Escalating house prices are making it impossible for many first time buyers to get
on the property ladder, however the possibilities, opportunities and potential
of auction properties are open to us all. You DON'T have to be in the trade to benefit.
We don’t want to overwhelm you with useless information that is not relevant but as you might already be aware, buying at auction is one of the best ways to find a property bargain, and that bodes well for first time buyers. Buying your first home, especially auction properties, can be a daunting prospect, so check out our FAQ sheet to help you understand the processes involved when buying property at auction.
It has become increasingly difficult for the first-time buyer to secure that initial home. Traditionally mortgage lenders would expect a deposit of at least 10% before offering reasonable mortgage terms in return. But even at the very lowest end of the current market, the prospective home buyer would need to raise funds in the region of £15,000 - £25,000 to meet these restrictive criteria. For those at the beginning of a career, or perhaps already with a child or children, this first obstacle may seem overwhelming. But neither is the alternative prospect of long-term renting any more reassuring. In fact the cost of renting property may currently equal the cost of a monthly mortgage repayment, and quite often even exceed it.
One of the first steps and probably one of the most important is to seek first time buyer mortgage advice. You can find out how much you can borrow and what that will cost you each month. Good mortgage advisors will know about all the UK first time buyer mortgage deals available at any one time.
Buying a home will inevitably cost more than you think. The table below outlines the minimum you can expect to pay, including VAT where applicable. Figures will vary around the country. A rising cost for many homebuyers is that of mortgage arrangement fees. Lenders offering the best rates can add more than £1,000 worth of fees to deals, or percentage of loan charges which can be very expensive. You will generally be offered the chance to add fees to a loan, this can be useful but be aware you will pay much more then the upfront cost of the fees as interest will be charged on the sum over the life of the mortgage.
You need to also be aware of your home's running costs. You will have to pay for buildings insurance, life insurance if you have a joint mortgage or dependants, contents insurance, gas and electricity bills, council tax and water rates, ground rent and perhaps service charges.
| General Fees | |
| Arranging the mortgage | from £200 up to £1,000 |
| Legal fees | from £400 for selling and £500 for buying |
| Land registry fee | £220 |
| Other searches from | £70 |
| Local authority search fee | |
| In London | Around £200 |
| Rest of England and Wales | Average £140 |
| Stamp duty | |
| properties worth less than £125,000 | nothing |
| properties worth from £125,001-£250,000 | 1% of purchase price |
| properties worth more than £250,000 | 3% of purchase price |
| properties worth more than £500,000 | 4% of purchase price |
| Survey | |
| Mortgage valuation survey | from £170 |
| Homebuyer's survey | from £300 |
| Full structural survey | from £400 |
| Deposit for property | |
| Percentage of agreed sale price | Around 5-10% |
See which of the mortgages for first time buyers suits you best:
- Shared Ownership Mortgages
- 100% Mortgages
- Graduate Mortgages
- Interest Only Mortgages
- Key Worker Mortgages
- Shared Equity Mortgages
- Professional Mortgages
- High Loan to Property Value (LTV) Mortgages
- Mortgages with Friends or Family
- Guarantor Mortgages
- Mortgages with Parents
- Affordable Mortgages
- Part Repayment Part Interest Mortgages
- Rent-a-Room Mortgages
- Cash-back Mortgages
- 30, 35, 40 Year Mortgages
- Family Offset Mortgages
- Interest-free Start Mortgages
- Mortgages at University
What are Shared Ownership Mortgages?
With shared ownership you only need to qualify to borrow a certain percentage of the property value - usually between 25% and 75%. The remainder is paid for - and owned - by a Housing Association that will charge you a nominal rent.
When you can afford to, you can buy back chunks from the Housing Association - a process known as stair casing - until you own 100% of the property.
DisadvantagesThe Housing Association will reclaim the relative percentage of the house that it still owns when you sell.
Only a limited number of properties will be available. You will also be restricted in terms of area. You will have to qualify to get on the Housing Association list.
When you come to sell the property, if you still do not own 100%, you may face affordability problems when looking for your next home.
How 100% mortgages work
These loans offers up to 100% of the property price.
