Graham Sharkey from Status Mortgage Services joins the Mortgage & Protection Podcast to talk all about mortgages for First Time Buyers.
From a First Time Buyers’ perspective it’s certainly more daunting, so they often need more assistance and advice from advisers.
They’ve obviously got no property to sell, which is likely to be the one and only time they’ll be in that position. It’s a strong place to be, particularly on the negotiating side of things. It’s more appealing for a vendor to sell to a First Time Buyer than someone in a complicated chain.
But other than that, there isn’t really anything different in the process from an adviser’s perspective. The steps that we work through to arrive at our recommendation are exactly the same.
This is sometimes referred to as an AIP or a Decision in Principle (a DIP). It is basically a certificate from a lender confirming that in principle they are willing to lend you a certain amount of money.
They take a look at your circumstances, your income and your credit file and it’s as close as you can get to a mortgage offer without submitting a formal application. It’s prudent to seek mortgage advice and get that Agreement in Principle before you start the house hunting process.
It’s important to know what your property budget is, and typically an estate agent would ask to see that you’ve got an Agreement in Principle to confirm you’re a viable buyer – it helps them take you more seriously.
It’s no different to any other borrower in the same circumstances. How much you can borrow is entirely dependent on your individual circumstances. Historically lenders would look at income multiples to work this out – so they might have given you say four and a half times your salary or so. But that’s not really used much nowadays.
Since the credit crunch they’ve moved over to more complicated affordability calculators. The important thing with these is to get the information accurate. Some of the questions can be a bit ambiguous and if they are answered incorrectly you won’t get the right lending total.
Advisors like us use advanced software that goes out to all of the lenders at the same time and finds out accurately what they’re willing to lend you. Do bear in mind that how much you can borrow and how much you should borrow are sometimes two different things. Sometimes borrowing slightly less is the more prudent thing to do, to fit in with the lifestyle that you want to lead alongside owning a property.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
SOME BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
Lenders are innovating new products all of the time and I’m pleased to say that technically you can get away with no deposit – and get a 100% mortgage. But you do need a loving family member that’s willing to deposit a minimum of 10% of their savings into an account with the lender.
What they do is lock away these savings – although these still earn interest – for a certain period of time, which means the lender is then comfortable to loan 100% of the purchase price subject to affordability. But those savings are at risk if you don’t keep up the repayments on a mortgage, so the family member needs to be aware of that.
There are not many of this style of mortgage about, but they do exist. In the wider market, five percent is the minimum deposit, and if you can pull that together then we’ll have various options for you.
There are three credit reference agencies in the UK: Equifax, Experian and TransUnion. For a free check on your file Credit Karma is one that we recommend – it doesn’t cost you anything and will tell you what TransUnion has on file about you.
Your file should be the same throughout all three agencies but we do find that there are anomalies in the reporting sometimes – so it might be reported one way on Equifax but in a different way on Experian or TransUnion – making it important which one the lender refers to. A really good way to check all three is to register for Check My File. It compares the agencies side by side so you can see if there’s any anomalies – (We give no endorsement and accept no responsibility for the accuracy or content of any sites linked to this site).
It’s important to check your credit score for errors and make sure it’s accurate. As far as improving your credit score goes, you should get registered on the electoral roll – and have some credit history. If you don’t have any credit at all, then take out a credit card and put small balances on it. Clear it monthly, and you will start to build up a pattern of being a good payer. A traditional mobile phone contract will also help your credit.
Try to keep that credit utilisation below a certain percentage – say 30%. Say you had a credit card with a £1000 limit, try to keep the balance under £300 and pay it off each month.
If you have adverse credit from prior debt in the past, we do have lenders that tolerate poor credit. The more historic the issue, the broader your options and the more competitive rates. Defaults, county court judgments and mortgage arrears are fairly serious, but we can accommodate these and after six years they disappear off your file. Historic missed or late payments on unsecured borrowing like credit cards or personal loans are less of an issue and you could still get a high street mortgage with these in some situations.
