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As a first time buyer there are many considerations for you when buying your first home. This page contains some usefull pointers and information that may help. The links are great sites to help you gather the all important information you will need so you are able to make the correct decisions.
Moving costs
It is important to determine from the beginning the true cost of buying a home. Yes off course there is the affordability of your mortgage payments and which mortgage suits you best to consider but what othere costs before you move in will there be.
You will not have to pay estate agents fees as these are only paid by people selling property (vendors).
The agent selling a house will usually receive 1 ½ to 1 ¾ of the eventual selling price.
You will however have to pay solicitors Fess; professional services are essential at this important point in life and good solicitors do cost a fair few hundred pounds. This is ususlly in the region of £400.00 plus VAT but will vary from solicitor to solicitor.
Stamp Duty; payable to the government this tax starts on properties over 60k ? 1% being payable in tax, rising to 3% for properties of £250,000 or more.
Removal Fees; you may decide to hire a van and go it alone, but if not a good removal firm will cost a couple of hundred pounds depending on the distance you are moving.
Searches: your solicitor will carry these out for you and the cost is around £150.00 for straight forward searches.
Valuation fee: this is paid to your lender who will value the property to establish if it is mortgagable and whether it is worth what you are being asked to pay for it. Please remember this is not a survey and is not for your protection or information. If you require a survey you will be expected to pay extra for this.
Land registry: all land in the UK has to be registered and the cost to do this is usually about £150.00 but will vary.
Buying your home is probably the biggest and most important financial transaction you will ever enter into.
As you may be aware the mortgage market offers the homebuyer a wide choice of plans with complex and bewildering methods of repayment schemes and associated benefits.
Great care must be taken as any mistake could prove costly in the future and you need to know which plan best suits your circumstances.
High Streets are crowded with Banks, Building Societies and Estate Agents offering a wide range of Mortgage deals and financial advice.
Banks and Building Societies can generally only offer one lender - themselves. Estate agents can sometimes offer a number of lenders, but like Banks they are normally limited to one individual Insurance Company, giving you little or no choice when considering the most appropriate and cost efficient policy, such as a suitable life or critical illness assurance policy, Endowment, Pension or PEP plan.
Independent mortgage brokers are not tied to any single Bank, Building Society but may be tied to one Insurance Company so you will know that the advice available through us is not only extensive but also impartial.
So by arranging your Mortgage through some of the links here you can be confident that any stress or anxiety in finding the most suitable mortgage can be alleviated, and rest assured, we will act on your behalf and in your best interests at all times.
Independents can electronically access literally hundreds of lenders and thousands of products using our in house computer software.
The following is an introductory guide to Mortgages and covers most areas relevant to buying your new home. It is by no means exhaustive; the main aim is to provide you with an insight into mortgages and the mortgage market without the jargon and complex explanations that accompany the vast array of literature that you would undoubtedly find yourself with if you attempted to secure a mortgage yourself.
How much can you borrow?
As a general rule, if you are buying on your own, most lenders will lend you up to three times your gross annual income or if you are self-employed your net profit. For example:
Income = £20,000 x 3 = £60,000.
If you are considering a joint mortgage, you, or you and your partner can borrow three times the first or main income plus one times the second or two and a half times the joint income, which ever is the greater. For example:
1st Income = £20,000 x 3 = £60,000
2nd Income = £15,000 x 1 = £15,000
TOTAL = £75,000
Or
£20,000 + £15,000 = £35,000
£35,000 x 2.5 = £87,500
Lenders will also take into account your ability and intent to service the Mortgage. Here they will looking at previous or existing loans and will conduct a credit search to establish how these loans were managed.
Deposit:
Most lenders are looking for a financial commitment from potential borrowers in the form of deposit. Normally the minimum deposit a lender would require would be 5% of the purchase price. There are however lenders that will provide 100% mortgages, but they tend to be more expensive and more difficult to obtain.
Interest Rates:
Standard Variable Rates:
If you opt for this method the amount of interest you pay fluctuates from time to time in line with interest rates generally available in the market, which can often make budgeting difficult, as your monthly mortgage payments can increase, sometimes significantly and with little prior notice.
