First Time Buyer's Guide

The market for first time buyer mortgages is vibrant. Many elements of the first-time buyer market have changed over the years, including criteria for eligibility, however first-time buyer mortgages are still available to obtain both quickly and easily.

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Obtaining a deposit for First Time Buyer mortgages

The average deposit right now is £55,360 (for 2018) of which approximately 40% of first time buyers get assistance from family members. The greater a deposit you are able to make the more lenders you will have to choose from and the more competitive your interest rates will become; however mortgages are available for first time buyers with a deposit as little as 5%.

Gifted deposits can help you make the first step towards getting on to the property ladder. The majority of lenders will accept gifted deposits from close family members. In most cases a gifted deposit will be all that is required to enable you to place a deposit.The gifte giver will provide a validated letter which states that they have no further recourse to the gift, and that no charges or security are to be held on the property.

The Family Guarantee for First Time Buyer Mortgages

When first time buyers require family assistance but cash is not available, a lender may be offered equity in the family property as security for the deposit. Not all lenders will accept this kind of deal; however, it can be a great solution for first time buyers who are unable to raise a deposit but who have family willing to provide a guarantee secured against their residential property.

Family guarantees against residential properties are available for up to 100% of the purchase price and the maximum guarantee period is usually 10 years, which means at the end of this period the charge against the property will be released. Finding the right first time buyer mortgage broker who can advise you of all your options is the first step towards finding out which first time mortgage solution is right for you.

Guarantor Deals for First Time Buyer Mortgages

Approximately 10% of lenders will offer facilities for accepting guarantors on first time buyer mortgages. This type of mortgage is common amongst first time buyers, but you must consult a mortgage broker as the following factors must be considered before a guarantor deal can be arranged.

  • The guarantor must be able to demonstrate that they can afford both their current and the new residential mortgage
  • The first time buyers must be able to take the mortgage on in their own right within a 5-year period.
  • The terms of the loan will differ between lenders. Some operate a maximum age policy but do not limit the term of the loan. Other lenders will have no maximum age policy but may request that the loan finishes before the age of 75.
  • Loan to values differ between lenders but it is possible in the current market to find first time buyer mortgages up to 95% when using a guarantor. 
  • Depending on the lender, the guarantor will have either full or limited liability for the loan. Full liability means the guarantor will be liable for the full amount of the loan in the event of a default by the applicants. Limited liability is applicable in situations such as, where the lender is used to top up a mortgage which the applicant could not otherwise afford alone. In this case, the guarantor would only be liable for the amount they had originally contributed.

Interesting First Time Buyer Statistics – (as of 2018)

  • The average age of a first-time buyer is currently 32.5
  • The average purchase price of a first-time buyer is £236,552
  • The average mortgage size for a first-time buyer is £181,192
  • The average term of first time buyer mortgages is 30 years
  • 99% of first time buyers choose a fixed rate over a tracker or variable deal
  • 100% of first time buyer mortgages are obtained on a repayment basis

The idea of buying your first home is thrilling. Just the thought of coming home from work to your own property and settling in for a relaxing evening is enough to encourage you to find out more about it.

However, before you jump in there are lots of things you need to consider. Let’s go over some of the most important points here to answer some questions you may have.

Can you afford to buy your own home?

This is the most important question to ask. The answer depends on how much you earn and how much deposit you can provide. It also depends on where you want to live. If you are intending on staying local to where you live now, you will probably already have a fair idea of how much properties cost there. If you are willing to move further afield this gives you more flexibility, especially if you can move to a cheaper area.

The Mortgage Market Review has made applying for a mortgage more challenging than it was before. However, it is important to be sure you can afford a mortgage instead of being given one you may not be able to afford further down the line when interest rates go up. If you can keep a realistic head on your shoulders when you’re thinking of buying your first home you’ll stand a better chance of eventually achieving your aim.

Can you save up for a deposit?

If you haven’t got a deposit and you’re not saving for one, you need to start. Work out how much you would need, this will be your end goal. Now all you must do is to work out how you will get there.

Your monthly outgoings should always be less than your income, but when you’re saving for a deposit you need to be more ruthless than ever. Just remember your efforts to save money will pay dividends later.

There are lots of ways many people can cut down on their outgoings. For example, you might enjoy meals out once or twice a week. By eating in you can save money here instantly. Start taking packed lunches to work instead of eating out and avoid the expensive coffee shops too. Look at every aspect of your life and your outgoings and you might be surprised at how much you can cut down and save each month.

Figure out the cost of home ownership before you buy one

It makes sense, doesn’t it? Yet many people don’t properly account for all the bills before they decide to buy their first home.

For example, you should always find out which council tax band a property is in before putting in an offer. Some buildings are also more expensive to heat than others. You also need to evaluate the condition of the property before you buy. Will the roof need replacing soon? Does it have double-glazing? Is there central heating installed or will you have to fork out to have this done as well?

The asking price of a property is only the first part of the home-buying equation. Sometimes a property will be cheaper because it needs work doing to it, as would be the case with the examples given above. Are you ready for the work that would entail, not to mention the cost? Conversely it may be unrealistic at this stage to move into a property that doesn’t need anything doing. Your budget will determine what is and isn’t possible.

Where would you like to buy?

Many people stay in a similar area to the one they are already living in. You need to consider whether this would be the best option for you, or whether you might move elsewhere. A lot will depend on your job and the cost of travelling to and from your workplace.

However, even if you stay within a small radius of your workplace you will still have plenty of options to consider. For example, if you have young children you’ll want to move relatively close to a good school. If you don’t have kids you might want to live as far away from a school as possible! You’ll probably need good transport connections as well as good facilities nearby, such as supermarkets and local shops for instance.

What type of property do you want to buy?

This is where you need to be honest with yourself. There will be a limit to what you can afford as a first-time buyer, but at the same time there will probably be things you won’t want to compromise on. Conversely other aspects of your ideal home may need to be compromised on.

For instance, do you really need two bedrooms if you live on your own? Perhaps a one bedroom place with a large enough lounge to accommodate a sofa bed might be a better option. On the other hand, you may absolutely want to have a bathroom with a bath rather than just a shower cubicle. If this is the case you will probably grow to hate compromising on a small flat with only a shower in the bathroom. Your priorities will alter slightly as you start looking at properties. However, make sure they alter for the right reasons.

An emotional decision

Buying any property is both an emotional and a practical decision. This is even truer when referring to your first home. You’ll move on from this property without doubt, but before you do you will likely enjoy several years there. You want it to serve your needs as best it can.

As such make sure you don’t jump into making an offer until you are sure you have been through all the steps mentioned above. You need to be ready to buy and prepared for everything being a first-time home buyer brings you. There are challenges to be sure, but you will also enjoy the process of finally owning your own home. Meeting those challenges head-on is a great experience to have.

First Time Buyers Guide

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