Calculating exactly how much you can borrow depends on a number of things, such as:
One of the most important factors in determining how much you can borrow is the lender. Each lender has different criteria and as brokers who, last year successfully placed mortgages with 59 different lenders, we are perfectly placed to match the right lender to your borrowing requirements.
Sometimes it can be possible to borrow more than the calculator on our website shows you and that's where our expertise comes in. We are sometimes able to arrange higher borrowing by taking your own individual circumstances into account.
* All potential borrowing is subject to affordability checks and credit status
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Getting a mortgage for the first time can be both confusing and daunting. Which type of deal should you go for and how big a mortgage will you be able to take out?
These aren’t the only issues first time buyers have to worry about. Thanks to steep property prices in many areas of the country, many first time buyers only manage to save a small deposit to put down, which can restrict your mortgage options.
Here at L&C, we can take you through the mortgage application process from start to finish, offering expert guidance as to which kind of first time buyer deal might suit you best, so that you can get onto the first rung of the property ladder as painlessly as possible.
Your mortgage is likely to be your biggest monthly outgoing, so it’s important to get it right first time round.
When you take out a mortgage, you are basically borrowing an amount from a lender to pay for your property purchase. Like any other type of loan, you make monthly repayments to pay off the capital you’ve borrowed as well as the interest charged. Some mortgages are interest-only rather than repayment mortgages, whereby you only pay interest back each month, and you don’t repay the capital lump sum borrowed until the end of the mortgage term. However, it’s extremely unlikely that as a first-time buyer you would be offered this type of deal as most lenders will only consider lending on an interest-only basis if you have a very large deposit to put down.
The amount of interest you will pay on your mortgage depends on the particular deal you choose, but the good news is that record low interest rates mean that mortgage rates are currently very competitive. The bigger the deposit you have to put down, the better the mortgage rates you will be eligible to apply for.
When choosing a mortgage, you can see which deals you might qualify for based on the size of the deposit you have by looking at what is known as the mortgage ‘loan to value’ (LTV). The LTV is essentially the size of the mortgage you are taking out relative to the value of the property. So, for example, if you were buying a flat costing £100,000 and you have a £5,000 deposit to put down, you’d need to look for mortgages with a 95% LTV, as you will be borrowing 95% of the property’s worth.
Remember that when choosing a mortgage, it’s important not to look at the rate alone. You will need to factor in arrangement fees too, as these can sometimes substantially bump up the overall cost.
Applying for a mortgage for the first time can be challenging, but there are several steps you can take to boost the chances of your application being accepted.
First, you need to establish how big a mortgage you can afford. Lenders will look closely not only at how much you earn, but also at all your other outgoings, so if you can reduce these in the run up to making your application it could help your chances. As a general rule, you’ll usually be able to borrow around four times your income, but this can vary from lender to lender.
Think carefully about how long you want to repay your mortgage too. Most mortgages are for 25 years, but it is sometimes possible to opt for a longer term which will mean cheaper monthly payments as you are spreading the cost over a longer period of time. The downside of choosing a very long term mortgage however, is that you will end up paying more interest overall.
Getting a ‘mortgage in principle’ from a lender can be a good way to find out how big a mortgage you might be able to get before you make a full mortgage application. This involves you giving a lender some basic details about your finances. They will then conduct a credit search and give you a mortgage amount they would be prepared to lend ‘in principle’. Having this sort of agreement ready before you start house-hunting can help prove to estate agents and sellers that you are serious about buying.
When thinking about affordability, remember that you will need to pay stamp duty on your purchase if the property costs over £125,000, as well as other costs such as conveyancing fees and mortgage arrangement fees.
Once you’ve found a property to buy, the length of time it will take to get your mortgage offer depends on whether you have all the required information ready to hand, as well as how long it takes for your application to be processed.
There are several different types of first time buyer mortgages available – the right one for you will depend on your individual circumstances and whether you think you’d be able to cope financially with any change in payments in the future.
Fixed rate mortgages are often popular with first time buyers as the rate won’t change for the term of the deal, which can typically range from two to 10 years, or sometimes even longer. Your monthly payments will therefore remain the same regardless of what happens to interest rates, helping you budget with certainty.
If you think your finances could withstand potentially higher payments in future, then you may alternatively want to consider a variable rate mortgage deal. There are three main types of variable deal available.
Capped rate mortgages: Capped deals are variable rate mortgages, so the rate and your payments can move up or down over time, but there is a cap which the rate cannot exceed. For example, if a lender offers a capped rate of 4.5%, you will have peace of mind that your rate will never be higher than this.
Discounted mortgages: These are also variable rate deals, offering a discount on the lender’s standard variable rate. So if a lender offers a discount of 2% off its 4% standard variable rate, this gives you a payable rate of 2%, but this rate can change over time if the standard variable rate goes up or down.
Tracker mortgages: As the name suggests, tracker mortgage deals track the Bank of England base rate plus a set percentage. For example, a deal which tracks the base rate plus another 2% would give you a current payable rate of 2.25% as the Bank of England base rate is currently 0.25%.
Some lenders offer mortgages which enable parents to use their savings to help you buy your first home. Parents typically put a percentage of the property value into a savings account held with the lender which allows it to remain in the parental name, but results in a better mortgage rate for you. Other lenders also take a collateral charge on the parental property as an additional security.
There are lots of schemes available to help first time buyers who are struggling to get onto the property ladder.
Shared ownership schemes, for example, enable you buy a share in a property through a housing association. You then pay rent on the part you don’t own, and can buy additional shares in your home when you can afford to.
There is also the Help to Buy equity scheme, which allows you to borrow up to 20% of the value of a new-build home interest-free for the first five years. First time buyers purchasing in London can borrow up to 40% interest-free.
If you’re not sure whether or not you’re eligible for one of these schemes, contact us and we’ll talk you through all the available options.