Disadvantages
In effect, you are in a zero-equity from day one and if house prices then go down, your situation will worsen and you will go into negative equity.
The interest rate on high LTV loans is considerably higher. With some lenders, a Higher Lending Charge (HLC) could also apply.
How do Graduate Mortgages or Mortgages for Graduates work?
As well as being able to borrow up to over the full value of the property, your income multiples are boosted. How much by will depend on factors such as your outstanding debt and credit score.
Disadvantages
Graduates rarely start off on a higher salary. They can also have a lot of debt, so you could struggle to make your repayments in the early years – especially having borrowed more than 100%.
What are Interest Only Mortgages?
Mortgage repayments are traditionally comprised of capital and interest repayments. An interest-only loan means you just pay back the interest to the lender.
Traditionally, you would be required to show that you had set up an investment vehicle such as an ISA or pension in which you would save for the capital. Most lenders today offer an interest-only loan without this proof.
Disadvantages
When you do switch to a repayment mortgage, the rise in monthly payments could come as a shock - especially if you make overpayments to catch up with the previous shortfall in capital.
If you continue to pay just the interest, you will not own the property at the end of the chosen mortgage term.
Key Worker Mortgages – What are they?
Typically schemes for key workers are predominantly available through HomeBuy, but now other lenders are willing to help key worker first time buyers with key worker mortgages too. A new product offers 102% loan to value and is offered as an alternative to the Government's Open Market HomeBuy Scheme
Disadvantages
As well as the key worker criteria, there may be a minimum age of 21; and maximum age of 40. There is a very strict list of key workers for whom some of these mortgages are available.
What are Shared Equity Mortgages?
There are a small number of private schemes that are not yet fully established but the main scheme is the Government's Open Market HomeBuy shared equity scheme. From October 2006 this Government scheme is for approved key workers such as nurses, police and other priority first-time buyers.
The buyer only needs to qualify for a 75% loan. The remaining 25% is stumped up in equal measure by the Government and a participating lender.
Disadvantages
The HomeBuy scheme is not available to everyone and long waiting lists are expected.
If you leave the required profession you will have to repay the equity loan within two years.
When you come to sell the property, as you will not own 100%, you may face affordability problems when looking for your next home.
How do Professional Mortgages or Mortgages for Professionals work?
This mortgage gives first-time buyers training to become a solicitor, actuary or accountant, favourable borrowing terms of up to 4.75 times income at 100% LTV (Loan to Value).
To keep repayments low, the loan can also be taken over 45 years. First-timers already practicing as an architect, doctor, dentist, surveyor or vet also qualify.
Disadvantages
Studying for these kinds of roles is expensive, so unless you are comfortably funded, a professional mortgage could see you stretched financially.
There is a risk that you might want to leave your training or make a career change further down the line - but your mortgage will be conducive to a higher salary.
How do High LTV mortgages work?
A high LTV (Loan to Value) mortgage is a mortgage of between 100% and 130% of the property price.
Disadvantages
In effect, you are in negative equity from day one and if house prices then go down, your situation will worsen. Could be a problem if you need to sell or move.
The interest rate on high LTV loans is considerably higher. With some lenders, a Higher Lending Charge (HLC) could also apply.
What are Mortgages with Friends or Family?
When buying with friends or family members, you might take out a joint mortgage. This mortgage allows four friends to buy together at up to three and a half times each salary, as long as they are all graduates or professionals. It is available at 90% LTV. Although up to four people can buy together on a conventional mortgage, lenders usually only take the highest two incomes into account.
Disadvantages
You will be in a joint ownership situation where all names feature on both the mortgage agreement and property deeds. This means that each party is jointly and severally liable for the entire loan.
Neither party can sell without agreement from the others. Flexibility in terms of life changes is very restricted – especially with the maximum number of buyers.
How do Guarantor Mortgages work?
These days, most lenders have a guarantor facility across their standard mortgage range. This means that if there is any shortfall in income multiples, a family member can act as guarantor for the remainder.
However there are also some specific guarantor mortgages The deal offers 100% to professional borrowers earning £15,000 or more. A close relative can act as guarantor for any remainder so long as their age and financial status complies.
Disadvantages
The parent could be liable for the entire guarantor mortgage, not just the proportion they are guaranteeing.
