Hot on the topic of weddings, we dive into another significant life event. Here’s our mortgage guide for first-time buyers…
Do you know the difference between a fixed and a variable mortgage? Have you heard of ‘loan to value’? Are you curious about what help is available for first-time buyers? Or are you a supportive parent who wants to help your loved ones with their first purchase?
The easiest way to get quick answers to all these questions is to hit the ‘reply-to’ button. We’ll be in contact to discuss! But in the meantime, here is a quick guide to this exciting process. (Feel free to forward the email to any friends or family who would find this relevant!)
Q. How big a deposit will I need to get a mortgage?
A. You likely need a minimum deposit of 10% to get a good variety. This is changing with lenders offering low-deposit deals. Yet, to get a good mortgage interest rate, you’ll often need more than 20% of the home’s value as a deposit. And more than 40% for the best deals.
The bigger the deposit, the better the interest rate. Plus, the lower your monthly repayments, the cheaper the mortgage! The difference between a 5% and 10% deposit is huge; the next big jump is 20%, then 40%. So, if you can push yourself up a band (or perhaps ask parents to help), do it.
However, we are seeing the introduction of the 99% mortgage, meaning you’ll need to save much less to secure a home. Ideal for those without family support or extensive savings. The flipside is a much (much) bigger mortgage. This is one to speak to a broker about to ensure you can afford to pay the extended repayments.
Q. Can you explain what “LTV” means?
A. LTV stands for the loan-to-value ratio (LTV), the percentage of the property value you’re loaned as a mortgage. It’s the proportion that you’re borrowing. Lenders often use it to indicate how big a deposit you need, and you’ll see it in Best Buy tables.
To calculate this, subtract your deposit as a percentage of the property value from 100%. So if you have a £20,000 deposit on a £100,000 home, that’s a 20% deposit, meaning you owe 80%. The LTV is 80%.
Q. Are there any other schemes I should look at if I’m struggling to afford a mortgage?
A. Yes. But at the end of the day, you must ensure your finances are suitable. One option is asking family/parents to act as a guarantor. Many first-time buyers rely on help from mum and dad for their deposit. Several mortgages incorporate parental finances in one way or another.
Q. What about if I’m self-employed?
You’ll need three years of business accounts. Though two can be enough. Usually, they must be signed off by a chartered or certified accountant. If you can’t show business accounts, then you will need to show two or three years of tax returns.
Note you’ll be assessed on profits, not turnover. As many company owners try to minimise declared profits to pay less tax, it could be harder to get a larger mortgage.
Q. What paperwork will I need?
A. Before you start, gather everything you need, but double-check with a lender or broker as early as possible. You don’t want to waste time waiting for paperwork to arrive.
Checklist:
• Proof of income (often last three months’ pay slips or 2/3 years’ accounts if self-employed).
• Proof of deposit (plus written confirmation if getting a gift towards the deposit that it really is a gift & not a loan).
• Your last three months’ bank statements.
• Proof of bonuses/commission.
• Your latest P60 tax form (showing your income and tax paid from each tax year).
• SA302 tax return forms — mainly for the self-employed. Lenders may want to see copies of your self-assessment. These can take weeks from HMRC, so be prepared in advance.
But don’t forget, speaking with a broker can help massively. And there are no fees for you to use one. Make the most of expert advice.
Chat with us today to take the stress out of mortgage planning!
0161 250 1470
Risk warning: Think carefully about securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. You may be charged a fee for mortgage advice.
