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This guide provides all the information you need about shared ownership mortgages.
This guide is essential reading for any first time buyer.
This guide helps you to understand and prepare for mortgage affordability checks.
A first-time buyer mortgage is where the lender is happy to accept the risk that the buyer has no track record in paying a mortgage and usually has a smaller deposit than compared to a second time buyer or someone remortgaging. For example, first-time buyer mortgages can go up to 95% loan-to-value (LTV). The risk for the lender is if house prices fall by more than 5% and the borrower defaults, they will not be able to recover the cost of the debt from the sale of the property.
Mortgage calculators can be a really helpful way of planning ahead. In just a few clicks, calculate how much you could borrow as well as your mortgage repayments.
You can choose between a mortgage with a fixed rate of interest or a variable rate of interest. A fixed rate mortgage will retain the same interest rate for the duration of the initial rate, after which it will revert to the lender’s standard variable rate (SVR) or existing borrower’s rate.
A variable mortgage has an interest that can be changed by the lender. This is usually linked to the Bank of England base rate. If rates fall, then your monthly payment will reduce. Likewise, if they go up, then they will increase.
Which mortgage you choose will depend on your ability to pay more on your mortgage if needed, versus the security of a set payment every month. A mortgage adviser can help you to assess the pros and cons of each mortgage type.
Mortgages can be quite complex, here are a few key terms and some helpful tips;
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. You can find out more in our guide about the differences between APRs and APRCs.
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.
You can get a mortgage with no deposit by using a guarantor, family assist or joint borrower sole proprietor mortgage. This is where you use someone else’s savings or equity in their property as a deposit. If you don’t pay your mortgage, then this money can be at risk. If you want to save for your own deposit, then the minimum for a first-time buyer mortgage is 5% of the property value. This is also known as 95% LTV, i.e. your mortgage loan is 95% of your property’s total value.
When applying for a mortgage you may have to pay a product fee or application fee. This fee secures your mortgage funds. You can read more about mortgage fees in our guide.
Your credit score is an important part of how a lender decides if they will offer you a mortgage. You can check your credit rating using a credit reference agency.
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.
First-time buyers in England and Wales purchasing a new build property can benefit from a Government Help to Buy equity loan. The existing scheme will end in March 2021. The Government will replace this with a new scheme running from April 2021 to March 2023. The new scheme will come with maximum limits on property prices for different regions.
The Government lends first-time buyers between 20% and 40% of the cost of their new build home and this helps to reduce your monthly mortgage payment. You will need to repay the loan and this is based on your property’s value at the time and not when you first took the loan out.
In addition, a shared ownership property from a housing association can help to reduce the amount you need to borrow. This is where you have a mortgage on a percentage of the property, usually between 25% and 75% of the property’s value and pay a small rent to the housing association. Some housing associations will allow you to buy the property in full at a later date. It’s best to check these details with them before you make an offer on a shared ownership property.
As a first-time buyer, you may find the new experience of getting a mortgage potentially complex and confusing. A mortgage broker can help you to find a mortgage that suits your personal circumstances and guide you through the process. Some brokers may charge you a fee while others receive payment from the mortgage lender. You can find out more about mortgage brokers in our guide Should I use a mortgage broker.
If you're still not sure what kind of mortgage is right for you, you could consider using a mortgage broker. Not only can they provide valuable advice, but they may also have access to mortgage deals that are not available directly on the Moneyfacts charts.