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Applying for a first mortgage can be daunting. Here’s how to make the process easier
SECURE THE DEPOSIT
‘Saving for a deposit can be the most difficult part of taking that first step,’ says Charlotte Nelson at Moneyfacts (moneyfacts.co.uk). You’ll need at least five per cent of a property’s value to obtain a mortgage. The bigger your deposit, the better deal you’re likely to get. ‘There are government schemes that can help,’ Charlotte explains. The Help to Buy ISA is available to first-time buyers of any age who can save up to £200 a month in this scheme, and will receive a bonus of up to £3,000. The Lifetime ISA allows people aged 18-39 to save tax-free up to £4,000 pa and the Government will top this up by 25 per cent. This pot can be used either towards a first home or a pension.
BEFORE YOU APPLY
Check you’re on the electoral roll at your current address, get your last three months’ bank statements and payslips, and your P60 if you’re employed or a SA302 if you’re self-employed, and make a list of all incomings and outgoings.
Lenders may use different sources to investigate your credit history, so check your credit report with several agencies such as Equifax and Experian. Challenge incorrect information and close unused bank or credit accounts. If your credit score is poor, start to pay all your obligations every month and commit to improving your rating. ‘Finally, ensure you’ve really saved enough for a deposit, as moving costs such as stamp duty, surveys and solicitors’ fees will add thousands,’ says Charlotte.
WHAT KIND OF MORTGAGE?
The choice is huge, but David Hollingworth at London & Country Mortgages points to two main options: fixed rate, where the interest rate is capped for two, three, five or 10 years; and variable rate, in which it can go up or down, depending on fluctuations in the base rate. ‘First-time buyers often prefer a fixed rate so they can budget with certainty,’ says David. Research the banks and building societies, and take advice from an independent fee-free mortgage broker. A standard term is 25 years but some lenders offer 35 year terms to help you spread the cost.
CONSIDER THE ALTERNATIVES
Buying a new-build home could make sense. The Government’s Help to Buy equity loan scheme allows borrowers to put down a five per cent deposit and get a loan of up to 20 per cent (40 per cent in London) of the property’s purchase price for the rest. Shared ownership deals mean you buy a portion of the property and rent the remaining part. Or if you can take advantage of the ‘bank of mum and dad’, opt for a guarantor mortgage. ‘This lets either a parent or relative assure a mortgage in the event the dependent fails to make the repayments,’ Charlotte explains. ‘This often means first-time buyers can borrow more than the bank would normally allow as their criteria is often less harsh for these types of deals.’