Information and advice on mortgages for first time buyers
First time buyer mortgages are much more difficult to obtain these days than they were before the housing crisis and credit crunch in 2007/8. Before the financial melt down, 95 mortgages for first time buyers (only 5% deposit) could be obtained by people or even higher! Nowadays much higher deposits are required – 10%, 15% or even 20% of the value of the property. Unfortunately, the days of 100 percent mortgages or even 5 deposit mortgages are over.
Putting down a deposit – paying for other costs
Borrowers today seeking first time buyer mortgages will usually need to find a substantial amount to put down as a deposit. Property values vary enormously depending on their geographical location. While properties under £100,000 can be purchased in parts of the Midlands and the North, individuals are commonly paying more than £200,000 for properties in London and the South East. A 20% deposit for a £100,000 property would be £20,000 and for a £200,000 property would be £40,000.
Those seeking these mortgages also need to take into account that, in addition to putting down a deposit, a buyer will have to find the money to pay for solicitor’s fees, valuation and survey fees, and mortgage broker fees if they employ a mortgage broker.
Individuals may also have to pay stamp duty, a tax on the purchase of the property. If the value of the property is less than £125,000, then there is no stamp duty to pay. Properties valued between £125,000 and £250,000 incur a stamp duty of 1% of the property’s value. Above £250,000 there are higher tax rates.
In 2010, people purchasing properties up to £250,000 in value were given a stamp duty ‘holiday’ whereby they were liable to no tax. However; that holiday expired at the end of March 2012 (this may change with the 2012 budget) leaving people liable for stamp duty for all properties costing more than £125,000.
Getting help with the deposit
The finance for first time buyers problem is usually solved by people seeking help from their parents, partners, or friends to raise the money for the deposit. This may be an informal arrangement or the parent or partner may jointly own the property with the person and thus be jointly liable for the mortgage payments.
Anyone seeking additional mortgages for first time buyers information will therefore need to calculate whether their budget enables them to pay the deposit, and pay all the costs that are associated with obtaining a mortgage and purchasing a home.
Calculating the mortgage payments
Before committing themselves to a mortgage, borrowers will also need to calculate whether they can afford the monthly mortgage payments. For this, they will need to use a mortgages calculator. With a calculator like this, you input the total amount of the loan, the type of loan – interest only or repayment, the interest rate, and the term length. The online estimator will then be able to determine what the expected monthly payments will be.
The end of self-certification
In past years, many lending banks were willing to offer loans to borrowers who ‘self-certified’ that their income was sufficient to pay the monthly mortgage payments without having to provide formal proof of earnings. That option will shortly disappear under new rules put forward by the Financial Services Agency (FSA). People now will have to provide documentary evidence that they receive the income that they claim.
First time buyer mortgages – special deals
Some mortgage lenders offer special deals on mortgages for first time byers whereby much lower deposits – 10% or even 5%, are required as long as the person has a good track record as a saver with one of the mortgage lender’s saving schemes.
The idea is that if in the previous 6 to 12 months the person has regularly paid into certain types of savings accounts offered by that particular lender, then the individual can enter into a mortgage agreement with the bank to take out a mortgage with a lower deposit required. These are the best 90 mortgages for new home owners available.
There are potential disadvantages to such schemes as this. If people are looking for first time buyer mortgages and they sign up to a deal whereby they only pay a 5% deposit on a property, and if property prices then fall by more than 5% (very common in recent years), then new holders may find themselves with a property which has negative equity. This means that the total value of the mortgage owed by the borrower is more than the market value of their home.
The other disadvantage of taking on a mortgage with a lower than usual deposit requirement is that the interest rate charged for the borrowed capital is likely to be higher than it would have been if the person had been able to put down a 20%+ deposit. The mortgage rates will be higher as a consequence of signing a deal with a lower deposit required. This is true for home loans for new individuals with bad credit history as well.
Good deals to look for
Where first time borrowers do have funds for say, a 25%+ deposit, then there may be some exceptional deals available to them. Currently, there are some home loan deals where mortgages are being offered with interest rates of less than 3.5% for fixed periods of up to 5 years. With uncertainties arising from the Eurozone crisis such favourable rates of interest may not be around for much longer.
The mortgage market has radically changed in the past few years. While home loans with 10 deposit still exist, to receive a good deal, you will need either to have access to a hefty deposit or have a good track record of saving with a particular mortgage lender. Individuals will have to demonstrate that they have a commitment to regular monthly payments before they even contemplate getting one of the many favorable mortgages offered to them.
This document does not constitute financial advice under the Financial Services and Markets Act 2000. If you require such advice, you should seek appropriate professional advice.