Fixed Interest Rates:
With a fixed rate mortgage, you pay a constant rate of interest over a specific period, e.g. 1 year, 2 years, 5 years, etc. By fixing your mortgage interest rate, you know exactly what you are repaying for the fixed period. However, there is a risk that interest rates may drop below the level you are fixed at causing you to end up paying more than the variable rate. There may be redemption penalties if you decide to repay your mortgage early or switch to another lender during the fixed rate period At the end of the fixed rate period, you normally revert to the standard variable rate. The general rule of thumb with fixed rate mortgages is that the longer you fix for the higher the rate.
Capped Interest Rates:
Capped interest rates are similar to a fixed rate loan in that you have a ceiling on the interest rate above which it will not rise. But if interest rates fall below the capped rate, your rate will also decrease accordingly. This benefits you by not allowing your monthly payments to rise above a certain amount, i.e. the capped rate, but if during the capped rate period rates are lower than your capped rate then you pay interest on the lower rate.
Discounted Variables:
Most lenders are offering discounts off of their standard variable rate for various purposes. Discounts can range from 0.25% to 5.0% for periods of 6 months to 5 years. The potential problem with a discounted variable rate mortgage is that the discount is given off of the standard variable rate, therefore if the standard variable rate was 8.0% and your discount 2.0%, then you would pay interest of 6.0%, however if the standard variable rate increased to say 12.0% you would have pay 10.0%, even though the discount still applied.
The repayment method
It is important to choose the most suitable mortgage type and the correct repayment method which best suits your future plans, budget and attitude to risk.
Primary Mortgages are:-
1. Capital Repayment
2. Interest only
i. Endowment
ii. Pension linked
iii.PEP linked
Capital Repayment:
Known as a repayment mortgage. You make a monthly payment to your mortgage lender, which covers the payment for interest due on the mortgage and a partial reduction to the capital.
In the early years your monthly payments are mainly interest with very little repaying the capital. But as the years go by, the capital starts to reduce, and therefore the interest due becomes less, allowing further reduction of the capital and so on. At the end of the term, normally 25 years, you will have repaid the Mortgage and the house is yours. This type of Mortgage does not include any protection and therefore it is strongly recommended that you take out some form of life assurance and critical illness benefit which can be used to pay off the outstanding mortgage balance if you die or contract a serious illness during the borrowing term.
Endowment mortgage:
With an endowment mortgage, you make two separate payments each month. This type of mortgage has received a lot of negative press and in todays low inflation, low interest environment are not as suitable as they used to be. You pay just interest to the lender on the money you have borrowed. This means that the amount you have borrowed neither increases nor decreases but remains constant. In addition to the interest payment, you also pay a separate premium to a life assurance company, who in turn, will provide you with life assurance and critical illness protection as well as the necessary strategy required to build up the value of the endowment investment plan until it reaches a cash in value equal to the amount borrowed.
Investment performance is the key as if the investment performance exceeds expectations then there is a very real possibility that your mortgage can be fully repaid early, or if it is left to maturity then you could end up with not only the mortgage repaid but a tax free cash lump sum as well. Life assurance companies review the performance of endowments at specific intervals, for example a 25 year endowment plan will normally be reviewed and checked for progress at 10 years, then year 15, then year 20 and finally each year for the last 5.
Pension Linked:
A pension mortgage shares certain similarities with an endowment mortgage, but offers additional tax benefits, such as income tax relief on the pension contributions.
The pension contribution is invested into a pension plan to build a fund of money. A percentage of this fund, typically 25%, can then provide the capital to repay the mortgage and the remainder of the fund can be used to provide a pension income at retirement. A personal pension plan does not automatically include life assurance or critical illness cover, therefore separate policies would be required. This type of repayment method is only really suitable for someone who is self employed or who is employed but does not have the benefit of being a member of their employers company pension scheme.
Beware of Redemption penalties these can be 1-6 month's gross interest
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