First time buyer help

beingjdc

Ah, I think I see where you're confused. If you take out a £200,000 mortgage at 6% interest rate, your repayments will be £1300 a month, but you'll only actually be "paying back" £300 a month. £1000 of it is lost in interest. After a year, you've paid £15,600, but you still owe around £196,000.

So, as long as, after you've paid a deposit, lawyer, moving costs and bought furniture, you have enough to pay £1000 or £1300 a month until you're sure work will turn up, you're OK to buy (but you still might not find anyone to lend).

If not, you're probably safer with your savings in the bank for the rainy day we're all heading into without an umbrella.

firehawk_2

i see. thanks for that, much appreciated. so still its pricey. 1300/month... ouch. im paying 600/month for rent right now. :-/

beingjdc

Well, is the place you rent worth £200,000 though?

Also at the moment there are mortgages for less than 6%, but probably not for people with a small deposit and an irregular income.

Not that I think you should buy, just saying.

bob79

On this forum there is a first time buyers guide to mortgages:
http://forums.moneysavingexpert.com/showthread.html?t=209805
And a sticky on house buying:
http://forums.moneysavingexpert.com/showthread.html?t=175653
These are probably good places for you to take a look.

If you don't have the 200k lying around, then you will need to get a mortgage. You need a minimum 10% deposit currently (so 20k for a 200k house). This is to protect the lender in case you default on your payments.

There are basically two types of mortgages: trackers and fixed rates. The interest you pay on a tracker changes when the Bank of England changes its interest rate. Fixed rates are what it says on the tin: the interest rate is fixed for a certain period (usually 2,3,5,7 or 10 years). Fixed rates give you more security.

Each month you pay the lender a certain amount (yes, it works the same as with rent). This consists of the interest you have to pay and usually a part repayment of the mortgage. After some years (25 seems the standard, but longer or shorter is possible) you will have paid off the mortgage. It is possible to only pay interest each month and pay off the loan after so many years at once. Lenders are not so willing to agree to interest-only nowadays though (credit crunch and all).

Interest paid on the mortgage is like paying rent. Repayment of the mortgage is like paying into a regular savings account (where you pay a certain fixed amount each month into a savings account).

Mortgage rates are lower than interest rates on personal loans or credit cards. That's why in the past people took out 125% mortgages. The extra money that they borrowed they spent on a car, furniture or holidays. For the borrower this works out better than getting separate loans for these things because of the lower interest rate. The risk lies with the bank: if the borrower defaults on the loan, then the bank can't get the money back by simply selling the house. That's why banks stopped giving mortgages for more than 100% (or even 90%) of the value of the house.

[Deleted User]

One of the reasons why we're in this current economic financial mess is for the very reason above!

People not understanding what's fully entailed in getting a mortgage, what types of mortgages there are and what is realistically affordable within their current budget.

Let's just remember one thing - this is going to be the biggest financial commitant you make in your life.

Let's break it down.

1. You need a deposit. Aim for 25% and you'll be getting a decent rate on a fixed rate mortgage. This is massively important as it'll save you a lot of money if say, for example, interest rates rocket over the next 10 years (I expect them too), and you've fixed today at 3.5%. You're going to be saving a packet compared to those people tracking the BoE rate.

2. Only borrow what you can afford to pay back. It's widely agreed borrowing a figure upto x3.5 your salary is a sensible figure. So if you're looking at a 200k house and you've got a 25% deposit then,

200,000 - 50,000 = 150,000.
15,000 / 3.5 = £42,857

Are you earning anywhere near this?

If you're thinking but wait, I won't be able to save 25%, it won't happen and there's no point. Then try thinking about the deposit like this:

i. If you buy a house worth 100k and put down 25k that's 25% already paid off towards it and you're not going to have to pay back interest on this amount.
ii. 25k is a buffer between you and negative equity, which itself is only a problem if you're planning to sell in the short term.

When you think of a deposit like that it becomes less of a chore imposed by banks and more of an incentive to get as-big-a deposit as possible even if that does mean moving to a house costing less rent, slumming it for a bit and saving for the next few years to get a deposit together.

3. Finally, 25 years is a pretty common repayment period and if you're thinking the monthly repayment figure is pretty low, let's make it 15 years then think about it like this... If you lose your job and you can only get one which isn't as well paid, wouldn't it be better to not be overstretching yourself in the first place with your mortgage than having to go cap in hand back to the bank manager to agree a different lending term and pay their hefty 'admin' fee for the pleasure of this too?

Far better to pay over 25 years and make overpayments where possible.

As mentioned above have a read of:

bob79 wrote: »

On this forum there is a first time buyers guide to mortgages:
http://forums.moneysavingexpert.com/showthread.html?t=209805
And a sticky on house buying:
http://forums.moneysavingexpert.com/showthread.html?t=175653
These are probably good places for you to take a look.

Also read:

http://www.moneysavingexpert.com/mortgages/mortgage-guide
http://money.guardian.co.uk/calculator/form/0,,603157,00.html
http://money.guardian.co.uk/calculator/form/0,,603156,00.html
http://www.guardian.co.uk/business/housingmarket
http://www.thisismoney.co.uk/mortgages

Finally have a look at the following board for a month or so before even considering getting a mortgage to get a real feel for what's happening in the economy at the moment...

http://forums.moneysavingexpert.com/forumdisplay.html?f=149