First Time Buyer
Introduction
Buying your first home is a major step. Which deal is the best for you?
Here we provide you with what you need to help make your decision as a first time buyer
How much can you afford?
Before looking for a home, you will need to calculate how much you could afford. The mortgages available will largely depend on your income and affordability.
Typically, mortgages will be based on 3.5 times the gross income of a single borrower. For joint borrowers, the maximum loan is likely to be 3.25 times the first income, plus one times the second income, or 2.5 times joint income.
To find out the maximum price you can afford to pay for a home, add on the cash you have available for a deposit. The size of the loan expressed as the percentage of the purchase price or valuation of the home is called the Loan To Value (LTV). If you have no deposit you will need to look at a 100% mortgages.
However, you will need to take into account all the additional upfront costs involved in purchasing a property. Stamp duty starts at 1% of the purchase price on properties costing more than £60,000 to £250,000. Then there are solicitor fees which could average £700.
Properties costing more than £250,000 and up to £500,000 are charged 3% stamp duty, while properties costing more than £500,000 are charged 4%.
You will have to pay the lender an arrangement fee and possible Mortgage Indemnity Guarantee (MIG) charges - a form of insurance that protects the lender, but is paid for by the borrower. If there is a charge for this, it will be added to the loan. MIG fees tend to be very high!
Also there are valuation fees. It is worth finding out what refunds or cash-back lump sums are available from the lender
Pros
You can borrow for 100% of the purchase price.
Cons
Limited availability
High interest rates
Usually very high MIG
How to buy with friends
If your income is not large enough to enable you to buy your first property, you could be best placed buying with a partner or friends. Many couples buy their first home together as the lender will takes into consideration both incomes.
Lenders tend to use an affordability calculation rather than income multiples, as they take into account outgoings as well as income.
Beware of the potential pitfalls:
One person may, and probably will, decide to go their own way at some point, perhaps because they want to set up home with a partner. Or one of the group could lose their job. It's essential that you know exactly what will happen when one person decides to leave.
Each borrower is responsible for the whole mortgage, so if three people bought together and one left, the other two would be responsible for the whole thing.
It is important to seek legal advice before buying together and get a document drawn up, usually a trust deed, covering all potential situations. And you need to decide whether to own the property as Joint Tenants or Tenants-in-Common.
Think carefully before securing other debts against your home.
Your home may be repossessed if you do not keep up repayments on your mortgage.
The overall cost for comparison is 7.1% APR. The actual rate available will depend upon your circumstances. Ask for a personalised illustration. There may be a fee for the mortgage advice. The precise amount will depend on your circumstances, but we estimate it will be 1.5% of the loan amount with a minimum fee of £500 added on to the loan.
Mayfair Consulting Limited is an Appointed Representative of The Mortgage Times Group Limited, 279 Tottenham Court Road, London , W1T 7RJ , which is authorised and regulated by the Financial Services Authority no. 303007.
