Do the maths now – for a decent loan deal later
First-timers must show they can pay when rates rise
IF YOU have got a five per cent deposit and are hoping to buy your first home this autumn, the good news is that there are still plenty of low rate mortgages on offer, many with interest rates set well below 5 per cent for at least the next two years.
The bad news is that first-time buyer deals can be hard to get, so applicants may have to do some fancy financial footwork to ensure their mortgage gets approved.
‘Rising property prices and new affordability tests on mortgages mean it’s harder than ever to get on the housing ladder in most parts of the country,’ says money expert Sarah Pennells, of the SavvyWoman financial website.
‘But at least low interest rates mean your monthly payments can be manageable if you can make the leap from renting to owning.’
LOW RATES
BANKS and building societies are keen to get first-time buyers to sign up to two-year fixed rate loans.
Pick one and your payments will not change until the second half of 2017 or even the start of 2018.
Major players including HSBC have the lowest rates for people putting down 5 per cent deposits. It has a deal set at 3.79 per cent for a low £99 fee.
Halifax has a two-year deal set at 4.09 per cent if you can afford to pay a much higher £999 fee. If you opt for a fee-free alternative, the rate increases to 4.49 per cent.
NatWest has low deposit, feefree deals from 4.37 per cent while TSB’s similar deals start at 4.39 per cent and Santander has offers from 4.49 per cent.
Less well-known lenders such as Tesco Bank also have decent firsttime buyer rates for low deposit customers.
When comparing offers experts say it is important to take into account the end date of the fix, as well as the interest rate and the fees charged.
The rock bottom deal from HSBC expires at the end of September 2017, for example, while the higher Halifax deal lasts until the end of December 2017 so you get three more months of fixed payments before you have to shop around for an alternative loan.
If you want to fix your repayments for longer, Yorkshire Bank has fee-free three-year fixes starting at 4.49 per cent while several lenders still offer low deposit five-year fixes.
TSB and the Post Office both have first-time buyer deals set from 4.89 per cent until late 2020 while NatWest’s longer term deals start at 4.94 per cent.
Tesco, Newcastle Building Society and mortgage minnows such as Hinckley and Rugby Building Society also have good low deposit five-year fixes.
Mortgage brokers also suggest approaching local building societies as well as the big banks.
Smaller regional players often have good deals they do not advertise widely in case too many applications overwhelm their computer systems.
THE BIG CHALLENGES
UNFORTUNATELY, spotting a good, low deposit, first-time buyer deal is only half the battle.
Lenders will only offer it to you if you pass several tests. First is to be on the electoral roll and to have a clean credit record – check your file with one of the major credit reference agencies such as Equifax, Experian or Callcredit before you apply.
The second is to prove you can afford the mortgage if interest rates soar.
Apply for a two-year fix set at 4.49 per cent, and your lender will check your bank statements to see if you have enough slack to afford the repayments if your rate hits as much as 7 per cent at the end of the deal.
You can see what your payments will be at different interest rates by using the mortgage monthly interest calculator on our sister website ThisIsMoney.
If you cut your monthly spending before you apply for a mortgage to show you can afford a far higher monthly payment, you will dramatically improve the odds of getting your application accepted.