Finding your first mortgage can be the most difficult element of the procedure for you if you’re looking to purchase your first home or flat. You can definitely ease the process by seeking assistance from experts like Tooting estate agents. But still there is a lot of new information to process, but we break it down here to make it simple to comprehend. Here’s how to get from house hunting to an agreement in principle, pass your lender’s stress test, and secure your first mortgage once you’ve saved up your deposit (or found a mortgage guarantor).
How do mortgages for first-time buyers function?
When purchasing your first house, the mortgage application procedure differs differently from when you are buying a new home after selling your old one. You will be required to provide a deposit for this initial mortgage, which is a one-time cash payment used to defray a portion of the property’s cost. This is due to the fact that you can’t (typically) borrow all the funds necessary to buy a property. You must provide some of that money, and this is your deposit. Property experts including letting agents in Notting Hill agree that your chances of receiving a mortgage and the terms of this mortgage may be better if you can obtain a larger lump amount (in proportion to the entire cost of the home).
How do I apply for my first mortgage?
Although you can of course apply directly to lenders, using an independent mortgage broker is the best method to find the best mortgage package for you.
What should a first-time buyer understand about mortgages?
Mortgages come in an absurdly wide range of forms and dimensions. Here are some important mortgage characteristics that you should be aware of.
Home loan interest
Since a mortgage is a loan, interest will be added to your payment each month. You’ll pay back more each month and overall if the interest rate is higher. That can seem like common sense, but it’s an important consideration when weighing various options and decisions.
Term of the mortgage
You will have the loan for this amount of time. Although they can be up to 40 years, mortgage lengths typically range from 20 to 25 years. By the conclusion of the period, you must pay off your loan in full.
Only remittances or interest
With a repayment mortgage, you make monthly payments towards the principal and interest of the loan. You just pay the interest on an interest-only mortgage, so your balance stays the same. This is an important distinction to make because you still have to repay the entire debt by the conclusion of the mortgage term. You’ll probably have to sell the property to pay off the debt if you don’t have a lump sum ready to do so.
Since they can sell the property at the conclusion of the mortgage term to pay off the loan, landlords who purchase rental property sometimes take out interest-only mortgages. If you are a first-time home buyer, it is not advised to take out an interest-only mortgage unless you are certain you will be able to pay it off in the future (for example, with an inheritance) or you have immediate plans to switch to a repayment mortgage.
The loan agreement
One of the most crucial elements is the mortgage contract you have. This decides whether or not the interest rate can fluctuate (and, if it can, how much). It also influences how much interest you will pay on the loan. A fixed rate mortgage is the most common type of agreement. This means that for a specific amount of time, you will pay an interest rate that will not change. There are several other sorts of deals, such as tracker mortgages (where the rate fluctuates in response to the Bank of England base rate), among others (learn more about the different forms of mortgage).
A mortgage agreement, such as a fixed rate, only lasts for a specific amount of time, typically two, three, or five years (but sometimes more). Your mortgage will then revert to the lender’s Standard Variable Rate (SVR), which is often higher and subject to sudden change. To receive a new fixed or tracker rate, you can typically refinance onto a new agreement.
When setting up a mortgage, you will frequently be required to pay fees that can cost anything between a few hundred and a few thousand pounds. Additionally, there can be charges if you refinance or pay off your mortgage before the allotted period has passed. A tie-in term, which is common in deals, is frequently longer than the deal time itself. Unless you are willing to pay the fee, you may have to spend at least a year at the lender’s standard variable rate (SVR).
Deposit you require as a first-time buyer
Most lenders will need a 10% deposit, at the very least. Although historically smaller amounts have been accepted, a 10% deposit (with a 90% mortgage) is typically the minimum needed when the economy is more unstable. In general, you can get better deals if your deposit is larger. You will be given reduced interest rates and possibly longer-lasting terms with a higher deposit.
In conclusion, navigating the world of mortgages as a first-time buyer in the UK can feel overwhelming, but with the right knowledge, preparation, and support, it becomes more manageable. Understanding your financial situation, researching available mortgage options, and comparing rates and terms from different lenders are crucial steps in finding the best deal. Additionally, being aware of government schemes and incentives can help make homeownership more accessible. Seeking advice from mortgage brokers and professionals in the industry can provide valuable guidance throughout the process. Remember, patience and diligence are key, and with careful planning, becoming a proud homeowner as a first-time buyer in the UK is within reach.