This new cohort of First-Time Buyers are often lacking in the serious savings department and average house prices are climbing well above the average income. Many First-Time Buyers will have to borrow up to 5 times their annual salary to secure their first home. Firstly, this isn’t affordable and, secondly, lenders will not lend to such stratospheres.
Brace and prepare yourself for rigorous financial checks. By putting yourself through the paces before a lender does, you’ll be able to project yourself in a more attractive light. They’ll need to see evidence that you’ll be a reliable and responsible borrower. If you think that’s you, you won’t need to do anything out of the ordinary to demonstrate this. All you will need is to document that you can manage your finances. Credit cards, mobile phone contracts and utility bills will help strengthen your case. It may be worth paying for your credit report before you approach the mortgage lenders to check that it’s accurate and up-to-date.
It looks as though if you have ambitions of owning your very first home, the time to start saving is now. Granted, each individual circumstance is different and saving may be easier or more difficult depending on that situation. However, sacrifices can be made in all departments to begin the savings process. Going without some of the modern day ‘essentials’ such as the latest smartphone, car or fashion accessory, as well as making cuts on other lifestyle choices would make a solid stepping stone towards owning your own home. If you’re serious enough, you will see the savings begin to stack up.
If you're fortunate enough, you may be able to call upon additional financial support. However, you are likely to be asking for a large sum to cover the initial deposit and costs. Not many parent, grandparents relatives or associates have large amounts of spare cash to inject. therefore, there has to be alternatives.
Help to Buy Scheme
As a reaction the the soaring house prices and minimal wages, the government introduced the Help to Buy Scheme as a solution for first time buyers being able to get their foot on the property ladder. The most popular scheme allows a minimum deposit of just 5% alongside more than reasonable interest rates. Designed to increase the number of mortgages, it’s done just that since it’s introduction in 2013. Other Help to Buy products are available. The equity loan scheme is also a popular route for many (more here). Shared Ownership mortgages are also another alternative worth considering.
Help to Buy ISA
The Help to Buy Individual Savings Account (ISA) encourages you to put your monthly savings into an account which receives boosts and bonuses from the government. If you can input savings of £200 per month, the government will reward you with 25% extra cash up to a maximum of £3,000. All you need is a 5% deposit and mortgage guarantee. More here. There’s also something known as a Lifetime ISA which has a higher maximum contribution and receives interest from the outset.
Although you may be on the right path with a hefty pile of savings in an ISA, and your Help to Buy mortgage approval, as a First-Time Buyer, you should be aware of other costs coming your way. Costs including solicitor fees, mortgage fees, survey costs, building insurances and stamp duty will add thousands of pounds onto your plans. Trust us. Not forgetting your budget for furniture removal and decorating, it’s wise to set aside an estimated budget for all of these ongoings.
The type of mortgage you opt for should be influenced by a specialist mortgage broker and their expertise. The options come in the form of fixed-rate mortgages which suit individuals who like certainty. Knowing that the monthly repayments will be fixed for a period of up to 5 years or longer, gives some people peace of mind in an ever changing market. Alternatively, you could select a variable-rate mortgage which can fluctuate on a monthly basis dependent on the Bank of England base rate.
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Representative Example: Annual Interest rate of 2.44% fixed for 2 Years followed by 3.59% for the remaining term. Representative 3.50% APRC Variable. Based on borrowing of 150,000 over 17 years repayments of £899 per month. Total amount repayable £198,466. Includes Lender Fee of £995 and Broker Fee of £695.