First Time Buyer's Guide To Mortgages

ExceptionOE

I guess I know what the answer to this will be, but...

I'm 23, straight out of Uni and I don't earn that much. I've been in work a year now, on a base rate of 12K (Peanuts I know :-() but with overtime its come to around £16 - £17K. I really don't like just throwing my money into the pockets of my Landlord, not just because I don't like them but because its a waist.

I'd like my money to go somewhere usefull, I want to get on the property ladder. On my wage it seems my options are slim to none. As well as my wage I have £6K in an ISA saved up over the years.

Do I have ANY options? I'm doing my dream job at the moment, although getting paid for a lesser position they hired me for, and doing that too which is how I racked up so much overtime. I'm hoping that will change soon. Maybe I could quit and get another random job in IT and earn a bit more in a less boring job, but I don't want to do that.

Are there any options to get on the property ladder available? I have a good credit history, and could probably pull together another 4K of credit if I tried.

ndm_3

Hi

After three years of renting a flat at nearly £800 a month, I have decided to get serious and try to buy my first place. I have just turned 30, am currently single, and earn 35k a year. After making initial enquiries, I thought that I would post on this site and ask for a little advice

I have 3k of debt (credit card), but am willing to sell my car to pay this off if it were to help me get a better deal. A deposit of 20k is available to me, and I have another 2 - 3k set aside for the various fees that I'd have to pay. I have also worked at the same company for the past five years, and would like to think that my employment is secure, and with good prospect.

As I was hoping to buy a property in the east of London, it looks like I will probably need to spend at least 170 - 180k. Would this be possible? When I check the various property sites, and the repayment options they quote, they certainly exceed £800, but are still affordable.

My friend has given me the number of a broker who he thinks could get me a good deal, but I felt it would be a good idea to see what people in this forum could suggest before I gave him a call. Are there things that I should know, or at least consider, before making the jump?

Many Thanks.

wotless

I thought I would wade into this forum and offer a theoretical conundrum to the Mortgage Brokers (or those that can provide an informed opinion) that frequent these forums…I realise no one has replied to the above posts I hope this is not due to first time buyer overkill as my query is some what similar in nature.

Current Situation: A close friend and I cannot afford to get on the first rung independently and so have agreed to take the plunge into the world of home ownership together once we have saved a little pot of capital. We’re both 24, both in careers where our wages will rise in the next couple of years, both currently on 22k before tax pa. By this time next year we will have 20k saved between us. We both live in London and wish to remain here.

A bit of background: I am an assistant planner currently studying an MA in Planning, but my BSc was in Planning Property and Development, as such I can knock up residuals, development appraisals, cash flow analysis’etc, my friend works for a maintenance company therefore any project we embark on won’t be completely blind, we both have a good knowledge of construction/property and have extensive contacts i.e. BS’s, QS’s, Architects, structural engineers and we pretty much have a group of friends that make up a whole gang of trades.

The Question: We plan to treat our first property as a business venture, although we will be moving out of home we want to buy somewhere quite run down (we’re prepared to live in squalor) and we plan to sell on quickly…in this situation what form of mortgage would be best suited to us? We plan to use the 20k as a deposit and for all other extra fees - we realise we may not have much change after all of this for works and so plan to utilise some 0% interest free credit cards to pay for works instead of paying out of our own wages, which will no doubt be taking a hit with mortgage repayments. What kind of amount could we expect to get when considering our combined incomes and our pot of 20k? Would knocking up a fancy business plan inc. residual, dev appraisal and cash flow analysis’ convince, allied with my qualifications & occupation, and our extensive contacts convince lenders that (1) their money is safe in our hands? And (2) would they be willing to lend us a little extra if the right investment opportunity presented itself?

Comments from IFA's and Mortgage Advisors would be most welcome

stephfe

Hi Andy,
Could really use some advice please? We are after a %100 mortgage for a property priced at £131,950 but have no relevant savings!
My husband earns £36,000 a year, Would this be financial ruin?
Many Thanks,
Regards,
Stephfe.

AndrewSmith

stephfe wrote: »

Hi Andy,
Could really use some advice please? We are after a %100 mortgage for a property priced at £131,950 but have no relevant savings!
My husband earns £36,000 a year, Would this be financial ruin?
Many Thanks,
Regards,
Stephfe.

Hi Stephfe,

Obviously I dont know all you details and circumstances however I would think given the info above that it would be feasable. It depends on your situation as a whole though.

Thanks

Andy

bahamas_2

we are looking to buy at caesar resort NC has anyone else? any info on this development would be appreciated:question:

paige13_2

Hi Andy/ Everyone

I would like some advice please.

