Useful tips and advice for First Time Buyers & Mortgages
Buying your first home can be both exciting and daunting. You may have many questions and concerns about how to find the right property, how to finance it, and how to navigate the complex process of home ownership. In this blog post, we will provide some useful tips and advice for first time buyers who are looking for a mortgage.
What is a mortgage?
A mortgage is a loan that you take out to buy a property. The property acts as collateral, meaning that if you fail to repay the loan, the lender can repossess the property and sell it to recover their money. A mortgage typically has a term of 25 to 30 years, and you pay it back in monthly instalments that include interest and principal.
How much can I borrow?
The amount of money that you can borrow for a mortgage depends on several factors, such as your income, your credit score, your debt-to-income ratio, your savings, and the value of the property. Generally, lenders will lend you up to 4.5 times your annual income, but this may vary depending on your circumstances. You can use our online calculator here – Affordability Calculator – Larkbridge – to get an accurate idea of your maximum borrowing capacity.
How much deposit do I need?
Your deposit is the amount of money that you put down upfront when you buy a property. The deposit reduces the amount of money that you need to borrow from the lender, and shows the lender that you are serious and committed to buying the property. The deposit also affects the loan- to-value (LTV) ratio, which is the percentage of the property value that you borrow. For example, if you buy a property worth £200,000 and put down a £20,000 deposit, your LTV is 90%.
The higher your deposit, the lower your LTV, and the more likely you are to get approved for a mortgage with a lower interest rate. Generally, lenders will require you to have at least a 5% deposit, but some may ask for more depending on your credit history and the type of property. Ideally, you should aim to save at least 10% to 20% of the property value as a deposit.
What are the different types of mortgages?
There are two main types of mortgages: fixed rate and variable rate. A fixed rate mortgage is the most popular and means that your interest rate stays the same for a certain period of time, usually between two and five years. This gives you certainty and stability in your monthly payments, but you may pay more interest than if you had a variable rate mortgage.
A variable rate mortgage means that your interest rate can change depending on the market conditions and the lender’s policy. This means that your monthly payments can go up or down, which can make budgeting more difficult. However, you may benefit from lower interest rates if they fall below your fixed rate.
There are also other types of mortgages, such as tracker mortgages, which follow the Bank of England base rate; discount mortgages, which offer a reduced interest rate for a limited time; and offset mortgages, which link your savings account to your mortgage balance and reduce the amount of interest you pay.
How do I find the best mortgage deal?
Finding the best mortgage deal for your situation can be challenging, as there are many factors to consider and compare. You can speak to a mortgage broker to help you find the best deal. A mortgage broker such as those at Larkbridge can advise you on the different types of mortgages, search the market for suitable offers, and negotiate with lenders on your behalf. A mortgage broker may charge you a fee for their service.
What are the other costs involved in buying a home?
Besides the deposit and the mortgage repayments, there are other costs involved in buying a home that you need to budget for. These include:
- Stamp duty: This is a tax that you pay when you buy a property worth more than £125,000 in England and Northern Ireland, £180,000 in Wales, or £145,000 in Scotland. The amount of stamp duty depends on the value of the property and whether you are a first-time buyer or not.
- Valuation fee:This is a fee that the lender may charge you to assess the value of the property and ensure that it is worth lending against.
- Survey fee:This is a fee that you pay to have an independent surveyor inspect the property and identify any potential issues or defects.
- Legal fees:These are fees that you pay to a solicitor or conveyancer who handles the legal aspects of buying a home, such as checking the title deeds, transferring ownership, and registering with the Land Registry.
- Insurance:You will need to have buildings insurance to cover any damage to the structure of your property, and contents insurance to cover any damage or theft of your personal belongings. You will also need to consider life insurance, critical illness cover, and income protection insurance to protect your mortgage repayments in case of death, illness, or unemployment.
Buying your first home can be a rewarding and fulfilling experience, but it can also be stressful and overwhelming. By doing your research, planning your budget, and seeking professional advice, you can make the process smoother and easier. We hope that this blog post has given you some useful information and guidance on how to get started on your journey to home ownership.
Published on 17th April 2024
The information contained within was correct at the time of publication but is subject to change.