First Time Buyers Guide
When it comes to first time buyers, mortgage providers have always been particularly cautious. Results from First Time Buyers found the ever increasing deposits required for your first mortgage has meant the average age of a single person buying their first home is now 38! Following the recession and the country’s change of leadership, the blame for the financial meltdown is being delegated to individuals and their presumably irresponsible borrowing, even though many had no idea they would lose their income and therefore wouldn’t be able to afford their mortgages. And with that concept in mind, the strategy for the recovery period was designed not only to discourage creditors from lending to people who can’t guarantee beyond doubt they will afford their mortgage – but to make that impossible, by imposing very strict regulations. In other words, if your financial situation isn’t brilliant, they will presume it will remain that way, which isn’t exactly encouraging for those who are just starting out in life.
A first time buyer will most likely be perceived as a high risk customer, for a number of reasons. First of all, a first time buyer will almost surely look for a mortgage with a high LTV ratio, LTV being the abbreviation for loan to value. In practice, that means that they require a mortgage to cover most of the costs of buying the new property they desire, as they probably don’t have major savings stashed away to complete the sum, or for a substantial deposit on their mortgage for that matter. First time buyers are often young people starting out in their career or needing a more expansive house due to the decision to start a family, and that segment of the market is usually the one with the least available funds and needing more lenience at the beginning of the term, which is where interest only mortgages come in, proving very useful to people who cannot afford to start repaying the loan straight away. However useful this type of mortgage has been for customers so far, it is being forcefully limited by new regulations, stating applicants must be able to prove they can actually repay the loan in the future.
It’s no secret that most likely going through an incipient phase of their career, first time buyers will not necessarily have the most sizeable income, yet according to a normal career evolution their revenues will be augmented eventually – yet their application is considered based on their current earnings, although it seems improbable they remain within the same parameters over the next 25 years. If you are aspiring to a better home sooner rather than later, this could be a disadvantage, as creditors will have a long-sighted perspective yet biased, considering only the risks and tending to disregard the fact that one’s income tends to rise , especially if they are only at the beginning of their working venture.
In order to get a mortgage, as a first time buyer, in these economically troubled times, you should consider saving up as much as possible, as that increases the chances of your application being accepted. The lower the LTV you look for, the more doors will open before you, as customers looking for a mortgage with low LTV are always preferred by creditors. The capital these applicants already have at their disposal serves as proof of their monetary responsibility, better financial situation, ability to save etc, which are very good signs for any prospective mortgage provider, partly reassuring them that the applicant is able to afford the loan and has got encouraging lifestyle tendencies, in terms of balanced spending, which meand the loan is likely to be repaid on time and with no hindrances.
Getting a mortgage as a first time buyer is not impossible, and everybody loves a good challenge. However, in order to actually succeed, you need to be very pragmatic in terms of your borrowing limit, which is set a lot lower for you than for other costumers due to the type of mortgage you should go for, which is one with a lower LTV. Therefore, if you are reluctant to waiting a few years for the market to be revived and some of these restraints placed on mortgages to perhaps be lifted or at least slightly loosened, the optimal thing to do is to consider a cheaper property, as refusing to reduce the standard might leave you without a mortgage altogether.
Secondly, since you will be on a very tight budget, you need to carefully evaluate the condition of the property you want to buy, in order to establish any additional costs, aside from the fees involved in the purchase itself. Saving money will be an issue so the need for any repairs or adjustments has got to be appraised and the estimated costs of the repairs secured, if you want to make use of the property straight away.
When you actually go to creditors enquiring about a mortgage, it is essential that you are flawlessly prepared, and keep in mind one thing, namely that their first impulse is to not approve your application, therefore you must prove you’ve done enough research and are very confident about your chances. First, you need to have all your data, calculated and recalculated, and know for sure what LTV you are looking for. Your papers need to be faultlessly gathered as well, especially those meant to prove your income, and particularly if you are self-employed, as that makes matters even more complicated.
It is known that you can opt for either a repayment mortgage or an interest only mortgage, and in terms of interest rates, you can choose a fixed rate, a tracker, a discounted rate, a capped rate or a variable rate mortgage. The type with most advantages for a first time buyer would of course be the interest only mortgage, as it is more flexible, meaning you don’t have to repay the capital right away and it is usually done through financial plans involving investment, which also means the actual amount of money you have to pay is smaller than it would be with a repayment mortgage – even though risks do exist in terms of the investments not being as profitable as expected. However, interest only mortages have been greatly limited, in terms of no longer being accessible to prospective buyers without definite proof that they will be able to repay the loan, as financial authorities infer many buyers have in the past taken on this important commitment with the intention of finding ways to repay the loan along the way, and for that matter haven’t found them and got themselves in an undesirable situation, which also, on a larger scale, put mortgage providers in a financial predicament. That is why extremely strict conditions are being intorduced and larger deposits are likely to be required as well.In order to get a mortgage, especially as a first time buyer, you also need a very good credit history, therefore if you are considering getting a mortgage at any time in the future you should be very careful with borrowing, even short term and small amounts of money, as it will all count later. Your prospective mortgage providers will try to get a clear depiction of your attitude towards borrowing, spending and repaying, or your borrowing responsibility to be more precise. A mere proof of your income will not suffice, as that is always a variable over such a long period of time, and just as important to them will be how you have managed any previous loans, which were of course smaller and easier to cope with than a mortgage. They will also be aware that for instance young families or people planning on starting a family after they move into a new property are more likely to struggle for money and have more substantial outgoings as childcare requires mandatory spending. Therefore it would be very helpful to have a clean track record when it comes to repaying loans and also proof of a sensible management of household finances.
Most of all, you need to handle this process with realism and perseverence, which is a combination likely to succeed, even if it takes some time. Save up, plan ahead, don’t leave anything to chance or even worse, to the amiability of your prospective mortgage providers, as there will be very little of that, since everyone is trying to protect their own financial interests and those who want to advance on the property ladder without already being quite high on it will be disadvantaged for years to come. For a first time buyer, now more than ever, the success of these aspirations depends on diligence, a sharp spirit of observation and permanently scouring the market for the best possible options.