Things change quite regularly. But the most up-to-date offering for a First Time Buyer would be the Lifetime ISA launched recently. It lets you save up to £4,000 every tax year towards your first home, with the government adding a 25% bonus on top of whatever you save. It basically means you can get £1,000 of free cash annually to help you onto the property ladder – plus you earn interest on whatever you save. As it’s an ISA that interest is tax-free.
To qualify for the government bonus, you’ll need to buy a property that costs less than £450,000 with a residential mortgage – so you can’t be a cash buyer and you can’t purchase a Buy to Let Property. You must be looking to live in the property as well.
You can also use a lifetime ISA with other government schemes – Right to Buy, Shared Ownership – and it’s eligible to people between the age of 18 and 39 which caters for the majority of First Time Buyers. And if you’re planning on buying a property with someone else, you can both have an ISA – so it’s well worth considering as a savings vehicle towards that first purchase.
Again these do change from time to time. As I mentioned earlier you’ve got the Lifetime ISA plus the family mortgages that can help First Time Buyers onto the ladder. But in addition to that there are some further schemes:
Since November 2017 First Time Buyers have not needed to pay stamp duty on properties worth up to £300,000. That’s a £5,000 saving on a £300,000 home.
Here, you can buy a portion of your home and increase your share over time. You can buy 10% to 75% of the property’s value and pay rent on the remaining share. You only need a minimum of five percent deposit of the share you’re buying. So if the property was £200,000 and you’re only buying half of it, then you only need to find five percent of £100,000 which is £5,000. It’s a good scheme if you don’t have a big deposit. And while you pay rent on the remaining share, it’s better than being a private tenant because the property will never be sold from under you.
This is a new scheme that isn’t widely available at this stage, but the theory behind that is that new build properties will be discounted by 30% to 50% of the full market value. They will be earmarked for First Time Buyers and key workers. The idea is that when properties are sold they are again subject to the same discount to the next generation of First Time Buyers and key workers.
If you’re a council tenant you may have the ability to buy your home with a discount from the government. We can use that discount as your deposit, making it easier to buy a home.
This is probably very niche, but if you want to build a property there is a help to build equity loan which would contribute 5% to 20% towards a deposit on a self-build mortgage.
The government’s put a really good website together that explains all these options: Ownyourownhome.gov.uk so take a look for more information.
One other scheme not linked to the government is a mortgage product called Joint Borrower Sole Proprietor. If you are struggling to prove affordability on your own to get the mortgage you need, you can bring in a third party – usually a parent, if they’re willing to do so. They can be on the mortgage but not actually an owner of the property. Because they’re on the mortgage, the lender will factor in their income. But as far as Stamp Duty is concerned, you can still qualify for the stamp duty discount because the parent is not named on the deeds.
Obviously the person going on to that mortgage needs to be comfortable that they’re lending their income to the situation and they may need to support you in paying the mortgage if things went wrong.
There are also some exclusive products where lenders will help First Time Buyers out with a reduction in fees. There is a lot of assistance out there, because it’s difficult to buy a first home these days.
We work through all the costs with our clients, but it’s good news that stamp duty won’t apply on a property up to to £300,000. Lenders will sometimes charge fees with their products. These include application fees, booking fees and arrangement fees. It’s our job to make sure the product we recommend is the most competitive taking these into account.
There are also surveyors and solicitors fees.. There’s a few different levels of survey to consider, with some more comprehensive than others. So we explain the differences to each client. We’d also give you an indication of the possible cost of protection – things like life insurance, critical illness cover and income protection.
We call it protection because it’s to protect you against losing your property if things go wrong. That’s a very important consideration. Some insurance like buildings insurance is also a contractual obligation of the mortgage offer.
Get good quality support. Make sure that you get a good mortgage adviser to look after you. It’s more important than with any subsequent moves, where you’ll have a little bit more of an idea. We’re here to explain every step and take the stress out of buying a home.
Your property may be repossessed if you do not keep up with your mortgage repayments.
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