If you’re thinking about buying your first home, there’s a lot to consider. Finding the right location and the right property are only part of the process; working out the financial side of things is equally, if not more, important. Here is a rundown of some of the things you’ll need to think about when taking out your first mortgage.
House prices and what it really costs
When consider what property to buy, and your financing options, it’s important to remember that mortgage lenders will generally only lend 90 to 95 per cent of the house purchase price. You will have to pay the remainder as a deposit and if you’re able to put an even larger deposit down, you may qualify for better mortgage deals.
When working out what you can afford, it’s also vital that you take into account all of the expenditure you’re likely to have as part of buying a new home – in terms of both initial outlay and monthly outgoings – some of which may not be obvious to first time buyers. As well as the property deposit, initial costs involved in purchasing a house or flat typically include the following:
- Mortgage arrangement fee
- Solicitor’s fee
- Survey fee
- Stamp Duty Land Tax
- Furniture and decorating costs
- Moving costs
Obtaining a Mortgage
- Buying a property and getting a mortgage – whether for the very first time, or for your tenth – can often be a daunting prospect. The different types of mortgages on the market, not to mention the bewildering array of special deals that might be available from different banks and building societies, can be enough to turn the best of us into a confused, quivering wreck!
- That’s why it’s important to find out a bit more about your options, and the process of getting a mortgage. Your mortgage adviser or broker will help explain things, but it’s always a good idea to go into that first discussion with a basic idea of what to expect.
- First, it’s vital to understand the initial costs of buying a home. Sometimes it seems like every aspect of property purchase comes with a price tag attached – from the cost of the property valuation, through mortgage arrangement and product fees, to solicitors’ charges, not to mention removal or furniture costs. It is essential to understand how these various costs will add up and, most importantly, whether you can realistically afford them.
- Not least of these costs will be the deposit for the purchase of the property. Lenders’ attitudes to mortgage risk, and deposit levels, have changed significantly over the last few years. Go back ten years, and it was perfectly possible (if not necessarily common) to take out a mortgage for 100 per cent of the property value, while 95 per cent mortgages were pretty much par for the course.
- During the credit crunch and the ensuing financial crisis, however, most lenders restricted their maximum lending limit to 90 per cent of the property value. This meant that buyers had to find a deposit of at least 10 per cent to put down – more if they wanted to secure a better mortgage deal. Some lenders are now shifting back to higher lending brackets again, but it remains true that the bigger the deposit you have available to put down, the better the mortgage deal you are likely to get.
- It also pays to think about what sort of mortgage deal you want. Whether you opt for a fixed rate, or a variable rate such as a tracker or discount product, depends greatly on your own situation and preferences.
- Consider whether you are willing to accept some variation to your mortgage payments from month to month, or if you would you prefer the stability of a fixed monthly mortgage payment. Remember to take potential variation in the Bank of England base rate into account.
As a mortgage is secured against your home or property, it could be repossessed if you do not keep up the mortgage payments.
Some types of buy to let mortgages are not regulated by the Financial Conduct Authority.