First Time Buyer

The rungs of the property ladder appear all the more distant for most first time buyers. Since the UK residential market is one of the toughest in the world, our government has realised that they need to assist first time buyers.

Guidance from your mortgage professional is crucial to aid you in understanding how your loan works and in making sure that you have the right loan for you.

We would always want to see our first time buyers face to face.  The initial consultation is very important as there are a host of details to focus on.  We believe that understanding your mortgage and associated options will help you purchase your first home with confidence. 

 

A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

Help To Buy – Equity Loan

How does it work?

With a Help to Buy: equity loan the Government lends you up to 20% of the cost of your new-build home, so you’ll only need a 5% cash deposit and a 75% mortgage to make up the rest. You won’t be charged loan fees on the 20% loan for the first five years of owning your home. Example: for a home with a £200,000 price tag

help-to-buy-equity-loan-example.png

If the home in the example above sold for £210,000, you’d get £168,000 (80%, from your mortgage and the cash deposit) and you’d pay back £42,000 on the loan (20%). You’d need to pay off your mortgage with your share of the money.

Who is Eligible?

Equity loans are available to first time buyers as well as homeowners looking to move. The home you want to buy must be newly built with a price tag of up to £600,000.

You won’t be able to sublet this home or enter a part exchange deal on your old home. You must not own any other property at the time you buy your new home with a Help to Buy equity loan.

This scheme is available in England only.

 

A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

London Help To Buy - Equity Loan

To reflect the current property prices in London, from 1st February 2016 the Government will increase the upper limit for the equity loan it gives new home buyers within Greater London from 20% to 40%.

With London Help to Buy you’ll need to contribute at least 5% of the property price as a deposit, the Government will give you a loan for up to 40% of the price and you’ll need a mortgage of up to 55% to cover the rest.

Aldermore, Bank of Scotland, Barclays, Halifax, Leeds, Lloyds, Nationwide, NatWest, Royal Bank of Scotland, Santander, Teachers and TSB are some of the lenders offering London Help to Buy.

 Example: Equity Loan of 40% on property value of £400,000

Shared Ownership Schemes

How does it work?

Shared ownership schemes have become very popular in recent years, because they have been designed to allow people who might not have the funds for a traditional mortgage to get a foot on the property ladder.

The main benefit of a shared ownership scheme is that you only need to raise a deposit on the share that you are buying and you also only need to pay stamp duty on the share you are buying. You have the option to pay a higher or even the full amount of stamp duty on 100% of the value if you choose to. So, for instance, if the property was valued at £100,000 and you were buying half of it, at £50,000, then a 5% deposit would be £2,500, rather than £5,000 if it was not a shared ownership.

The percentage share is usually set by the land owner or the housing association. There will also be a staircasing agreement in place that will allow you to purchase the additional share of the property fairly.

Buyers only need a mortgage for the percentage that you are buying: in the above example, 50%. The other 50% would be paid through rent to the housing association, who own the rest, but this rent is subsidised so that it is affordable. You can staircase the amount you own, over time, usually in increments of 10%.

Household income thresholds for shared-ownership

The scheme is designed to be inclusive, and therefore you can earn a reasonable household income and still be eligible. With most housing associations, there is and earnings cap of £90,000 combined income. This scheme is particularly attractive for first time buyers, many of who have had to rent properties as they cannot afford to buy, and therefore do not have enough money to save for a deposit to get a conventional mortgage.

Shared ownership property and stamp duty

There is also good news regarding stamp duty. You have two options with this: the first is that you can make a one-off payment. This gives the most flexibility, because it means that any stamp duty on your share of the purchase is payable, but the rest is only due when you own over 80% of the property. The other option is to stamp duty in instalments, based on how much of the property that you own. 

New Builds and Resale

Another great attraction to shared ownership schemes are that you have the option of either purchasing a new property or a resale property.  New build properties might have additional charges and criteria that your mortgage professional can help you with.

 

A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

Affordability

How much can I afford?

Mortgages are now assessed on affordability criteria rather than the old-style income multiples.

This involves a lender looking at your income and all of your essential outgoings and deciding whether you can afford repayments. As of the 26th April 2014 lenders are expected to stress test whether you are able to afford the mortgage if interest rates rise in the future. Don’t be surprised if you are quizzed about very detailed outgoings like your gym membership and monthly food bill. You will also be expected to prove this. Different lenders use different methods and the amount you can borrow will depend on a lender’s affordability criteria, but for someone with fairly standard essential outgoings it will typically be in the region of around four times your annual income.

You also need to take responsibility for not overstretching yourself - don't take on a bigger mortgage than you can afford. Your mortgage professional can help you with this.

Buy To Let Affordability?

After the 2015 budget announcement regarding the taxation of investment income and in particular buy to let rental income, most of the lenders have changed the way they calculate rental yield and affordability. This is an area that you really need to take advice from your mortgage professional and trusted accountant.

FAQ

What size deposit do I need?

The general rule is, the bigger the deposit, the better the mortgage deal. You will have more Lenders to choose from and also better products and rates the bigger the deposit.

What is Higher Lending Charge or Mortgage Indemnity Guarantee?

A higher lending charge (HLC) or (MIG) is a charge made by mortgage lenders in the UK when the loan-to-value ratio of a mortgage is higher than they are prepared to accept at standard rates.  Typically, HLCs are applied to loans in excess of 75% but the cost of the HLC is passed on to the borrower if the loan exceeds 90% loan to Value

Do I need Insurance?

Buildings insurance is compulsory in the UK. Make sure you compare prices and that you have the correct plan for your needs. Some banks and building societies will also insist that you have life insurance in place. It is essential that you speak to your Mortgage professional regarding your protection needs as this forms part of the underwriting process.

 

A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

Crafted by Zinkr with lots of