First Time Buyers
So you are entering the property market and are in need for a mortgage, however with all the jargon about mortgages being thrown around such as initial rates, LTV’s and buyer schemes it can be quite daunting entering the property market. Here at Rainstone Money, we will guide you through the entire process with as much ease as possible and offer you expert guidance on mortgages so that you have a pain-free experience on stepping on to the property ladder.
What is a mortgage?
A mortgage is basically a ‘loan’ from a lender/bank that is secured against the property that you are intending to purchase. As with other loans you will need to make monthly payments to pay off that loan that you have borrowed from the lender. This loan will have to be paid off over the term that you have decided to take it for most applicants opt for 25 years. However, you are able to go for a longer term which will make your monthly payments cheaper as you will be spreading your payments over a longer period of time however you will be paying more interest overall.
A mortgage is likely to be your biggest monthly outgoing so it is imperative that you get it right first time round and that you get the best deal out there that suits your particular needs in order to keep your monthly payments as low as possible. Rainstone Money makes sure that your mortgage experience is as personal and individual as possible in order to get a mortgage that fits your needs.
How Much money will the Bank lend me for my Mortgage?
When you submit an application for a mortgage, lenders determine how much they will lend based on both your income and your outgoings thus the more commitments that you have each month, the less you can borrow. Lenders will generally multiply your income by 4.5 in order to work out how much they are willing to lend, if you have an income of £30,000 lenders will generally lend around £135,000 to you, however this amount will be offset against your monthly outgoings. Most lenders have a mortgage calculator on their website to determine how much they will lend you. Rainstone Money also has an up to date mortgage calculator which can make it clear how much you may be able to borrow in order to make it clear what properties are available to you.
How do I work out how much interest I will pay?
A general rule for Mortgages is that the bigger the deposit that you have to put towards your mortgage the lower the interest rate will be. For example if you put down a deposit of 10% you will generally be looking at a higher interest rate than say someone putting a deposit of 40%. However as the Bank of England base rate is at record low, interest rates are very competitive and Rainstone Money is here to guide you to the best rate possible for your personal circumstances.
What is Loan to Value?
The deposit against the mortgage is known as Loan to Value or LTV for example if you put down 40% deposit you will have a 60% loan to value against the property. In this instance if the value of the house was £200,000 and you out down a deposit of £80,000 then you would be looking at interest rates with an LTV of 60% as you will be borrowing 60% of the value of the property.
What payment types are there for mortgages?
There are two payment types for mortgages repayment and interest only.
Repayment- This is when you pay off both the capital owned as well as the interest on that capital. With this mortgage type, you will know that at the end of your mortgage term your mortgage will have of been paid off.
Interest Only- You only pay the interest on the capital borrowed from the lender. In this instance, your mortgage will not be paid off at the end of the mortgage term and you will need to have another repayment vehicle in place when applying for the mortgage such as savings and ISA or selling your property.
However, it is unlikely lenders will allow First-time Buyers to get an interest only mortgage.
What else do I need to know before getting a Mortgage?
There are a number of factors that you need to know before you take out your first mortgage such as:
Initial Rate type- what type of rate will you take out once you get the mortgage:
Fixed rates- where the lender will fix an interest rate for a certain amount of time such as 2 years, the fixed rate deals are the most popular as they give you ‘peace of mind’ for the length that your mortgage payments have been fixed for as you know your mortgage payments will not change for that period of time. After your fixed period ends you will be placed on the lenders Standard Variable Rate (SVR) which is usually a higher interest rate.
Tracker- tracker deals are some of the lowest rates available. This rate tracks the Bank of England (BoE) base rate which now is at an all-time low of 0.25% plus a percentage which is set by the lender that you decide to use. An example of a tracker rate would be the BoE base rate of 0.25% plus another 3% giving you a rate of 3.25%.
There are also other variable rates available such as discounted or capped mortgages which give either give a discount on the standard variable rate or cap the standard variable rate at a certain amount. These rates again are only for a certain length of time and then you will be reverted back to the lenders Standard Variable rate.
Arrangement Fees: How much is the lender charging you for taking out one of these initial rate types it can fluctuate from being free for the initial rate type to up to a percentage of your mortgage amount.
Valuation Fee- how much is the lender charging you to value the property that you are intending to purchase Stamp duty you will need to pay stamp duty on properties that are valued over £125,000.
At Rainstone Money, we will make sure all these costs are affordable to you before you take out your mortgage so that you are guided in a fair and easy manner.
What are First Time Buyer Schemes?
There are a number of schemes in place for First Time Buyers such as shared ownership schemes and help to buy. As Rainstone Money, are not sure if these are eligible to you will be happy to talk and explain the process to you if you decide to use the First Time Buyer scheme.