First Time Buyer Mortgage questions answered
This decade has seen a number of initiatives to stimulate first time buyer activity. These include cheap funds to banks for higher loan-to-value lending; Help to Buy equity loans and ISA incentives, stamp duty breaks and heavier taxation to put off landlords to free up the stock.
In addition, the banks have adapted their policies to allow outside help from family, friends, builders and housing associations, by flatting the climb to the first rung of the property ladder.
The net result has provided a much more positive outlook for first time buyers. Real solutions are out there for this age old problem but information can be flimsy or fragmented.
I am a professional Mortgage Broker and in this article, I attempt to draw together some of the most common questions I receive from first time buyers and hope that it serves as a help to you.
Rates, Affordability, Deposit, Occupations, talk to us we really do know what we are talking about.
Q) I’m a first time buyer what level of mortgage can I borrow.
A) Deposit size plays a part here. If you have 10% or less a typical income applied by the lenders is 4.5 times. 5 times income might be available on this small percentage deposit but more likely on 10% plus. Borrowing above 5 times normally requires a minimum of 15% deposit and a good job.
Q) What is the minimum deposit that I need to buy a property?
A) For a conventional mortgage its 5%. Separately, there are innovative mortgages available that will allow that equivalent amount to be sitting in a savings account with the same lender to negate the need to physically hand this over. Also Right to Buy and Shared Ownership schemes that lend 100%. Help to Buy can provide a further 20% towards your deposit in the form of an equity loan.
Q) I’m a first timer buyer and the interest rate I’ve been quoted seems very high is that right or am I being ripped off.
A) If you are going to one or two banks then you may be missing out on the best deal available. Likewise, if you go to an estate agency or developer that funnel their business to the same by operating a restricted panel. My recommendation would be to go for a “whole of market” broker as they are obliged by the regulator to select the most suitable mortgage from nearly every bank in the UK. I’m whole of market and as such work with over 80 lenders and this opens up the choices.
Q) Does the amount of deposit affect my mortgage product?
A) Normally. Mortgage Lenders tend to offer better products in loan-to-value increments of 5% or 10%, down to 50%.
Q) Can I get a gift towards the deposit?
A) Yes, most Mortgage Lenders accept gifts from parents or siblings. A smaller number intend this to uncles, aunts, guardians, godparents and friends.
The standard position is the gift is to be non interest bearing or repayable. The donor cannot live or have an interest in the property. They should also seek their own independent legal advice.
Q) I’m a first time buyer can I obtain a personal loan to fund my mortgage deposit?
A) Generally, Mortgage Lenders will question the purpose of any personal loans taken out within a short period before their mortgage. They really want you to have saved the money and therefore have a personal stake in the mortgage as from a risk perspective there is more incentive for you then to repay their debt.
That said, there are some Mortgage Lenders that allow this but the contribution for the loan will need to be accounted for in their affordability assessment.
Q) My parents are willing to help with my deposit but want to protect their money is this possible?
A) This is understandable and quite common where there is a perhaps an element of distrust as you haven’t been reliable in the past or say you are with a new partner and its important for your parents to keep the family money in the bloodline.
There are a few mainstream Mortgage Lenders that will allow your parents to register a second charge for their gift to be repaid on the sale of the property.
Q) I’m a first time buyer can my parents support my mortgage affordability i.e. be guarantors.
A) Yes, the technical term is “joint borrower sole proprietor”, which translates as you are the owner and your parents are simply adding their disposable income to the mortgage application to help you out.
Q) Can I get a mortgage to help buy my council house and do it up?
A) Yes, there are Mortgage Lenders that will lend for a Right to Buy purchase with simultaneous home improvements.
Q) Can you get a mortgage to support the Right to Acquire Scheme.
A) This new form of homeownership where housing associations are offering effectively voluntary Right to Buy is in a pilot in the Midlands. From my experience, the restrictions imposed on the purchase “overages” in the contract are off putting to many Mortgage Lenders. My advice would be to check with the housing association on which banks have lent already on their patch.
Q) I’m a first time buyer can I purchase a buy to let?
A) Yes, standard buy to lets, but the Mortgage Lenders will apply income multiples in their affordability assessment any may insist on the mortgage is on a repayment basis.
If you are looking to do a multi-let, HMO or holiday let as a first time buyer you will need to use pricey specialist short term finance rather than a mortgage.
Q) I’m a first time buyer on a visa can I get a mortgage.
A) Yes, but the rules are complex so I suggest you give us a call.
Q) I’ve no personal credit so my mortgage application has been declined can you help?
A) There are Mortgage Lenders that do NOT credit score.
Q) I’m looking for my first mortgage but have some missed payments on my mobile phone and catalogue is this possible?
A) Maybe, there any mortgages that allow missed payments on credit commitments, defaults, debt management plans, ccjs and rent arrears. The rates and deposit requirements are typically higher. If you want further guidance you can send me your credit report.
Q) The mortgage I have been offered is too small to buy the size house I need – what can I do?
A) There are a number of options open to you: 1) buy with more people – there are mortgages that will take up to 4 incomes; 2) Use you, parents, disposable income; 3) consider buying part of the property initially such mas under the Help to Buy and Share ownership; feel free to discuss this further with us. 4) Consider re-locating to another more affordable areas of the country.
Q) I’m moving to the UK can I get a mortgage?
A) If you transferring with a multi-national firm with a reasonable size deposit then you stand more chance of immediate acceptance. Otherwise, you will probably need to be here for at least 6 months to have built up enough of a local credit profile.