If you are looking to buy your first home, you will be considered a first-time buyer, so long as the house will be your primary residence. Both the economy in recent years and the onset of Covid-19 have meant that first-time buyers have found it challenging to get onto the property ladder.
Thankfully, with some research and financial preparation, it is still perfectly possible for first-time buyers to find a competitive mortgage deal. If you are considering a property, make sure to hire a chartered surveyor to report on the property before you exchange contracts.
You are typically a first-time buyer if :
* You have never owned a home previously, either in the UK or abroad.
* You only own a commercial property – such as a shop, restaurant, or salon with no living space attached to it.
* You have never owned a home previously, anywhere in the world, and are looking to purchase a buy-to-let home.
You are probably not a first-time buyer if :
* You are looking to buy a property with someone who owns or has previously owned a home.
* You are having the property bought for you by someone else who already owns their own home, such as a parent or guardian – and it is going to be bought in their name.
* You have previously inherited a property, even if you never lived there and have sold the home.
Principal agreement
An Agreement in Principle is a conditional mortgage offer that you can obtain from a lender before making a complete mortgage application. This is not binding for yourself or the lender, and it is essential to realise that it is not an actual mortgage offer. It can, however, be very beneficial for first-time buyers, as it can give you a good idea of your property budget. Finding your chosen property can also convince the seller that you are a credible buyer.
Improve credit scores
Your credit score can have a significant impact on the mortgage that you can obtain. It can be the deciding factor in whether a lender accepts your application at all, as well as affecting how much you can borrow and the interest rates available to you.
Improving your credit score before applying for a mortgage can improve your overall chance of acceptance and your access to competitive mortgage rates.
How to improve your credit score:
* Check that your address is accurate across all accounts held.
* Register your name and current address on the electoral roll, if they are not already.
* Minimise spending within existing credit agreements.
* Pay all bills in full and on time in the year before application.
* If you have never taken credit, credit builder credit cards can be helpful to prove you are a responsible borrower.
Buying a house is a huge responsibility that can be a daunting step for anyone. Deciding whether a fixed rate or variable rate mortgage or a home ownership scheme would be more beneficial to you is not always straightforward. At CHFinance, our mortgage advisors can explain the benefits of each of your options in plain English and provide continued guidance throughout the entire application process. We have access to competitive mortgage deals from a wide range of both high street and independent mortgages lenders, as well as an intimate knowledge of which lenders are more sympathetic to the needs of first-time buyers.
Remortgage occurs when an existing mortgage borrower effectively swaps their current deal for an entirely new loan. Remortgage can be taken over in different terms depending on lender criteria and your affordability. This could mean switching to another deal with the same lender or looking for a more competitive deal elsewhere. Remortgage can save the borrower money with a lower rate of interest, and more competitive borrowing costs or allow them to raise funds by applying for a larger loan than their outstanding balance. If you remortgage, then lender fees will apply, and broker fees may also be payable. You will need to seek the advice of a qualified mortgage advisor.
Remortgaging can be helpful in the following situations:
* Your initial mortgage term has ended.
* To get a better mortgage rate.
* Change your mortgage type.
* To release equity and borrow against your home.
(+) It will not affect your credit rating as long as payments are maintained
(+) You may not need a perfect credit rating as your home is used as security.
(+) Available over different terms dependant on affordability.
(+) It can also be comparatively simple to remortgage with an existing lender, as they already have all your information and evidence of your track record.
(-) You may have early redemption fees to pay to your current lender depending on your existing mortgage
(-) Remortgages are typically only issued for a select few applications. Lenders are often willing to offer remortgage deals to fund home improvements and alterations, but little else.
(-) Your home will be at risk if you do not keep up with any required repayments
(-) You would be securing previously unsecured debt
(-) Applying for a remortgage with a new lender can be as complex and time consuming as applying for a traditional mortgage in the first place. You may well incur several charges, including a valuation fee, legal fees for the conveyancing work and an arrangement or booking fee. These fees can often run into several hundred pounds.
If you are already on a great mortgage rate, it may be unwise to remortgage. This is especially true if available rates are higher than your current mortgage. If your mortgage rate is unbeatable but you need further finance, a secured loan may be an option to consider.
Your home is one of the most significant purchases of your life, and buying your next property can be just as daunting as your first. It would be best to ask all the same questions when searching for a new property, as you did when you were buying your first. What makes this the right move for you? When you buy your next home, this usually means taking out a new mortgage. This will lead to a transfer (‘port’) of your current mortgage to your new property. However, this will not happen automatically, and you will need to reapply. If the property you are buying is more expensive than your current home, you may need to borrow more money.
On the flip side, your current home may now have some equity. Home equity is the portion of your property that you truly “own.” You are certainly considered to own your home, but if you borrowed money to buy it, your lender also has an interest in it until you pay off the loan. Depending on the price of your next home, the equity from your previous property may be able to cover your deposit or the full cost of your next home. It is best to talk to a mortgage adviser about your next mortgage, as they will be able to help you find the best deal available.
Stamp Duty
You will likely have to pay stamp duty on your next purchase. This is a percentage spent on the purchase of a home or non-residential property to the Inland Revenue.
