Be a successful first-time buyer
Trying to get your feet on the first rung of the property ladder these days can feel like facing Kilimanjaro - from saving for a deposit to finding the right kind of mortgage. So what can you do to take the strain out of being a first-time buyer?
Doing your research
Find out how much you can afford when it comes to the property purchase.
Before the financial crisis, many mortgage lenders simply offered a multiple of your income. Yet because of the level of unsecured debt these days, and information from credit agencies, the amount a mortgage provider is willing to lend is now based on credit scoring and affordability techniques.
So as a first step, it could be wise to talk to a mortgage broker, and make use of an affordability and mortgage calculator to see how you fare.
Getting help and advice
Buying your first home can be a stressful process. Make sure you are well-armed by seeking advice and check out what’s going on in the property market.
There are useful tools and expert advice to give you a helping hand including online guides and tips, papers and lenders to find out all you need to know. For instance, you will probably find the process less confusing if you are clued up on matters like stamp duty and surveys.
Saving the deposit
The pot of savings required depends on the price of the property you find and the mortgage deal you want, but for some of the most attractive rates, you would probably need to put away around 30% of the purchase price.
Saving a regular monthly sum will build this up over time, even in the current low interest rate environment – and you may be fortunate enough to have parents who can help out.
It makes sense to put down as big a deposit as possible. You may also need access to funds beyond the deposit itself for various fees for costs such as legal and stamp duty.
First-time buyer schemes
There are Government-funded initiatives and housing association schemes offering help to first-time buyers.
For example, this year’s Budget saw the Chancellor introduce the £250m assisted deposit scheme for new homes to help buyers with small deposits**.
The First Buy scheme will be open to those with a household income of less than £60,000 a year who can put down a 5% deposit on a new home. Those who qualify will be eligible for a loan worth up to 20% of the value of the property, jointly funded by the government and house builders. This will be interest free for five years and only be repayable when the house is sold. However, there are a number of other options that may suit your needs better – so do as much research as you can
Different types of mortgage
A repayment mortgage allows you to pay off both the interest and a small chunk of the loan each month which means that at the end of your mortgage term you will have paid off your mortgage in full. You may also be offered the option of an interest-only loan, although, by taking this route, you are not paying off the loan amount, so you will need a repayment vehicle to help you pay off the mortgage you originally borrowed, at the end of your term. Use a mortgage calculator to see the difference in monthly payments – although an interest-only loan may have lower monthly repayments, this may not be the right option for you if you cannot pay off the loan at the end of your term.
There are various other mortgage options. Many first-timers may opt for a fixed rate for the security of fixed monthly repayments for a set period of time.
If you plan to rent the property and opt for a buy to let mortgage, rates and deals will differ from residential mortgages.
Any property used as security, which may include your home, may be repossessed if you do not keep up repayments on your mortgage.
* Correct at time of writing, May 2011 http://www.bankofengland.co.uk/monetarypolicy/decisions/decisions11.htm
This article has been written for information and interest purposes only. The information contained within this article is the opinion of the author only, and should not be construed as advice or used to make financial decisions. Expert financial advice should always be sought and any links contained within this article are included for information purposes only.”
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