Wednesday, 01 June 2016 GMT
Author: Staveley Head
New builds, rent to buy, help to buy, shared ownership, and the list goes on. If you’re looking to buy your first home these are phrases you’ll hear a lot. Getting on the property ladder can be a challenging time and it can be hard to see past the jargon.
As providers of home insurance we understand how difficult this can be, especially with all the new schemes being brought in. So we’re hoping that this simple and quick guide will make the process just a little clearer.
What is a mortgage?
We all know that a mortgage is a loan to help you purchase a property but even though this answer may seem obvious this is actually a good place to start. Firstly it’s important to point out that there are several mortgage types and the one you choose could save you a lot of money, time and effort.
Here’s a breakdown of some of the most common types:
This is perhaps the most popular due to the stability it offers. A fixed rate mortgage simply means that the interest you’re charged remains the same for a fixed number of years.
A variable rate mortgage is the opposite of a fixed rate mortgage meaning the inertest can change.
Standard Variable Rate
Sometimes abbreviated SVR refers to the usual rate your lender charges and this won’t change unless you choose to take out another mortgage.
The mortgage lenders SVR is discounted, this is usually only available for a limited time. Always check each lender SVR as a bigger discount doesn’t always mean the biggest savings.
With a tracker mortgage interest rates will change because they’re set in line with another interest rate – typically they will be linked to the Bank of England. So if their base rate increases so does your interest.
Capped rate mortgages
Interest rates move with your lender SVR but your rate is capped meaning if the lender SVR rises above a certain level your interest will not.
If you want to pay your mortgage off quicker this is the way to do it. An offset mortgage links your current account and savings account so any savings you have feed directly into your mortgage.
How much can you afford?
Buying your home can be the most expensive purchase of your life, and for most purchasing your first home is a way onto the property ladder – so be realistic. You may not be able to afford the home of your dreams just yet but it’s a step in the right direction. If you need a little help figuring out affordability then there are plenty of mortgage calculators available.
Electoral Role & Credit Score
Once you know how much you can afford it’s important to ensure your credit score is looking good and the good news is you can do this for free.
The electoral Role is one of the less discussed topics when applying for a mortgage but if you’re not on it you’re not getting a mortgage! This is a deal breaker – the electoral role is used to check for fraudsters, so if you’re who you say you are then you need to be on the list.
Over the last few years the government, banks and other mortgage lenders have introduced many schemes to help first time buyers. If you can afford a 10% deposit and have a regular income you probably don’t need help to buy, but if you’re finding it difficult to save you may find these schemes useful.
The help to buy scheme allows first time buyers and existing homeowners to purchase a property with a 5-20% deposit on a property valued at £600,000 or less.
Does what it says on the tin! You purchase a percentage of a property, usually 75% and pay rent of the remaining 25% which will usually belong to a housing association.
A decision in principle
Once you know how much you can afford and know that your finances look attractive to prospective lenders the next step is securing a mortgage in principle. A mortgage in principle or decision in principle (DIP) is the process of a mortgage provider stating they can offer you a mortgage once a home has been found.
Securing a DIP will help when searching for a home as estate agents know you can obtain a mortgage when making an offer. Although it is important to remember that a DIP is made based on basic information and when the full application process takes place the lender can refuse to lend to you.
This is the fun part searching for your home. Everyone is looking for something different but even if you’re looking for a new build or a project here are a few questions you should ask:
- Is there damp? Look out for cracked plaster, watermarked ceilings or walls and a mouldy smell.
- Is it south facing? A south facing property will be bright letting in plenty of light compared to a north facing property.
- Is the plumbing in working order? Check that the taps and radiators work correctly as a plumbing issue can be expensive.
- What is the area like? Think about what you want and where would be the most ideal place for you.
Once you have found a house you’re happy with its time to make an offer. Your estate agent will usually put the offer forward and wait for a response.
Another expense to purchasing a home is the legal documents. You will need a solicitor or conveyancer to take care of the legal aspect – they also check there are no planning or local issue that may affect the property’s value.
Don’t forget your home insurance
Home insurance is a vital part of getting a mortgage as most providers insist this is in place. Home insurance eases the pressure paying for unexpected damage around the home so you can get on with enjoying your new home.