First time buyers
First time buyers can find today's mortgage market somewhat daunting, and, all too often, downright confusing. This can be exacerbated if the first time buyer has a bad credit rating or limited credit history.
Quite often the biggest issue facing first time buyers is whether or not they will be able to borrow enough to purchase the property they want. One of the best ways to help yourself as a first-time buyer is to seek out independent, professional advice. A specialist advisor will look at your situation and advise on the best first time buyer mortgage deals for you.
Saving a deposit is the place to start. The bigger your deposit, the wider your choice of mortgage loans will be. And if your deposit is worth at least 10% per cent of the property you want to buy, many more lenders will be prepared to lend to you.
But tempting as it may be, avoid borrowing the money for your deposit from a bank or building society, or on a credit card. Before your mortgage is agreed, you will have to declare the loan with all other monthly expenditure on your mortgage application, which cuts the amount mortgage lenders will let you borrow.
In the past, many lenders were happy to lend one hundred per cent - or more - of the value of the property, but the credit crunch has put paid to that for now.
Mortgage lenders have traditionally used income multiples to decide how much to let you borrow - although again, since the housing boom hugely inflated prices, this calculation can produce an affordability 'gap' because house prices have risen beyond these calculations.
Now, many lenders - at least thirty according to Moneyfacts - let you borrow based on 'ability to pay', which sometimes allows applicants to borrow a little more. If, for example, you have a clean credit record, no children and two incomes, some lenders may be willing to give you more because you have a higher disposable income.
Incidentally, lenders are often prepared to offer you a little more if you choose a five or ten year fixed rate mortgage, because the monthly repayments stay the same for a long time, which is easier for borrowers to manage.
Never borrow more than you can afford. It may be tempting to try to outbid the competition for a property you like, but be realistic. Unless you take out a fixed rate mortgage, interest rate rises can increase your monthly repayments, and added extras like furnishing your new home or ongoing bills like insurance and travel costs to your new home could become a burden.
First-time buyers can be surprised by all the mortgage-related fees and charges.
Mortgage application fees, lender valuations and stamp duty alone can start at anything from £2,000 depending on the property price - and that's before you move on to solicitor fees and surveys.
Some lenders offer cash-back or fee-free mortgages to first-time buyers which provide some welcome cash at a financially tricky time. However, rates are likely to be higher on these loans and so may cost more in the long run.
Many lenders will charge you a fee called a 'higher lending charge' (HLC) for having a small deposit.