Avoiding the mortgage minefield for first time buyers can be difficult. As a first time buyer you may lack the experience and knowledge to fully understand what they are. And your home is probably the biggest single investment you will ever make. Buying your first home is scary, nerve-wracking and exciting. It marks the start of a new chapter in your life. So is it any wonder that it is also one of the most stressful things that you will do?
At Liddle Perrett we understand the stresses and strains. We work hard to take as much of that away from you while we search for the best mortgage deals for your circumstances.
But buying your first home can be a minefield. So what should you do to avoid running into nasty surprises?
Is a mortgage right for you?
This might seem like an odd question for a mortgage adviser to ask but it’s a serious question. Can you afford to make the repayments? If you throw yourself into your first home and quickly find that you can’t afford to make the payments you could lose it. Not the start that you wanted. And that would impact your credit file and ability to borrow for years to come.
Here are a few things to consider:
Do a cashflow forecast including your new mortgage payments. Don’t forget to include expenditure on home improvements, holidays and socialising as well as your household costs. Set it up in a spreadsheet like Excel or Google Sheets with formulas so you can play with the numbers. There’s a short video here if you need a bit of help with that. Alternatively take a look at one of the affordability calculators on the banks’ websites.
- Will you meet the bank’s affordability criteria? Lenders will look at your income and expenditure including any credit cards and loans, factors like your available credit and your disposable income each month. They’ll assess whether you can afford to make the repayments and what level of risk you represent. But what you think you can afford and what the lender is prepared to lend might not be the same. A multiplier of your salary-historically 4 times what you earn- will be what the bank considers its ceiling to lend. And banks often have different criteria.
- How much deposit do you have? If you think your current level of deposit means your monthly payments might be too high it might be as well to save to increase your deposit. The higher the percentage your deposit is the better the deal you may get too. And you will own your home faster. With a higher deposit you can reduce your monthly payments too. Try this mortgage calculator to see how a deposit can affect your monthly payments and affordability. It’s worth considering renting for a little while longer to save some more cash to put into your deposit.
- Do you know what your credit file is like? The credit referencing agencies provide free services so that you can see your own file online. Take a look at Experian (below), Clearscore and others. You can check them for accuracy, and they all give advice on how to improve your.
Finding the right mortgage for you
Avoiding the Mortgage Minefield for First Time Buyers can be tricky . Spotting the right lender with the right product can be difficult in a highly competitive market with potentially thousands of products to choose from. And the market isn’t as easy to navigate as Amazon Marketplace!
Have you decided on a repayment or interest only mortgage, fixed term, tracker, variable rate or any of the myriad other mortgages out there? This is where sound, professional advice can help you. Mortgage advisers have a view across the whole market including lenders and mortgage products that you won’t find on the high street. And advisers have the knowledge of the market to show you the products that are most suitable to meeting your requirements.
Moreover, mortgages advisers are independent of any lender so they are interested only in your best interests. Here at Liddle Perrett our team goes one step further by helping you to manage the stresses and strains and help you understand how the whole process works too.
Here are a few things to consider:
- a repayment mortgage will have higher monthly payments but at the end of the term will be paid off. An interest only mortgage will need to have a payment vehicle attached-and your lender will have particular stipulations for what this is. You could end your mortgage term with a shortfall, or a surplus.
- Do you want to fix your repayments based on a term and interest rate. Fixed rate mortgages usually last between 2 and 5 years, the interest rate will depend on current rates and loan to value. If interest rates go up your repayment and interest rates are protected, but if they go down your repayments and interest rate will remain unchanged. During the term you will not be able to change without paying fees, and at the end you will go onto your lender’s standard variable rate at which point you can sign up for a new deal.
- Tracker mortgages are typically set slightly above the base rate of interest and will go up and down according to the base rate.
- Similarly, standard variable rates are the normal interest rate that your lender offers which is higher than the base rate. You can enter into a new mortgage deal from this at any time without penalty, but your repayments will typically be higher than being in a deal, and will go up and down as interest rates rise and fall.
There are numerous other products and options but rather than explain what they all are- which would take many pages we’ve included a short video from Moneyweek that runs through the basics
Of course we don’t live in a world where money grows on trees and raising the deposit could be difficult. You might have a degree of adverse credit, or you may not have taken out credit which means that lenders will not have any history to assess their risk if they lend to you.
There are some options to consider here too.
- Bank of mum and dad. If you’re lucky enough to have parents who can lend you the money for a deposit or contribute to your mortgage repayments then you may be able to find a lender to help you. But it’s important to ensure that your parents protect their investment in you as well as you getting onto the housing ladder. There are vehicles for this such as becoming tenants in common so that each party’s interests are protected. An awkward conversation? Probably, but everyone is protected in the event that something goes wrong which can only be fair.
- Guarantor loans. If you have adverse or no credit, or for some other reason you need the backing of a third party you specialist lenders will provide a loan where a third party-often a parent, friend or other family member- will guarantee the loan in the event that the borrower defaults. They become liable to pay.
- Buying with friends. You might want to buy a home, or even investment property with friends and share a home together. This is where a tenants in common arrangement could work. Making use of a conveyancer to draw up the necessary paperwork for this is advisable to protect the interests of all parties. But this can be an effective way of getting onto the property ladder, especially where property prices are very high, like London.
You’ve found your perfect home; and now for the paperwork....
It can be a minefield, you will need to complete a mountain of forms, will require signatures, witnesses for various things and expert advice from solicitors, conveyancers, surveyors and of course the lender will need it all back before you can submit your application, have it processed and approved.
For a first time buyer this can be a daunting process, but here are Liddle Perrett our team will be with you every step of the way to get everything processed.
We start by understanding your lending requirements, what the challenges might be. You could be self employed, suffer adverse or no credit, and be a first time buyer. And we collect all of the information that we need from you so that we can create a picture of who you are to take to the lenders that we think will be able to offer the best products for your needs. We collect all of this information here.
We might have queries from lenders in which case we’ll ask for a bit more information. And once we have a selection of mortgage products for you to look at we’ll present them to you. After that we’ll continue to be there to offer support and guidance through the whole process to help you manage the stresses, paperwork and to reach a successful completion.