Circumstances of either party can change.
How do Mortgages with Parents work?
Using your parents' salary or pension to boost your income. This deal offers an income multiple of four times your salary or four times your parent's salary after their existing mortgage repayments have been deducted.
Alternatively, the bank will lend 2.75 times the parent and child's income combined.
The deal is available up to 100% of the value of the property (LTV).
Disadvantages
There are often age restrictions for parents and, as the age of the first-time buyer increases, more parents are retired. Some deals require the parent's name to be on the property deeds, which could result in CGT liabilities.
What does 'Affordable Mortgages' mean?
All mortgages should be affordable but this one uses your historical outgoings as a basis for how much you can borrow. This 'rent to buy' mortgage calculates a borrowers' affordability on their last 12 months rental payments, which means you could borrow up to 5.5 times a single income. The mortgage is only available as a two-year fixed rate. You will need a 10% deposit.
Disadvantages
As a tenant, you may not have paid for certain costs that apply to a homeowner, such as property maintenance and repairs and even Council Tax.
You will still have to raise a 10% deposit.
The fixed rate is not very competitive.
Part Repayment Part Interest Mortgages - What are they?
These are interest-only mortgages but only for the first three years. After this time you revert to a repayment deal and can choose to increase your repayments to make up for the shortfall in capital.
Disadvantages
When you do switch to a repayment mortgage, the rise in monthly payments could come as a shock.
How do Rent-a-Room Mortgages work?
When calculating your income multiples, the lender will factor in the income from renting out a spare room. The maximum is £4,250 but may change with each tax year.
Disadvantages
It also means you only have a 95% LTV mortgage. There is no guarantee that you will always have a lodger.
How do Cash-Back Mortgages work?
In return for approx. 5% deposit, you can receive up to 6% of the loan in cash-back, which is paid on completion. Both the rate and tie-in may be fixed for a set period.
Disadvantages
Many home-buying costs such as a survey, searches and land registry fees and searches are payable before completion so this money will not help.
If you redeem the mortgage during the tie-in period, you will be hit with a hefty redemption penalty. In some cases you will also have to repay the cash-back also.
How do 30, 35, 40 year Mortgages work?
Depending on your age, loans can be taken for up to 57 years compared with the traditional 25. Your repayments will be lower, even on a repayment style mortgage where you pay back both capital and interest.
For lenders that work on affordability criteria (money that goes in and out every month), you may be more likely to qualify for a loan.
A long-term mortgage like this is rarely taken as an initial deal rather it becomes extended with time. Decreasing the term as you grow older and earning more will save on higher interest charges.
Disadvantages of 30, 35, 40 year mortgages
It will cost more in the long run.
The interest you repay to the lender may cancel out the benefit of the equity accrued by being on the property ladder.
You will have to be in receipt of income for most of your life (It is possible to change the term as your salary goes up or if you come into some money).
What are Family Offset Mortgages?
Offset mortgages allow you to offset savings against the debt of your mortgage - reducing the interest payable and shortening the mortgage term. So if you had a mortgage of £150,000 and savings of £30,000 you would pay interest on a balance of £120,000.
As first-time buyers rarely have savings, a family offset allows you to use the savings of two separate family members instead.
Disadvantages
The mortgage does not help you get on the ladder, just reduces interest repayments once you are there.
Your family members will not earn interest on their savings.
Interest Free Start Mortgages - What are they?
With 'Fresh Start', for example you can borrow 100% of the property value and there is no interest to pay for the first six months. Although the deal is marketed at divorcees, it is available to everyone including first-time buyers.
Disadvantages
The rate you pay when the 0% deal ends is not competitive and you will be tied in for the remainder of a five-year period.
How do Mortgages at University work?
This mortgage allows a student to buy when still at university. Affordability is calculated on rental income which must be at least 7% of the loan and generated from no more than four rooms in the house.
Disadvantages
Both parents must act as guarantors for the entire loan. They may also have to secure the loan on a proportion of their own home (if you take more than 75% LTV).
You will have the additional stress of finding tenants and living in the house as landlord.
See if you can find your dream startup home or for more advice, please email us at info@ukauctionlist.com or call on 0871 220 4634.
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