I am looking at buying my first house and I would like some advice. I have a bad credit rating as I was married and my husband lost his job and I struggled to keep up with all the outgoings, this was time ago now and I have now paid off my debts.

I still have credit cards but the balances is zero.
I have paid off 2 loans,1 last year and the other on 1st of this month in which, I never missed any payments on these.
I am currently in my overdraft, does this matter?

I am currently living in a council house.

My annuel sallery is below
My earnings are £18500
Tax credit is £3380
Maintenance £6000 (I have 1 dependent child)

The house I want to buy has an asking price of £57950, which I can afford easily now. But I dont know where to start really as I have bad credit.

Sorry if this is a bit confusing.

Anyones advice is appreciated

Thanks
L

AndrewSmith wrote: »

Please everyone remember that this is not a definative guide to mortgages, simply my own interpretation and opinion. Therefore don't start having a go or trying to prove me wrong by saying there are things I have missed etc. Mortgages is such a massive topic that it is impossible to cover everything in a post such as this. Also much of the actual advice on mortgages and the definition of suitability is dependant almost entirely on personal individual circumstances.

OK Rant over

Different Types Of Mortgage

There are many different types of mortgage, I will list the basic ones here and a brief description:

Capital & Interest: More commonly known as a 'repayment' mortgage. You make a payment to the mortgage company each month which consists of Capital and Interest (hence the name). As long as you pay what you are asked, on time, for the term of the mortgage you have an absolute guarantee that you will owe nothing at the end. It does assume however that you will remain with that mortgage for the entire term. In reality most people will change mortgages / lenders / move home etc at which point the balance and repayments will be re-calculated to reflect the payments to date.

Interest Only: As the name suggests, you only make a payment consisting of Interest Only to the mortgage company. It is then your responsibility to ensure that, at the end of the mortgage term, you have the means of repaying the mortgage balance which will NOT decrease throughout the term (unless you make capital overpayments). In the past this would have been via an endowment policy or similar. The monthly payments will be less that the identical repayment mortgage but remember that you are merely 'renting' the money. Most buy to let mortgages are on an interest only basis.

100% mortgages: Quite simply it means that you are borrowing 100% of the purchase price or valuation whichever is lower. It means that you have to put no deposit down, however you will generally pay a higher interest rate for the pleasure.

125% mortgage: This is similar to the above however it works in as much as you will have a total loan amount of 125% of the purchase price divided between a Mortgage and an unsecured loan, with the same lender. Beware of anything offering you over the purchase price. In the case of a 125% mortgage your property must increase in value quite healthily before you can sell with enough to clear the existing mortgage and loan, and have some profit for a subsequent deposit. Personally I very rarely recommend these to clients, and on the occaisins that I do it is in conjunction with in depth discussion and warnings about borrowing more than the property is worth.

Negative Equity: Not a type of mortgage but I think ties in with the last 2. Simply means that you owe more than the property is worth.

Base Rate: The rate set by the Bank Of England from which mortgage rates are calculated. Think of it as a wholesale rate, you cannot go to the Bank Of England for this money. Tracker mortgages are based on this. They will mirror or 'track' the movements of this rate with a percentage difference.

Standard Variable Rate: Each lender has it's own variable rate. It is a no bells or whistles, no tie in, basic mortgage which is variable and can be whatever rate the lender chooses to set. Discount mortgages are based on the individual lenders standard variable rate, where they offer you a 'discount' off their normal rate.

Fixed Rate: Your rate will be set at the outset to a level stated by the lender for a set period of time (2,3,5 years eg). The rate you pay will not change in this period, then at the end it will revert back to the lenders Standard Variable Rate.

Self Certify Mortgages: This is a type of mortgage suited to people who are unable to prove their income. It does not change or increase the amount you earn, merely allows you to declare without evidence. Useful for recently self employed people with no accounts, or an employed salesman paid mainly on variable commission. The penaties for falsely stating your income are severe and may even land you in prison for up to 10 years.

Remember. Capital & Interest or Interest only are the types of Mortgage, to which all the above variations such as Fixed, Tracker, Discount etc can be applied.


Setting Up A Mortgage

Finding a Broker: This can be done in may ways. I usually suggest that it be someone who is know to you or has advised you satisfactorally in the past. You could ask friends and family for a recommendation or look in your local pages. Brokers will either deal face to face or via phone/email/post, or a combination of the two. Either is fine as long as you are fully comfortable with what you are putting your name to.