Stamp duty is charged in bands. Nothing is paid on the first £125,000 of your home’s purchase price, then charges increase based on what band you are in. If the cost of your new home is under £125,000, you must still submit a return (unless exempt) even though you won’t need to pay any Stamp Duty.
The Financial Conduct Authority does not regulate some forms of buy-to-let mortgages.
A buy-to-let mortgage will be secured against your property.
A buy-to-let mortgage is a mortgage for people who want to buy a property, whether a house or a flat, then rent the property out to tenants.
The basic rules around a buy-to-let mortgage are similar to those around regular mortgages. However, there are some key differences as below:
* The fees tend to be much higher.
* Interest rates on buy-to-let mortgages are usually higher.
* The minimum deposit for a buy-to-let mortgage is usually 25% of the property’s value (although it can vary between 20-40%).
* Most buy-to-let mortgages are interest-only. This means you pay the interest each month but not the capital amount. At the end of the mortgage term, you repay the original loan in full. Buy-to-let mortgages are also available on a repayment basis.
* You should be aware that buy-to-let mortgages being bought as an investment are not usually regulated by the Financial Conduct Authority (FCA). However, suppose you or your family (e.g. spouse, civil partner, child, grandparent, parent or sibling) plan to live in the property. In that case, it is likely to be referred to as a consumer buy-to-let mortgages and are assessed according to the same strict affordability rules as a residential mortgage.
* Advising, arranging, lending and administering buy-to-let mortgages for customers are covered under the same laws as residential mortgages. It is regulated by the Financial Conduct Authority (FCA).
You can get a buy-to-let mortgage under the following circumstances:
* You want to invest in houses or flats.
* You can afford to take and understand the risks of investing in property.
* You already own your own home, whether outright or with an outstanding mortgage.
* You have a good credit record and are not stretched too much on your other borrowings, for example, credit cards.
* You earn £25,000+ a year - if you earn less than this, you might struggle to get a lender to approve your buy-to-let mortgage.
* You are under a certain age - lenders have upper age limits, typically between 70 or 75. This is the oldest you can be when the mortgage ends, not when it starts. For example, if you are 45, when you take out a 25-year mortgage, it will finish at 70.
It is a good idea to talk to a mortgage broker before you take out a buy-to-let mortgage, as they will help you choose the most suitable deal for you.
Equity release is a way of releasing the money tied up in your property without having to sell it and move to another home. You can either borrow against the value of your home or sell all or part of it in exchange for a lump sum or a regular monthly income. Equity release is available to people 55 or over whom either owns their property outright or have relatively small mortgages left to pay. Most equity release providers charge a lenders arrangement fee, and you will also have legal fees to pay to a solicitor. You will need to seek the advice of a qualified equity release advisor who may charge a fee for their advice.
(+) Provides a cash sum or regular income. The flexibility of modern equity release plans means that you can release the money as a lump sum or a lump sum with a drawdown facility.
(+) The tax-free cash that you release can be used for anything you like, from home improvements, clearing a mortgage or debt, to the holiday of a lifetime.
(+) The ’no-negative equity guarantee’ means that you will never have to repay more than the value of your home, and your estate will never owe more than the property is worth when it is sold.
(+) Allows you to release equity from your home without moving and downsizing. You can continue to live in your own home, rent-free, for the rest of your life or until you move into permanent residential care.
(+) Some Equity Release Schemes allow you to make monthly, ad hoc or partial repayments if you intend to do so. There are no regular payments to make; the option is yours.
(-) Equity release could have tax implications and affect certain state benefits.
(-) Releasing equity from your property is considered a long-term solution and not ideal for short term borrowing.
(-) The value of your estate will reduce, and the amount you can pass on in inheritance via your estate will therefore also decrease.
(-) If you wish to repay or end the plan early, there may be financial penalties in doing so.
(-) Some lifetime mortgages are paid back with compounded interest, which means that the amount you owe can grow quickly over the longer term.
(-) Equity release is just one possible option for acquiring tax-free money from your home. You should always consider the alternatives such as downsizing, asking family for help or taking out an unsecured loan.
A secured loan is where the lender takes a legal charge over an asset (usually a property) to protect the money lent in case of default. A secured loan would be an additional loan to your mortgage, and this means that your mortgage stays the same, but you would have another loan to think about. A secured loan with the same lender as your first charge mortgage provider may offer better rates and is often known as a ‘further advance’.
A secured loan is also known as a second charge and be helpful in the following situations:
* To consolidate debt.
* Funds for home improvements.
* You’d like to keep your existing mortgage.
The rates for secured loans will typically be higher than remortgages rates. This is because of the increased risk that the lender is taking, where a first charge gets first dibs on any equity if a house is repossessed and sold, and the subsequent charges take their share of whatever is leftover. That said, you would likely pay more interest with a mortgage as the loan will be taken over a more extended period.
Secured loans can be better than a remortgage in the following situations:
* Your current mortgage rate is unbeatable.
* You need money fast.
* Your mortgage has a large early repayment charge (ERC).
* You are unable to remortgage.
* You have bad credit.