Some useful first-time mortgage terms to start with:
- APRC stands for the annual percentage rate of charge. It takes into account, not just the initial rate, but also product fees and other costs, to make it easier to compare between products.
- LTV, or loan-to-value, relates to the loan percentage that you will require compared with the value of the house. So, if you put up 5% of the value/price of the house as a deposit, you will need a mortgage that has a loan-to-value of 95%. The lower your LTV, the better the deal you will likely be able to get. Read more about LTV.
Getting a mortgage
Before you pick out a mortgage, you will also need to know your credit rating. The better your credit score, the greater the likelihood your mortgage application will be accepted. So, if you've got any credit card debt, try to pay it off and cancel the card before applying, and see if there is anything else you could do to improve your rating.
Your credit rating is just one part of the overall affordability assessment that your lender will use to see if you are worth the risk of lending money to, and how much they'll lend you. To assess if you'll be able to afford to make your repayments, providers look not only at your credit rating and income, but also at your expenses, including bills and any child-related expenses. In essence, they want to know if you can still keep repaying your mortgage in the event that life becomes more expensive for you.
However, before you apply and allow the provider to judge you, make sure you scrutinise what they have to offer, and that goes beyond the mortgage rate and type. Keep in mind that some providers charge initial fees, which may or may not be added to the mortgage, and there are other costs involved as well.
Your lender will likely charge you for having a valuation done to determine the value of the property you are buying. You may also want to do your own survey, to make sure that you're aware of all the things that may be wrong with the house and are prepared to fix them (and/or use them to haggle for a lower price), especially if you are looking at an older property. Other charges may include local authority searches, to check for any planning issues.
You will also need to hire a solicitor or such to handle all the legal documents. What you most likely won't have to worry about anymore is stamp duty, as this was abolished near the end of 2017 for first-time buyers looking to buy a house worth £300,000 or less. For property that costs between £300,000 and £500,000, first-time buyers will need only pay 5% stamp duty on the amount above £300,000.
Other expected expenses are home insurance and moving costs. So, make sure you don't just have enough money to cover the deposit and any mortgage fee, but also at least £4,000 extra to cover all the other costs related to buying a home.
Saving for a deposit
Despite all the above, the largest expense you will have is likely to be the deposit. If you are looking to buy a house that is worth £200,000 – which is less than the average UK house price – you will need at least a £10,000 deposit. Why not compare savings and ISA accounts see if there's an account (or combination of accounts) that can help you reach your homeowner dream.