Usual upfront costs: Depends really on the type of mortgage and which lender you are going through. An average though would be:

Valuation (basic survey) £300-600
Booking/Arrangement fee (Charged by the lender and can be added to the loan) £300+ (some lenders charge as much as 1.5% of the loan)
Deposit (obviously) if you are using one.
Solicitors fees including all associated costs £1000-£1500 (based on a purchase of £120,000-£200,000)
High loan to value fee. If you borrow over 75% of the value, a sinlge premium indemnity policy is required by the lender to protect them against financial loss should they need to reposess. Up to 90% most lenders pay this for you. Over 95% the vast majority will charge it and add it to your mortgage. Varies dramatically from lender to lender but an average on a mortgage of £150,000 would be about £2600.
If possible I also recommend that you ahve an emergency fund of about £1000-3000 to cover misc costs.

What will they lend you: Again this varies from lender to lender, and the individual case (credit history, deposit size, employment history etc) however the average is 3.5-4x single income or 2.75-3x joint income. When calculating the borrowing amount you must first deduct the annual costs of any loans outstanding from your salary before applying the multiples. Ask me if you want examples. Some lenders will work on affordability, where by the look more at your net income monthly and calculate an affordable amount based on that.

Credit Score: This goes hand in hand with credit history, Credit history is how you have conducted your financial affairs over the last 6 years. Credit score is a combination of this along with detailed information regarding payment histories and certain points given for your individual circumstances. You can obtain your credit file at any time from one of the credit reference agencies such as Experian or Equifax.

Information you need to supply:It never hurts to carry out a simple credit search on yourself however just make sure that you dont do it too often.

Prior to my initial meeting with any client I always ask them to provide the following:

Driving License
Passport
3 year address history
3 year work history
3x payslips (latest)
Latest p60
last 3 bank statements
Current mortgage details / original offer
details of any outstanding loans/credit
details of any credit problems in the past 6 years

How long does it take to get the mortgage: Depends again on the lender and the type of mortgage you are getting. As long as the lender/broker has all the info they need you should expect the mortgage offer within 2-4 weeks.

Buying A House

Pretty much all the info you ask for here is in my other post Housebuying Moneysaving Tips

If not then simply ask me for more info

Hows this to be going on with?

Apologies for the length of the post

Anything else you need, just ask me.

Will cover the insurances a bit later.

Cheers (now with RSI)

Andy

paige13_2

Hi Andy/ Everyone

I would like some advice please.

I am looking at buying my first house and I would like some advice. I have a bad credit rating as I was married and my husband lost his job and I struggled to keep up with all the outgoings, this was time ago now and I have now paid off my debts.

I still have credit cards but the balances is zero.
I have paid off 2 loans,1 last year and the other on 1st of this month in which, I never missed any payments on these.
I am currently in my overdraft, does this matter?

I am currently living in a council house.

My annuel sallery is below
My earnings are £18500
Tax credit is £3380
Maintenance £6000 (I have 1 dependent child)

The house I want to buy has an asking price of £57950, which I can afford easily now. But I dont know where to start really as I have bad credit.

Sorry if this is a bit confusing.

Anyones advice is appreciated

Thanks
L

AndrewSmith wrote: »

Please everyone remember that this is not a definative guide to mortgages, simply my own interpretation and opinion. Therefore don't start having a go or trying to prove me wrong by saying there are things I have missed etc. Mortgages is such a massive topic that it is impossible to cover everything in a post such as this. Also much of the actual advice on mortgages and the definition of suitability is dependant almost entirely on personal individual circumstances.

OK Rant over

Different Types Of Mortgage

There are many different types of mortgage, I will list the basic ones here and a brief description:

Capital & Interest: More commonly known as a 'repayment' mortgage. You make a payment to the mortgage company each month which consists of Capital and Interest (hence the name). As long as you pay what you are asked, on time, for the term of the mortgage you have an absolute guarantee that you will owe nothing at the end. It does assume however that you will remain with that mortgage for the entire term. In reality most people will change mortgages / lenders / move home etc at which point the balance and repayments will be re-calculated to reflect the payments to date.

Interest Only: As the name suggests, you only make a payment consisting of Interest Only to the mortgage company. It is then your responsibility to ensure that, at the end of the mortgage term, you have the means of repaying the mortgage balance which will NOT decrease throughout the term (unless you make capital overpayments). In the past this would have been via an endowment policy or similar. The monthly payments will be less that the identical repayment mortgage but remember that you are merely 'renting' the money. Most buy to let mortgages are on an interest only basis.

100% mortgages: Quite simply it means that you are borrowing 100% of the purchase price or valuation whichever is lower. It means that you have to put no deposit down, however you will generally pay a higher interest rate for the pleasure.

125% mortgage: This is similar to the above however it works in as much as you will have a total loan amount of 125% of the purchase price divided between a Mortgage and an unsecured loan, with the same lender. Beware of anything offering you over the purchase price. In the case of a 125% mortgage your property must increase in value quite healthily before you can sell with enough to clear the existing mortgage and loan, and have some profit for a subsequent deposit. Personally I very rarely recommend these to clients, and on the occaisins that I do it is in conjunction with in depth discussion and warnings about borrowing more than the property is worth.

