First-time buyers are finding it more and more difficult to save up a decent deposit and get a mortgage. This is because with the rise of house prices you need a much larger deposit than your parents did when they first bought their home.
If you are saving to buy your first home then you will need to save at least 5% of the price. You will get a much better mortgage deal if you can put down 10% or 15%. The more money you put down, the cheaper your mortgage will be.
Getting a Mortgage
As well as a deposit a lender will also look at your credit score. You need to have a good credit score to get a mortgage with decent interest rates. A building society or bank will want to make sure you are responsible with money before they give you any credit.
The Amount You Can Borrow
The amount you put down will also affect the amount of mortgage you can borrow. A person buying a property alone can probably expect to get 4 times your income, plus your deposit. A couple can get three times their joint income, plus the deposit.
There will be other costs involved in your home purchase, so you’ll need to add these to your budget. Solicitors costs, mortgage arrangement fees and stamp duty may be payable.
If your property is more than £125,000 you’ll have to pay 2% of the purchase price up to £250,000.
After that, the duty goes up to 5% for properties between £250,001 and £925,000 and then 10% for properties from £925,001 and £1,500,000.
Properties under £125,000 are not eligible for stamp duty. Therefore if you are buying a flat or a small house you may well avoid these extra costs.
Some lenders will give you a fixed rate for a period of between 2 to 5 years, which can help you to budget at the beginning of your home ownership. A fixed rate means that the payment stays the same and doesn’t go up or down. Once the fixed rate period has expired most people take out a variable mortgage. The rates of a variable mortgage can go up or down.
The Length of Your Mortgage
The usual mortgage length is twenty-five years, but if you need lower payments and you don’t mind paying more interest you can ask for a mortgage over a longer period. If you prefer and you can make the payments you can get a mortgage for less than twenty-five years.
Help to Buy Scheme
The Help to Buy scheme is open to all buyers, including first-time buyers, if they want to buy a brand new property.
If you only have a 5% deposit you can borrow 20% (40% in Greater London) from the government. You can borrow up to 120,000 or 240,000 in London.
This gives you a deposit of 25% which allows you to get a good mortgage rate. For example, if the home you want is 150,000 and you have a deposit of 7,500 the government will lend you 30,000 which gives you 25% of the purchase cost.
The loan doesn’t have any interest added for a period of five years. After five years interest will be added to the loan at a low rate. You don’t need to pay it off however until you sell your property or twenty-five years have passed, whichever comes first.