First time buyer's guide...?

Doozergirl

I'll say thanks instead to you. That's free.

Molanole

This is fab! Thank you! My OH and I are looking at maybe buying our first home soonish and we don't even know where to start. Do we apply for a mortgage first or do we find a house first? Such an obvious question but no one has ever explained these things to me!

AndrewSmith

Molanole wrote:

This is fab! Thank you! My OH and I are looking at maybe buying our first home soonish and we don't even know where to start. Do we apply for a mortgage first or do we find a house first? Such an obvious question but no one has ever explained these things to me!

Hi,

I would always suggest that you arrange your finances first. This allows you to confidently look for property withing a pricerange that you know you can afford, and that you will already have a mortgage agreed in principle for.

Read my other posting here which should help a bit. If not, ask me again :beer:

http://forums.moneysavingexpert.com/showthread.html?t=175653

Hope this helps

Andy

VickyA_2

Can I second the "thanks" please? This is such a useful guide to terms used and "questions that I've wanted to ask but have never been brave enough to ask because I'd look stupid".

OH and I are hopefully going to buy next year (currently in rented) and this has been invaluable.

AndrewSmith

VickyA wrote:

Can I second the "thanks" please? This is such a useful guide to terms used and "questions that I've wanted to ask but have never been brave enough to ask because I'd look stupid".

OH and I are hopefully going to buy next year (currently in rented) and this has been invaluable.

It is really appreciated :beer:

If there is anything elsethat you want to know, you now know where to come :j

Andy

Careful_girl

A clear consise and highly informative piece Mr. Smith. Your spelling is really improving too. Well done.

Careful_girl

For your next pice please write a similarly detailed essay on
How To Set Up A Business.

sarah_elton

Re prices rising/falling....

Say you bought a place for £100k, using a £125k mortgage. If you were to sell the place the next day, and redeem the mortgage, the lender would take what you got for the house, and you'd have to pay up the rest.

Suppose prices fall and you could only sell your house the next day for £60k. You would have to find £65k to give to Northern Rock or whoever.

That's wildly simplified and ignores all the fees and rest of it, but you get the idea of the risk. And as Andrew said, it won't be until the price has risen by 25% that you have any equity at all in the house, equity being the bit of cash you get if you sell, once the mortgage has been repaid.

To be honest though, if you imagine you're going to live in this house forever, it doesn't actually matter to you at all what house prices for everyone else are doing. What you do have to think about is why house prices might fall. And one of the biggest reasons would be a rise in interest rates, and therefore mortgage repayments going up.

You need to focus on affordability, which is what a mortgage broker can discuss with you. They will tell you what your repayments will be, and look at that in comparison to your income. Now, you may get a fixed rate mortgage, in which case your repayment is the same every month. But, fixed rates end after a few years. After this your repayments are very likely to be higher. And when they show you what they will be, that's assuming interest rates are the same. If interest rates go up even by 1%, your repayments after the fixed rate ends could be a lot more than you were expecting.

There's a calculator here:
http://money.guardian.co.uk/calculator/form/0,,603156,00.html

Put in a mortgage amount, then different interest rates to see just what a difference it makes.

If prices were to fall, but you could keep paying the mortgage, then you can ride it out till they rise again. Sure, that's not the best way to invest your money if that's what you're trying to do, but you'd survive it. You'd be in the proverbial if prices fell, you couldn't afford your mortgage, you were forced to sell, and then ended up owing your lender tens of thousands.

That's the point you need to think about very very carefully. And at 125% I would never dream of going for an interest only mortgage.

Wickedkitten

If you bought a house for 100k on Northern Rock's together mortgage, you would only have a mortgage on 90k of that, anything over that they are loaning you on an unsecured basis.

AndrewSmith

Wickedkitten wrote:

If you bought a house for 100k on Northern Rock's together mortgage, you would only have a mortgage on 90k of that, anything over that they are loaning you on an unsecured basis.

Exactly right, however you would find that this then becomes a problen should you ever want to move away from the Northern Rock.

The unsecured element of the 125% 'loan' would be treated as a committed outgoing by any new lender if your property value had not increased enough to clear the whole amount. This would mean that the new lender would take the monthly payments to the unsecured element, multiply them by 12 and deduct it from your salary figure before applying the income multiple. Even with a new affordability lender it would still have a detrimental effect on the amount you can borrow.

Placing someone in such a large situation of debt over and above their mortgage borrowing is, in my personal opinion, a recipie for disaster and is not what I would consider 'responsible lending' or 'responsible borrowing' come to that.

I accept that 100% mortgages are there for FTB who cannot save a deposit however if as a FTB one is struggling to pull together enough spare capital to pay solicitors fees ect then surely the question must be asked of how affordable is the new mortgage plus the unsecured element actually going to be?

The ultimate decision of course will always lay with the client however I would always recommend extreme caution and very careful consideration before entering into such a mortgage. Especially in todays property environment where we are not 'generally' seeing massive increases in property values sufficient to sustain the full repayment of all the outstanding debt in a 2-4 year period.

Hope this helps

Andy