Why are you looking for a mortgage?
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
There are up to 95% LTV (loan to value ratio or the percentage of the value of the property that you need to borrow) mortgages on the market, but the bigger the deposit you have, the better. Mortgages with a lower LTV usually come with a lower interest rate, so your monthly repayments will be more affordable.
It’s not just getting the biggest possible deposit that you need to think about either – you also need to cover the cost of paying legal fees and, if applicable, stamp duty.
Make sure your savings are working hard for you too – compare savings accounts to find the best rate, set up a monthly direct debit from your current account to your savings account.
Savings accounts that let you withdraw cash instantly may have a lower interest rate than a fixed rate bond which often won’t allow you to make withdrawals until a set date. However, if interest rates go up during the term on your fixed rate bond, you may miss out on the new bank rate.
Analyse your income and outgoings and identify areas where you could cut your spending. Cutting back on small things, like buying lunch or a coffee at work every day, can make a big difference over time.
Having a healthy credit history is essential when it comes to finding a first time buyers mortgage. Check your credit report to get a snapshot of your outstanding credit.
You’ll also be able to check that all the information it contains is correct. If you notice any errors, you can contact the relevant lender and ask for them to be corrected – but bear in mind that you will be expected to provide proof that a mistake has been made.
If you have a good reason (like a serious illness) for any credit problems, you can add a Notice of Correction to your account which potential lenders will be able to see – but again, be prepared to provide proof.
If you aren’t on the electoral roll at your current address, get on it now – lenders will check that you’re on the electoral roll at your given address when deciding whether or not to lend to you as a precaution against fraud, so it’s vital that you’re registered.
You may also want to check your credit report to see what other areas of your personal finance history might be affecting your ability to borrow money.
When you are finally ready to apply for your mortgage, make sure you read the small print and avoid making multiple applications just to see what kind of offer you will get at all costs.
Every mortgage application you make leaves a record on your credit report that can be seen by other lenders, and this can harm your credit rating. Lots of applications in a short space of time may make it look like you are desperate for money or that fraud is being committed. This could result in giving you bad credit, so you may struggle to find a mortgage if you apply for everything without taking precautions.
Don’t just look at mortgage rates from one or two lenders – look at what’s on offer from a range of different providers to make sure you find the best deal for you.
There are a range of special offers that you may find, such as no arrangement fee or a set number of years with a lower rate. If you do see an attractive fixed rate special offer available, do your research on the economy to find out if the Bank of England is likely to lower or raise the bank rate anytime during that period.
If the rate is low and the Bank of England is likely to raise rates, then it’s likely you’ll have got a good deal, but if the rate drops, your deal could depreciate in value, and you will not want to be tied down paying a higher rate than you should.
Getting on the property ladder as a first-time buyer is tough, so you might need to think creatively to become a homeowner.
An increasing number of people are opting to buy with friends, and there are also plenty of shared equity schemes, in which you buy a percentage of property and a commercial partner like a housing association owns the rest. There are also government scheme to help key workers, like teachers, nurses and police officers, buy a house.
You could also consider a 95% LTV loan or a Help to Buy guarantee or Help to Buy equity loan. Many banks and building societies offer 95% LTV mortgages, which means you only need to put up a 5% deposit, but at the cost of paying a higher rate on your monthly repayments.
Meanwhile, a Help to Buy equity loan is a government loan to the bank to help you get a 75% LTV mortgage with a 5% deposit. This means, in theory, you could get similar rates to someone with a 25% deposit.
The Help to Buy guarantee also allows consumers to put down a 5% deposit while encouraging banks to lend at a lower rate than usual by guaranteeing a proportion of the money the banks lend you. By guaranteeing some of the money, banks, in theory, are putting up less of a risk by lending to someone with a 5% deposit.
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