Buying your first home can be a daunting process, especially when it comes to getting a mortgage. Here is a guide to everything first-time buyers need to know about mortgages in the UK.
Table of Contents
Research Mortgage Types
There are several different types of Bristol mortgages available, each with their own pros and cons. It’s always best to work with a mortgage Bristol specialist like The Mortgage Company for bespoke advice, but do your research to understand the differences between:
- Fixed rate mortgages – The interest rate stays the same for a set period of time, usually 2-5 years. This gives security, but rates may be higher than variable rates.
- Variable rate mortgages – The interest rate can go up or down according to the Bank of England base rate. More uncertainty, but potential for lower rates.
- Tracker mortgages – The interest rate is directly linked to the Bank of England base rate. Rates move up and down, but options may have lower starting rates.
- Discount mortgages – You get a discount on the lender’s standard variable rate for set periods of time. The rate can still vary though.
Consider Mortgage Term
The mortgage term is the length of time over which you will repay the loan. Typical terms are between 25-30 years.
A longer term means lower monthly repayments, but you pay more interest overall. A shorter term has higher monthly costs, but you pay off the mortgage quicker and less interest.
Factor in any plans to move house in future. A longer term may make sense if you may sell within 5-10 years.
Calculate Affordability
Lenders will assess your income, outgoings and credit history to determine how much they are willing to lend. This amount is based on multiples of your salary.
As a rule, lenders will typically lend around 4-5 times your annual income, but it could be less. Calculate your potential borrowing power, but don’t overstretch your budget.
Have a Deposit Ready
You will need a deposit of at least 5% of the property price, though 10-20% is ideal. The more you can put down, the better mortgage deal you can get.
Saving up while renting is key. First-time buyer schemes like Help to Buy can assist with getting a deposit together.
Understand Fees and Costs
Factor in mortgage fees, such as:
- Arrangement fees to the lender to set up the mortgage. Can be £500-£2,000.
- Valuation and legal fees for conveyancing, around £300-£800.
- Stamp Duty Land Tax for first-time buyers if buying above £425,000.
- Removal costs when you complete on the purchase.
Also, budget for repairs and maintenance costs in your new home.
Improve Your Credit Rating
Lenders will check your credit report and score. Maintain good credit by paying all bills on time, avoiding missed payments, and minimising credit applications before applying for a mortgage.
Registering on the electoral roll and not going overdrawn also helps.
Use a Mortgage Broker
A broker can compare products and find the best mortgage deal for your circumstances. They can advise you through the process and liaise with lenders for you. Fees apply but can save you money.
Shop Around for the Best Rate
Compare mortgage rates across both high street banks and online lenders. Also, consider fees, features and incentives like free valuations when choosing a deal.
Even a small difference in interest rate can save thousands over the term, so get the best rate available.
Hopefully, this guide gives first-time buyers a good overview of key things to consider when getting a mortgage! Do plenty of research and get expert advice to find the right option for your budget and needs.
