The property ladder is the metaphor used specifically in the UK for a series of stages in which the first stage is buying an affordable house and then moving to a bigger one once you have enough deposit or money.
For the first-time buyer, it is generally exciting and scary to buy a house. A lot of extra effort goes into understanding the market and then mortgages. In this article, we will try to cover the most basic questions which come to the mind of the buyer in the first step of the ladder.
A first-time buyer is the one who buys his first residential property. If you already own a home property in the UK, then you are not called a first-time buyer and the scheme for the first-time buyer won’t be applied to you. You won’t be termed as a first-time buyer even when you are inheriting the home, property, land, or a joint property also. The schemes vary for different types of buyers.
90% of people need mortgages to buy their first property. All mortgages work with the same fundamental workflow of depositing a certain amount to the lender and do repayment on the rest of the amount borrowed from the lender. So suppose you want to buy a house worth £400,000. When you enter into a mortgage agreement you need to pay at least 5% that would be £200,000 and borrow the remaining amount. The remaining amount of the 95% is known as loan to value (LTV). The borrower now has to pay back the mortgage which includes interest plus some principal. There are various kinds of mortgages like fixed or variable interest etc.
What are the prerequisites for the user before going for a mortgage?
There are a few points you need to know before going for a mortgage.
– Cash Deposit is the essential part of the mortgage deal. The greater the amount of deposit you make to the lender, the less you need to borrow for a mortgage. This will help you in getting better borrowing rates. In the future, you will be able to see the amount you saved on interest by depositing extra. Lenders expect at least 5% of property value in deposit. Your deposit determines the risk the lender is taking in lending you the money.
– Your credit ratings/scores are an important aspect when applying for the mortgage. Some lenders reject your application out rightly if your credit rating is poor. So it is advisable, to avoid credit debt or take loans before the year you are planning to buy a home. Talk to an expert on how to improve the score.
– The lender would be interested if you are having a steady flow of income or not. This is again a major factor in determining the kind of mortgage options available to you. The lender expects you to repay the mortgage comfortably. Talk to an expert who can help you in finding out the right mortgage for you.
This is similar to the Help to Buy scheme run by the UK Government which ended up in 2016. This scheme intends to help people who have a 5% deposit and want to own their first house. People can buy a house for up to £600,000 using their 5% deposit. The government will try to guarantee the mortgage to the buyers. In return, the lenders will get an option to buy a government guarantee that compensates them in event of foreclosure. This also gives the lenders access to the credit-worthy population who needs a mortgage. Following are the points needs to be eligible for the mortgage.
If your mortgage is a straightforward deal, we can suggest you go directly to bank lenders. But if you are facing any kind of challenges, then a mortgage broker will be of great help. They will be able to find the best lender suited for your needs. This can be resourceful when you have a small deposit, self-employed or bad credit score. Some brokers provide first consultation for free, some charge fees and you can always negotiate.
– Taking the help of a mortgage broker can save your legwork, paperwork, and market research.
– Make sure your broker’s interest also aligned with your interest
– Get the idea of mortgages by connecting to an expert first
We suggest you start talking to the mortgagee experts simultaneously when you start looking out for the properties. You will be able to understand the kind of properties available, their prices, and whether you can afford the mortgage or not simultaneously. This also shows the seriousness to your real estate agents when you yourself have some visibility of your house purchase plan. Once you find your dream home, then you can connect to your lender and start moving the process of a mortgage application. Due to this slowdown in a pandemic, the government has introduced many steps to help first-time buyers. For example, Stamp duty is not applicable if you are buying properties value at £300,000
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