First time buyer guide – the best rates, hidden costs & advice
First time buyers are facing more of a challenge getting on the housing ladder in 2013 than they did in the 1990's and early noughties. But the good news is that things are now a little easier than the dark days of 2009/10. Here I set out what's available out there for first time buyer as well as the other costs they should be considering. Don't forget you can contact me for personal help by clicking here.
Why things have got easier for first time buyers (FTBs)
FTB numbers are comfortably up on those dark years in the mortgage market for several reasons.
- Firstly many people are more confident about their own employment prospects.
- Secondly, many of the same people have had time to pay off debts or save a bigger deposit.
- Thirdly more lenders are now offering 90% mortgages, almost all offer 85% and some do 95%, even without the Government's 'new buy' scheme, which allows you to put down a 5% deposit on certain developments. One lender even offers 100% borrowing, albeit they take a charge on the parents' home for the 25% 'deposit'.
- Finally, parents (and even grandparents) are prepared to offer cash to supplement their offspring's savings to help get them on the ladder. For some this comes from their own investments, for others it could even come from a small refinance on their assets (although this is not something I would advocate).
What mortgage deals are out there for first time buyers?
- The days of 'interest only' mortgages are all but over, with only a couple of lenders still offering these for over 50% of the property value and none over 75% (wiith many hurdles to jump). Anyone who would rather pay off their debt via a savings plan or other assets are fast being squeezed from the market.
- Younger buyers are looking to extend repayment terms to 30 or even 35 years to keep repayments low. This is OK, so long as they realise that in theory they will pay much more interest over that extra time.
- Typically lenders offer interest rates between 5.5% and 6.5% if you have a 10% deposit or less to put down. If you have between a 15% - 20% deposit then you should secure a rate between 3.75% and 5%. If you are lucky enough to have a 25-30% deposit you could get sub 3% gambling on the base rate. There are slighter better rates still with a 40% deposit , but how many FTB's have that?
The other costs you first time buyers need to consider
In terms of upfront costs, the government tax, stamp duty will usually be your biggest outlay, although if the property you are buying is under £125,000 you don't pay it. But between £125,000 & £250,000 stamp duty is payable at 1% of the purchase price and between £250,000 & £500,000 it rises to 3%. The tax is paid through your solicitor.
Some mortgage deals offer a free basic valuation on your prospective new home, but you may pay for this in other fees or a higher interest rate. Otherwise it depends on property value, but if you are buying for under half a million (as most FTB's are!) expect to pay between £300 - £600 upfront to the lender for their surveyor. For a more detailed survey you may wish to employ your own surveyor (take advice on this).
The lender will also charge a fee for the product (2 year Fixed rate, Base Rate Tracker etc), again this can be from zero to nearly £2,000 which can be paid upfront or added to the loan but they'll charge you interest on it if you do the latter. Generally expect to pay around £1,000 to get the best value overall.
Most lenders now have some kind of upfront fee to cover their costs in case the purchase falls through or you pull out, this is usually between £99 and £180 payable when you apply and not returnable, even if they turn you down.
How much should mortgage advice cost you?
As for your mortgage broker/IFA, if you are borrowing more than £100k there are many that offer their services free and receive what's know as a 'procuration fee' from the lender (the amount will be clearly stated on any illustration they give you). Under £100k most will charge a nominal fee to cover their costs (as the lender fee is a percentage of the loan). This could be between £50 & £300 but if it's any more than this you should shop around. Some will charge you a flat fee, say a percentage of the loan or £500 - £1000 but will rebate the procuration fee to you when the mortgage has gone through. Generally what you get back will offset what you pay as a fee. If any broker usually charges a fee in this range and keeps the lender's payment too, I would walk away.
Chose your own solicitor
Lastly you do not have to use the solicitor or broker the estate agent recommends, no matter what they say. Use someone you trust. The relationship you have with them should be a much longer one than the few weeks with the agent!
One last general tip
Approach any mention of 'agreement in principle', 'Mortgage Certificate' or similar with caution unless you are very serious about the property and the person who is offering it to you. They will carry out a credit score and if you have more than a couple in quick succession, it can affect your ability to get a mortgage at all!
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