (person that you buy from) would rather sell to a First Time Buyer or someone with no chain.

Don't just grab the first mortgage you can

Despite possible impressions to the contrary it's a buyers market - meaning the mortgage lenders are desperate to get your business.  There are big differences in the deals you can get amounting to many thousands of pounds. So shop around it will be worth it.  You should talk to an independent mortgage adviser, like Giles Warren Financial Ltd, who can help you through the process.
It's important that you know which deals won't automatically reject. This is because when you make an enquiry direct to a mortgage lender that might well go onto your credit rating as an application. If other lenders see you applied to their rivals and didn't get a mortgage, they might assume you were turned down. So they will be less likely to want to lend to you.  Some mortgage lenders make special efforts to lure first time buyers in. So keep an eye out for these special deals.  Any mortgage broker worth their salt should know what these are.

Guarantor mortgages for first-time buyers

If you are having trouble finding a mortgage lender willing to lend as much money as you need, either because your salary is low, you already have a lot of debt or you’re buying in a expensive area, you might find they become more amenable if you come up with a guarantor.
What is a guarantor?  A mortgage guarantor is someone who promises to take responsibility for your mortgage.  They guarantee that if you default on your mortgage – either because you can no longer afford, or are no longer willing, to pay - they will make the mortgage payments, eventually clearing what you owe.

This is potentially a major financial commitment.  Once the deal has been signed, your guarantor is legally bound and they can be made to pay out at any time during your mortgage term– even if it means selling their own home.  Your lender is unlikely to agree to release them unless you find an acceptable replacement, or your salary – or the value of your property – has risen significantly.

Who can be a guarantor?   It is most usual to ask a parent, but any relative or even a long-standing friend can act as a guarantor.  To be acceptable to a lender, they must prove they have enough disposable income, after paying their own debts, to afford your monthly repayments too.

But don’t forget…   This is not an easy option, as you will still have to make the monthly repayments.  If you can’t, or won’t, you will be putting your guarantor in a very difficult position, as they will be legally obliged to cough up – regardless of the hardship it causes them.

100% Mortgages

A 100% mortgage is where the mortgage lender lends you the full amount that the property costs. (So if the house costs £100,000 you borrow £100,000).  In other words you don't have to put any money down. 

The problems with getting a 100% mortgage are:  It will probably cost you a lot more than necessary - you'll be charged a higher interest rate.  You may get tied in - which you want to avoid.  You'll be relying on property prices continuing to rise. If they fall, you my end up in negative equity i.e. owing more to the mortgage lender than the actual value of your house.  Some lenders also charge a Higher Lending Charge which can increase the costs of the mortgage.
However if, like many, you don't have enough spare cash and a 100% mortgage is your only realistic option, the good news is that there are some reasonable deals out there.
You've got to shop around to find one. This may be a drag but shouldn't be as difficult if you use an expert.

Should I borrow five - seven times my income?

A few years ago, you might have struggled to find a mainstream mortgage lender willing to lend more than three-and-a-half times your income.  If you were part of a couple, you might have pushed it to three-and-a-half times the higher income plus once the second, or three times your joint earnings.  But, with so many lenders now competing for your business, it isn't difficult to find one willing to give you five times your annual earnings (and a couple will even consider giving seven).  So whereas before, someone on £30,000 would have been limited to borrowing £105,000, they could now quite easily get £210,000
But borrowing this much is very expensive.  The monthly payment on a £150,000 repayment mortgage at an interest rate of 6 per cent is more than £966 a month.  That's an awful lot of money to part with out of a take-home income of around £1,900, especially when you have council tax, insurance, utility and food bills to pay.
It's also very risky.   If the interest rate on your loan rose to 6.5 per cent, the monthly payment would increase to £1,013.  At 7%, it would be £1,060; at 8% £1,158, and at 10% it would be £1,363.  You may think mortgage interest rates could never rise that much, and let's hope they don't – but no-one can know for sure.   As anyone who had a mortgage in 1989-90 will tell you, in those days people were paying interest rates of 15 per cent and above.  But even if rates don't rise, what if you lost your job or were too ill to work? How would you manage then?
State mortgage help is very limited – and if you can't keep up the repayments, your mortgage lender can take possession of your home.
First Time Buyers Summary

• Before you start looking for a place get a mortgage in principle.
•  As a first time buyer your main problem will probably be finding enough money for the Deposit. You could borrow all the money i.e. get a 100% mortgage but ideally you want to avoid this because it will probably cost you a lot more than necessary.
• Be very wary about signing up to a deal which may trap you into something you'll find it hard to get out of - whether you're a first time buyer or an old hand..
• Don't just grab the first mortgage you can.
• To play it very safe consider using an IFA on a fee paying basis.
• Some mortgage lenders make special efforts to lure first time buyers in. So keep an eye out for these special deals.
• It will always help if you can show you've been paying regular rent for a similar amount to what your intended mortgage payments will be. So keep any receipts or other evidence.

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good information for first time buyers