MoneySavingExpert.com First Time Buyers
Feature by Martin Lewis, MoneySavingExpert
It’s perhaps the cheapest time in history to get a first time buyers’ mortgage – with rates at historic lows and the new Help to Buy ISA due. Yet that’s not the same as saying it’s the best time to buy a house. Property is an ‘asset class’ that means prices move – so never assume buying a home is as safe as houses.
It’s far more important to examine your own reasons for buying. If it’s a long term place to live, to give you security of tenure, and the repayments are affordable (possibly even cheaper than renting) it’s a reasonable aim. Here’s what you need to know…
Step 1. Learn the lingo. A mortgage is likely to be the biggest financial transaction you’ll make, so arm yourself with knowledge to understand the terms commonly used. Here are the key facts you’ll need to understand about any mortgage.
a. The Rate: This is the interest you are charged, and it dictates the amount you repay each month. b. The Type: Most mortgages have rate reductions for the first two to five years. These come in a few types. Fixes are where the rate is locked in. Trackers are where it can only move in relation to UK base rate moves. And variable rate, where they tend to move with UK base rates, but can also move at the lenders whim. c. Length of the deal: If it’s a short-term deal (eg, a 2yr fix), when does it end? d. Term: How long is the entire mortgage borrowing length - eg, 25yrs, and when will it be fully repaid? e. Penalties: Are there any early-repayment penalties if you try and pay it off or move, before the deal ends? f. Can you overpay? Are you allowed to pay more off without any penalties? This can be very useful as it means you pay less interest
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over the mortgage terms and clear the debt more quickly. g. Your loan-to-value (LTV): The proportion of your home’s current value you are borrowing. eg, a £20,000 deposit on a £100,000 means you’re borrowing £80,000 – so it’s an 80% LTV. The lower the LTV, the better deal you can get.
To help with this I’ve a totally free 60 page First-Time Buyers mortgage booklet you can download from
www.mse.me/FTB which takes you through everything in more detail.
Step 2. Deposit, deposit, deposit. Every 5% bigger deposit up to 40% cuts the rate - so a little more can have a big impact.
Imagine you’ve a £150,000 home, and want a £136,000 mortgage. That’s a 90.7% LTV, the top 2 year fix is 3.98%. Yet if you use £1,100 of savings to reduce the borrowing needed, you’d cross a threshold and be at just under 90%, where the top 2yr fix is 2.69%. This would save over £700/year in mortgage payments alone.
Of course saving for a deposit is often a struggle. From autumn you’ll also be given the chance of a cash boost towards buying your first home if you save into a new type of Help to Buy ISA. You can save up to £200 every month and the Government will add 25% on top (so £50 on £200). You can also save an additional £1,000 when you first open it, meaning you can save £1,200 in the first month (that will have £300 added on top of it).
The minimum you need to have saved to get the bonus is £1,600 (so a £400 bonus), and the maximum the Government will contribute is £3,000 (so that means you will have saved £12,000). For full information see
www.mse. me/helptobuyisa.
To advertise in thewire t. 07720 429 613 e.
the.wire@btinternet.com
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