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So, you’re getting started and have decided to buy your first property? Before you get down to some serious house hunting, there are some important factors to consider when getting started and to boost your chances of getting a mortgage.
1: Getting Started- Mortgage commitment:
Are you financially ready to commit to the monthly repayments needed for a mortgage?
If you do not keep up your mortgage payments, the lender may well be able to take repossession proceedings on your house.
Therefore, it is important to ask yourself the following questions.
Can I afford to pay my mortgage payment each month?
Do I anticipate any major life changes such as a new job?
If so it is best to consider if now is the best time to take on this level of financial responsibility.
2: Outstanding debts
Outstanding debt may impact the amount you are able to borrow.
If you have any current credit card or loan debt, can these be repaid or reduced now before making an application.
Click here to calculate how much you may be able to borrow.
3: Your Deposit
Have you saved a deposit towards your new home? There are often deals available for a First Time Buyer with a smaller deposit.
The general requirement of most lenders is for a minimum deposit of 10-15% of the property value.
For example, for a property price of £150,000, a minimum deposit of £15,000 would be required.
Click here to find out how much deposit you would need to buy a property.
4: Credit Report
This may be the first time that you have ever considered looking at your own credit report but before applying for a mortgage, it is useful to familiarise yourself with your credit report.
Your full credit report provides you with an overview of your financial health. Lenders also get to see this, so it is important to check there is nothing on the file which may affect their decision to lend to you. If you do find something you did not expect to see, you have time to work on improving this.
In the meantime, avoid payday loans, using your overdraft and having unused credit cards as these are all factors which can impact your credit score! Once you have your report and noted the potential issues, your Mortgage Advisor can make further recommendations to improve this.
Click here for our free guide on how to improve your credit score.
5: Property and Location
Now is a great time to research the market for the style of property and location that most appeals to you. You could search online via Zoopla and Rightmove, or contact local Estate Agents. This will give you a clearer idea of what you are looking for in a property and the overall costs involved to purchase your dream home!
6: Familiarise yourself with what a mortgage is and the types of mortgages available.
This is often a daunting area for many First Time Buyer’s so we have created a checklist guide to help you.
Once you have worked your way through this getting started checklist you are ready to get some Mortgage Advice. We would always recommend finding an independent and whole of market mortgage broker to help you find the best available mortgage deal for your circumstances
What types of Mortgages are available?
Repayment. This is often the option advised for First Time Buyers. This is because you pay a proportion of interest and capital each month. This means that providing you make all of your monthly repayments, at the end of the mortgage term, you should not have anything further to pay to the lender and the mortgage will be repaid in full.
Interest only. This is the payment of the interest on the loan amount without repaying any of the capital. There needs to be clear evidence provided to the lender that you have a repayment vehicle in place, otherwise you will have the entire loan amount outstanding at the end of the Mortgage term! For this reason, few lenders offer Interest Only mortgages.
Now that you understand the main differences, the next question is…what type of Mortgage deal would work best for me?
Fixed rates. These are, as the name suggests, a fixed rate of interest payable until the end of the initial fixed rate period. This can be a good thing if interest rates increase, but frustrating if they fall.
They provide you with certainty as it does not matter what happens to the Bank of England interest rates over the term of your Mortgage because your payment will stay the same. This could be a good thing (if rates go up and yours stays the same) but could also be bad for you if rates decrease and you have a higher rate. Fixed rate deals can be a good choice if you are working to a specific budget and need to financially plan for the cost of your outgoings.
Variable rates. Unlike fixed rates, variable rates can change. Variable rates mortgage deals have two main types. These are Bank of England Base Rate trackers where the rate tracks the Bank of England base rate, and Discounted Rates where the rate usually follows the lenders Variable Rate.
Bank of England Base Rate Trackers. As these track the Bank of England base rate, if the Base Rate changes, then your interest rate will change by the same amount, usually from the first of the month after the Bank has changed the rate.
Discounted rate. The rate is usually discounted from the lenders Standard Variable Rate (SVR). The discount is usually in place for two or three years. It is best to be mindful that although the discounted rate may seem appealing, the SVR is of course set by the lender and changeable! Variable rates are often more suitable for someone who has savings, or has sufficient income to absorb potential monthly payment increases if rates rise.
Your Mortgage Advisor will be able to explain the complexities of the different types of rate and advise you which deals meet your specific circumstances.