How is the process or the mortgage process different for First Time Buyers?
The process itself isn’t actually any different to any other type of buyer. It’s still the same transaction in principle, the only difference for First Time Buyers is that it’s very new to you.
That’s why you may find it more beneficial to have 786Mortgage go through the whole process, whereas clients who have bought properties before might not want that level of support.
What is an Agreement in Principle?
An Agreement in Principle is the very first step of the mortgage process. It’s where the lender will indicate how much you can potentially borrow. The lender will search your credit file and assess the property value, your deposit amount, your income details, whether you’re employed or Self-Employed. This helps them to make a decision on whether they will lend the funds or not.
It can sometimes be called a Decision in Principle or a Mortgage Promise, but the names mean the same thing. It’s a preapproval from the lender, which is a really good document to have if you’re property searching. When speaking to estate agents, if you’ve been pre-approved, it shows that you’re a serious buyer because you’ve already got your funds ready to go.
With an Agreement in Principle, and as a First Time Buyer, having no chain, you’re in a really good position to buy the house, from the perspective of a seller.
How much can a First Time Buyer borrow?
Lenders have income multiples that they use, it could be four times your income or up to four and a half times, depending on the scenario. They would also take into account your expenditure, any existing credit commitments,and whether you’ve got any dependents.
Taking that into consideration, they will decide an affordability figure. It’s the same affordability assessment regardless of whether or not you’re a First Time Buyer. The good news is, there is a lender that’s released some enhanced affordability criteria specifically for First Time Buyers and they are offering up to five times your income.
What deposit is needed for a First Time Buyer?
In the current market, the minimum deposit that is required for purchase is 5%. There are about twenty five lenders offering 95% mortgage products at the moment.
As a first time buyer, if you’ve got more than 5% it will release more lender availability to you and more competitive deals. At a 5% deposit, the lowest rate at the moment is 3.95%, so offering anything more than 5% deposit means that interest rate will drop down.
What sort of help is available for our First Time Buyers?
There’s a new Mortgage Guarantee Scheme that the government released in April 2021 whereby the government supports the lender in their ability to offer 95% mortgages. So all this means is that lenders funds are protected by the government, the 5% deposit is just a standard mortgage.
Help to Buy Scheme
This is only applicable to new build properties, and depending on where in the country they are, there is a maximum property value. You need a 5% deposit of your own funds and then if you’re in London, you can potentially borrow up to 40% of the property value, outside of London, you can borrow up to 20%, towards your deposit.
You would then get a mortgage on the remaining property value. The loan from the government is not due to be repaid until you’re in year six of the property ownership, and interest is only 1.75%. There’s also a one pound a month management fee as well that is paid in addition to the interest only payments. The loan can be repaid whenever you want to, so you can avoid interest altogether if you have the funds available, or else it must be repaid by the twenty fifth year of ownership.
With regards to the scheme, you repay 20% or 40% of the cost of the property at the time, so if it has risen in value, you will owe more than you borrowed.