Buying your first property is one of the biggest financial steps you can take, so it's important to make sure that you find the right mortgage deal to get you started. With so many first-time buyer mortgages available to choose from, it can seem a daunting prospect to find the right deal. But it’s simply a case of finding the best deal for your circumstances.
How large is your deposit, compared to the loan you wish to take out? Does your family wish to help out? Would you be willing to switch bank accounts to secure a better deal on your mortage? All of these factors could influence your decision.
What are the important factors to consider?
It is essential to do your research before settling for a mortgage, but even more so when it is your first purchase. The main things that you need to consider when choosing a mortgage are:
- the loan-to-value that you are eligible for;
- the interest rate that you will have to pay;
- the 'arrangement' fee for the mortgage of your choice.
Let's consider these in a little more detail.
LTV (or loan-to-value) represents the percentage of a loan relative to the value of the home. So, if a first-time homebuyer places a £15,000 deposit on a home valued at £150,000 and needs to borrow the remaining £135,000, the minimum loan-to-value the buyer is eligible for will be 90%. To see how much you would borrow for different valuations, why not check out our 90% LTV mortgage page?
The interest rate of any mortgage is important, as this helps to determine your monthly repayments. Homebuyers can choose to apply for a fixed-rate mortgage, or a tracker rate, which mirrors any changes to the Bank of England base rate.
These arrangements typically continue for a set period - typically 2 to 5 years - before reverting to the lender's standard variable rate (SVR). The standard variable rate is also important to note, as it could represent a leap in your repayments at the end of the introductory period (though, equally, some payments can fall).
Many mortgages will charge an 'arrangement' fee - some as high as £1,499 - though some are free to first-time buyers. It's important to take this into account as a great interest rate may be disadvantaged by a high arrangement fee.
Another fee to look out for is the early redemption fee that you may find with some fixed rate mortgages. If you decide to cancel your mortgage before the end of the fixed-rate period, you may be subject to a penalty of up to six months' worth of repayments.
As always, we recommend that you seek professional advice if you are unsure which type of mortgage is right for you and that all of the information provided above is for use as an overview only and should not be the basis for your mortgage decision.