If you’re looking to buy your first home them securing your mortgage is a huge step to getting your foot on the property ladder, and a great personal moment.
Banks will only lend borrowers a certain percentage – either a percentage of the purchase price or the property valuation. This means you will have to save some of your own money in order to put down the initial payment – that’s what we call the deposit. This is typically between 5% and 20% of the overall cost of the property you’re buying. Usually by putting down more in your deposit, you’ll get a cheaper mortgage in the long run.
It’s not just your deposit that you’ll be paying out for when buying your home – You’ll also have to consider solicitors, surveys, etc. as well.
Of course, just figuring out how much you can borrow in the first place can be difficult. Your mortgage advisor will work through this process with you, analysing your incomes, outgoings, help to buy schemes, and your overall financial situation so you are fully aware what mortgage you can afford.
Typically mortgage deals fit into two different categories – fixed rate and variable.
We find the majority of first time buyers will often prefer fixed-rate mortgages as it makes it much easier to budget. As most first time buyers will have no or little experience running a home, it will be beneficial to know exactly how much is going out every month, and not having to concern yourself with fluctuating interest rates.
It’s important to consider how long you want and need to be locked into a mortgage for. If you want to get out of your mortgage before the end of your fixed term you will be charged an ‘ERC’ – or early repayment charge. Because of this most first time buyers will go for shorter periods as the next few years after buying your first home can potentially be an uncertain time.
Interest rates are usually slightly higher for fixed rate mortgages as you are paying more for the security that fixed rate mortgages provide.
When looking at variable mortgages, be aware that variable rate mortgages come in two types.
Tracker mortgages are linked to the Bank of England’s (BoE) base rate and will change depending on this. This means that if base rate was increased by 0.5% then your mortgage rate will also increase by 0.5%.
On the other hand, we have discount mortgages, that are linked to your lender’s own standard variable rate, or ‘SVR’, not the Bank of England’s own base rate. SVRs are under the control of each individual lender. This means they can change regardless of the Bank of England’s decisions. It is a result of this that discount mortgages carry a greater risk, so most people will tend to go towards a variable mortgage instead.
Some mortgages do not fit neatly into being entirely fixed, or otherwise. Some mortgages may borrow elements of both, and others may have guarantees of certain conditions. Always get your independent financial advisor’s opinion on any mortgages you find, although they will usually suggest your best mortgage to you.
Your mortgage advisor will be able to guide you through the process, including making sure you are aware and can afford any additional fees, such as arrangement fees, or booking fees.
For more information, contact your local financial advisor today and book an appointment.