What you can borrow as a first time buyer
Your mortgage options will depend on a number of factors including; your income, your credit rating, your average monthly spend and whether or not you have a deposit to put down. As a first time buyer you can expect a lot of questions around what you can and can’t afford to borrow. Lenders will take a look at your income, spending and the added expenditure of running a home to see what you can potentially put towards a mortgage each month.
Your credit score is particularly important when it comes to taking out a mortgage as it indicates to lenders whether you can be trusted to borrow money based on what you have borrowed in the past. As you won’t have previously taken out a mortgage, lenders will base this decision on other credit you might have taken out including; car finance, personal loans and phone contracts.
If you do have a history of bad credit, then you might want to consider looking at bad credit mortgage options.
Guide to mortgages for first time buyers
Mortgages typically run for 25 years but can be made longer or shorter depending on your situation. The loan is paid back monthly with interest added, so the more you have to put down as a deposit the better as it will reduce your monthly payments. Interest rates also vary, especially if you are a first time buyer, so it’s crucial you get the right deal for you.
The lender you are borrowing from will secure the mortgage against the value of your property until you’ve paid it off. This means that if you fail to keep up with payments, your lender has the right to repossess your home in order to sell and get their money back.
Fixed rate vs variable rate mortgages
Although there are many types of mortgages, they broadly fall into two categories; fixed rate and variable rate.
A fixed rate mortgage is exactly how it sounds; you pay the same fixed amount back to your lender each month without needing to worry about changes in interest rates. You can usually fix your mortgage for 2-5 years, but some lenders will penalise you with an ERC (Early Interest Charge) if you decide to get out of the deal before the end of the agreed fixed term, so it’s a good idea to consider how long you’d like to be in a mortgage for before agreeing to anything. First time buyers typically opt for a fixed mortgage as they allow you to budget and consider what you can afford to spend each month.
Variable rate mortgages can either be tracker mortgages or standard variable mortgages. Tracker mortgages follow the Bank of England’s interest base rate, which means the rate on your repayments will change with UK rates. Discounts can be agreed and included on the trackers by decreasing a percentage off the tracker rate to make your repayments lower for a set period of time.
Standard variable rate mortgages follow the same principles as a tracker mortgage but the rate is decided by the mortgage lender, rather than the Bank of England.
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Why Clever Mortgages?
At Clever Mortgages we can offer you the support and advice required to ensure you get the right mortgage for your first home. We have a panel of trusted mortgage lenders and will help you choose the right provider for your circumstances. We are also authorised and regulated by the Financial Conduct Authority (FCA) and adhere to the Treating Customers Fairly (TCF) guidelines, so you can be confident that we will treat you with integrity and only offer you products that meet your needs.
A fixed rate mortgage is where your interest rate stays the same for a set time period (usually between 2-10 years). As a result your repayments are exactly the same each month, regardless of what happens to other mortgage rates. These types of mortgages are popular with first time buyers and people looking to budget each month, especially those who have suffered from a poor credit history.
The main downside to a fixed rate mortgage is that if mortgage rates go down you can be paying a higher amount than you would on a variable rate mortgage. However, this can also go in your favour and if interest rates increase you can be paying less than you would on a variable rate.
Every lender will have their own standard variable rate (SVR), which is considered their basic mortgage. This interest rate goes up and down, usually in line with the Bank of England’s interest rates but the lender is free to raise this at any time.
This means that your monthly payments can go up or down depending on what the interest rate is at a given time. Some months you could be paying more whilst other months you could be paying much less.
A discount mortgage is when a reduction is applied to the lenders Standard Variable Rate (SVR) for a certain length of time (typically 2-3 years). Discount mortgages are attractive as it can allow you to make lower repayments, however as the SVR can still fluctuate they are not ideal for people who are looking to stick to a strict long term budget.
A tracker mortgage is similar to a variable rate mortgage (where the interest can move up and down); but these instead track a nominated interest rate rather than the lenders SVR. Tracker mortgages are usually linked with the Bank of England’s interest rates (plus a few percent).
A capped mortgage is the same a variable rate mortgage; however the interest rate can never rise above a set “cap”. These mortgages can work well for people who can budget for different mortgage repayments each month but want the reassurance that their payments will never go above a certain amount.
Offset mortgages are linked to a savings account as well as your current account. Each month the lender will look at the amount you owe on your mortgage and then will deduct the amount you have in savings. These types of mortgages work well for higher earners or people who have a good amount in savings that they want to use towards paying their mortgage.
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