Negative Equity: Not a type of mortgage but I think ties in with the last 2. Simply means that you owe more than the property is worth.

Base Rate: The rate set by the Bank Of England from which mortgage rates are calculated. Think of it as a wholesale rate, you cannot go to the Bank Of England for this money. Tracker mortgages are based on this. They will mirror or 'track' the movements of this rate with a percentage difference.

Standard Variable Rate: Each lender has it's own variable rate. It is a no bells or whistles, no tie in, basic mortgage which is variable and can be whatever rate the lender chooses to set. Discount mortgages are based on the individual lenders standard variable rate, where they offer you a 'discount' off their normal rate.

Fixed Rate: Your rate will be set at the outset to a level stated by the lender for a set period of time (2,3,5 years eg). The rate you pay will not change in this period, then at the end it will revert back to the lenders Standard Variable Rate.

Self Certify Mortgages: This is a type of mortgage suited to people who are unable to prove their income. It does not change or increase the amount you earn, merely allows you to declare without evidence. Useful for recently self employed people with no accounts, or an employed salesman paid mainly on variable commission. The penaties for falsely stating your income are severe and may even land you in prison for up to 10 years.

Remember. Capital & Interest or Interest only are the types of Mortgage, to which all the above variations such as Fixed, Tracker, Discount etc can be applied.


Setting Up A Mortgage

Finding a Broker: This can be done in may ways. I usually suggest that it be someone who is know to you or has advised you satisfactorally in the past. You could ask friends and family for a recommendation or look in your local pages. Brokers will either deal face to face or via phone/email/post, or a combination of the two. Either is fine as long as you are fully comfortable with what you are putting your name to.

Usual upfront costs: Depends really on the type of mortgage and which lender you are going through. An average though would be:

Valuation (basic survey) £300-600
Booking/Arrangement fee (Charged by the lender and can be added to the loan) £300+ (some lenders charge as much as 1.5% of the loan)
Deposit (obviously) if you are using one.
Solicitors fees including all associated costs £1000-£1500 (based on a purchase of £120,000-£200,000)
High loan to value fee. If you borrow over 75% of the value, a sinlge premium indemnity policy is required by the lender to protect them against financial loss should they need to reposess. Up to 90% most lenders pay this for you. Over 95% the vast majority will charge it and add it to your mortgage. Varies dramatically from lender to lender but an average on a mortgage of £150,000 would be about £2600.
If possible I also recommend that you ahve an emergency fund of about £1000-3000 to cover misc costs.

What will they lend you: Again this varies from lender to lender, and the individual case (credit history, deposit size, employment history etc) however the average is 3.5-4x single income or 2.75-3x joint income. When calculating the borrowing amount you must first deduct the annual costs of any loans outstanding from your salary before applying the multiples. Ask me if you want examples. Some lenders will work on affordability, where by the look more at your net income monthly and calculate an affordable amount based on that.

Credit Score: This goes hand in hand with credit history, Credit history is how you have conducted your financial affairs over the last 6 years. Credit score is a combination of this along with detailed information regarding payment histories and certain points given for your individual circumstances. You can obtain your credit file at any time from one of the credit reference agencies such as Experian or Equifax.

Information you need to supply:It never hurts to carry out a simple credit search on yourself however just make sure that you dont do it too often.

Prior to my initial meeting with any client I always ask them to provide the following:

Driving License
Passport
3 year address history
3 year work history
3x payslips (latest)
Latest p60
last 3 bank statements
Current mortgage details / original offer
details of any outstanding loans/credit
details of any credit problems in the past 6 years

How long does it take to get the mortgage: Depends again on the lender and the type of mortgage you are getting. As long as the lender/broker has all the info they need you should expect the mortgage offer within 2-4 weeks.

Buying A House

Pretty much all the info you ask for here is in my other post Housebuying Moneysaving Tips

If not then simply ask me for more info

Hows this to be going on with?

Apologies for the length of the post

Anything else you need, just ask me.

Will cover the insurances a bit later.

Cheers (now with RSI)

Andy

wayoflife

What would everyone think about doing a seperate sub board to cater and help first time buyers?

I think it would be a really good idea, and there would be alot to talk about.....?

wayoflife

What will they lend you: Again this varies from lender to lender, and the individual case (credit history, deposit size, employment history etc) however the average is 3.5-4x single income or 2.75-3x joint income.

is this a joke or what? Im not having a go at anyone personally but with house prices as they are just for an average house you need a single salary of £60,000 (without any deductions!) what a joke!!!!