First Time Buyers
The process of applying for a mortgage can be daunting, particularly as a first time buyer. With lender criteria becoming more and more stringent over time, it is key to have a broker on your side that you can trust. We at Knightwood Mortgages pride ourselves on efficiency and transparency within our service, to ensure our clients road to securing their first home is as seamless and stress free as possible. We believe buying your first home is one of the most exciting milestones throughout life, so it is our priority to guide you through this process with diligence. We not only have access to the high street and exclusive products you cannot obtain yourself, but also market leading home insurance policies, competitive solicitor quotations and protection/life insurance products to protect you and your family in any eventuality.
So, What is a Mortgage?
Before we delve deeper, it's important to establish exactly what a mortgage is. Simply, it is a loan you take out to purchase your new property. The loan is secured against the value of the property until you pay it off. You will make monthly payments to a mortgage lender which you'll be charged interest on. The higher the interest rate of the mortgage, the more interest you'll be paying each month thus increasing payments. The sooner you pay off your mortgage, the less interest you end up paying overall, so if you have the capacity, and your mortgage provider allows it, it's a good idea to make overpayments where possible. It's important that you keep up with your mortgage payments, as if you don't your lender could repossess your property. The timeframe you will be paying back your mortgage will be spread across a 'mortgage term'. The longer your mortgage term, the less your monthly payments will be, however this does mean you will be paying more interest.
Types of Mortgages
There are a few different types of mortgages available to you. Your advisor will be able to ascertain which is the best option to suit your requirements and circumstances.
Repayment
This involves repaying the funds you've borrowed, with interest, over a mortgage term. Once the mortgage is fully paid, the property then becomes unencumbered, meaning you then own it outright with no debt.
Interest Only
No capital is paid off, only the interest on the loan monthly. You then repay the full amount borrowed at the end of the mortgage term. There are various different methods of repaying at the end of the term.
Repayment Mortgage Options
There are a few different options to choose from when opting for a repayment mortgage. Your advisor will be able to recommend the most suitable options dependant on your circumstances.
Fixed Rate
A good options if you wish to keep security over your payments and know exactly what you'll be paying for a fixed period. The interest paid every month will remain the same for a fixed term.
Offset
This involves paying interest on the amount borrowed, minus money that is held in a linked savings account. For example, you have a mortgage of £100,000, and a savings account containing £10,000, you would only pay interest on £90,000 of the mortgage.
Tracker
A tracker follows a know source, usually the Bank of England base rate. If the base rate increases, so does your interest rate and thus monthly payments. If the base rate decreases, so does your payments.
Other Types of Mortgages
The options above may not meet your requirements. There are further types and schemes detailed below which may be more suitable to your circumstances.
Buy to Let
This refers to taking out a mortgage on a property which you do not intend to reside in. The property will thus be rented out to tenants. For a buy to let mortgage, you will require a larger deposit in comparison to residential. Typically 20-25% as a minimum.
Shared Ownership
This involve buying a share of a property, between 25% and 75%, and making mortgage repayments on the share you own whilst also paying a sum of reduced rent to a housing association based on the percentage share which you do not own.
Right to Buy
This is a government backed scheme designed to help tenants in council housing purchase their homes with discount. The size of discount is dependent on the length of time you've spent in the house, type of property and the value.
How Much Do You Need For a Deposit?
Typically, to obtain a mortgage you require at minimum a 5% deposit. However, interest rates on 95% mortgages tend to be quite pricey in comparison to 90% mortgages, where you'd put a 10% deposit down. If you can stretch to 10%, or anymore, it's usually a good idea as you'll have access to much more favourable interest rates and products. Products tend to change every extra 5% you put down, so the more deposit the better interest rates you'll have access to!
How Much Stamp Duty Is Payable?
Stamp Duty Land Tax is a tax payable in England and Northern Ireland when purchasing property. In Scotland you pay Land and Buildings Transaction tax, and in Wales you pay Land Transaction Tax.
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First Time Buyers in England and Northern Ireland do not pay any Stamp Duty on the first £425,000 of a property's purchase price, but do pay 5% on any amount above £425,000 and up to £625,000. If above £625,000, it is paid at the home mover rate.
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First time buyers in Wales will not pay LTT on residential properties where the purchase price is below £180,000. First time buyers in Scotland will not pay LBTT on the first £175,000 of a residential property purchase price.
In Conclusion..
Stamp Duty Land Tax is a tax payable in England and Northern Ireland when purchasing property. In Scotland you pay Land and Buildings Transaction tax, and in Wales you pay Land Transaction Tax.
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First Time Buyers in England and Northern Ireland do not pay any Stamp Duty on the first £425,000 of a property's purchase price, but do pay 5% on any amount above £425,000 and up to £625,000. If above £625,000, it is paid at the home mover rate.
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First time buyers in Wales will not pay LTT on residential properties where the purchase price is below £180,000. First time buyers in Scotland will not pay LBTT on the first £175,000 of a residential property purchase price.