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The mortgage process can be daunting for first time buyers with big decisions like; which type of deal should you go for and how big a mortgage will you be able to take out?
These aren’t the only issues first time buyers have to worry about. Steep property prices in many areas of the country mean some only manage to save a small deposit, restricting their mortgage options.
Therefore, first-time buyers should work with a broker they can trust. At Hello Mortgage we will take the time to fully understand your affordability and needs to ensure we find a mortgage that works for you.
First time buyers, a basic overview
What is a mortgage?
Its a big loan used to purchase a property. The loan is secured against the property and tend to be offered by lenders such as banks or building society's. Challenger banks and specialist lenders also operate in this sector, sub prime lenders as an example.
You must have a deposit
A deposit is a large upfront payment, its payable on completion of your purchase and is held by your solicitor. Typically a lender will ask for 5% deposit but this can be as high as 15% for bad credit mortgages. The larger the deposit the smaller the loan. The deposit is based on the purchase price, so if you want a £200,000 home and the loan to term (LTV) is 95% you would need to have cash of £10,000 being 5%
The loan is long term
The number of years you choose to pay your mortgage over is known as the "term". Most lenders offer mortgage terms from 5 to 40 years, but this depends on your age, type of work and expected retirement age.
Types of repayments
You can take a mortgage thats interest only or capital and interest. With an interest only mortgage you pay the interest only monthly and make NO contribution to the loan capital. This means you only ever pay the interest and must pay the total loan upfront. With a repayment mortgage, or interest and capital, you pay off the loan and interest monthly. At the end of the repayment term you would have paid the loan and interest in full and have nothing more to pay.
A repayment mortgage does cost more monthly than an interest only one but lenders will expect you to have a repayment vehicle with an interest only mortgage. Depending on the investment this could make your payments the same as or more than a repayment mortgage.
Types of rates
Fixed or variable? A fixed rate mortgage guarantees your mortgage payments over the product term (3 year fixed deal for example). Regardless of what happens with the Bank of England's base rate your mortgage repayments are fixed for the term. With a variable rate mortgage your repayments can be less predictable. There are many variations of a variable rate mortgage such as capped, tracker, cap and collar, it is worth discussing the risks with your Mortgage Broker.
Freehold or Leasehold?
There are three ways to own a property, however, we are Mortgage Brokers and not Solicitors. We'd always recommend you speak with your conveyancer if you have any property ownership questions.
You own the land and everything on it.
You own the property but not the land it sits on. You lease the land from a freeholder and pay them ground rent. Lenders don't tend to offer mortgages on leases with 85 years or less left on them.
Share of freehold
Much more common within a block of flats. You will be the leaseholder but will be part of a group of leaseholders who control the freehold.
What happens if I cant pay my mortgage?
At Hello Mortgage we will always talk to you about protection. This isn't a sales tack-tick but an integral part of our advice journey to protect you, your family and your home.
If you are unable to pay your mortgage payments due to an accident, sickness, unemployment or death of the main breadwinner the lender can repossess your property.
If you are struggling to pay your mortgage or any other loan secured against your property you MUST speak to the lender in the first instance.
Hello Mortgage Limited is registered in England and Wales. Registered Office: Suite 20, Cookson House, River Drive, South Shields, Tyne & Wear, NE33 1TL. Company Number: 10414170. DPA number ZA332902
Hello Mortgage Limited is an Appointed Representative of Ingard Financial Limited which is authorised and regulated by the Financial Conduct Authority 450731.
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