When you’re a first-time buyer looking to get a mortgage for a new house there are many factors to take into account. So where do you start? Well, working out how much of a deposit you can put down on a new house is as good as any. Generally, the higher the deposit you have, the better interest rate you’ll get.
However, if you do not have a large deposit, don’t worry: the government’s Help to Buy scheme is also there to help first-time buyers and those buying new houses.
Help to Buy has different options available. The first is Help to Buy: Equity Loan. With an initial 5% deposit in place, the government will then lend you another 20% of the new house price as an extra deposit sum.
Another option is Help to Buy: Mortgage Guarantee, where the government is essentially acting as your guarantor. So, if you default on the repayments then the government will pay your lender instead. Of course, just remember, you’ll still lose your new house if you continually default.
Shared Ownership is something else worth looking at. Here, instead of buying the full new house, you buy an initial share of it and then pay an affordable rent for the remaining share. You will only need a mortgage for the share you initially buy, which can be as little as 25%. This part buy/part rent scheme allows you to buy up the remaining shares of the new house in blocks until you fully own the property.
What type of mortgage?
If you’ve got your deposit sorted out, you still need to decide what type of mortgage you need. The main types are:
Fixed rate – The interest rate stays the same for a fixed period, so your mortgage payments are the same every month. When the fixed rate period ends, you will revert to the lender’s standard variable rate (SVR).
Variable rate – The interest rate can fluctuate to mirror changes to the lender’s SVR or the Bank of England base rate, meaning your payments can go up or down month to month. Variable rate mortgages are most commonly available in the following forms:
- Tracker – A tracker mortgage is a variable rate mortgage linked to the Bank of England base rate, usually tracking within a percent or so above or below the base rate. The tracking term can be as little as one year, or can cover the full lifetime of the mortgage.
- Discount mortgage – This mortgage offers a discount off your lender’s SVR for an agreed term. This can go up and down as the lender’s SVR changes.
- Offset mortgage – This mortgage is linked to your savings. In short, the more savings you have, the lower your interest payments will be. This is because the savings you have are taken off your mortgage loan amount in calculations.
What every mortgage here has in common is it’s essentially a repayment loan. That means you pay back the amount of money you borrow plus the interest on top. Interest-only deals are rare nowadays.
Other points to consider
Seek out the advice of an independent financial advisor. If you hear this more than once it’s simply because it’s very good advice. In addition, think about your own circumstances and try to match it to the different mortgage options available. Such as if you’re allowed overpayments or how long you are locked into a mortgage for. It may seem complicated at first, but if you take things one step at a time, do your preparation and are organised, you can easily get a great mortgage deal for your new house.