Buying your new house is possibly one of the most monumental financial decisions you will take throughout your life. Even though we have the Corona virus that’s significantly impacting property prices, some reports suggest that February saw a 2.8% price hike for properties throughout the region. This is very likely your first brush with the financial system in ways that you never had to before and it’s better that you’re prepared for it.
If you have the money to pay for the home, that’s great—but most people need to get mortgages or other forms of credit before they can afford their homes. When you set out to buy the home, you’ll be asked questions like ones you’ve never heard and you’ll find that there is more than one way that you can finance your purchase. This blog might help you figure out your financing options and how you can decide which one you should opt for.
First ever home purchase—some considerations
- 1 First ever home purchase—some considerations
- 2 Financing options for first time buyers
- 3 Making the decision
Before you can sign up for a mortgage or tap into your personal finances to pay for the house, you’ll need to make a sound financial plan to manage your payments. So, it’s best if we go through the common expenses incurred in the process of buying home—besides the price of the home itself:
- Deposits— You’ll be required to pay from 5% of the home’s value upfront as deposit. The rate depends from lender to lender.
- Survey Cost— These costs depend on which reports you want from the surveyor. Typically a condition reports costs at most £400, a homebuyer report costs up to £1000 and a building survey costs up to £1300, some lenders offer free valuations.
- Solicitors Fees— The fees for managing all the legal paperwork involved in property transfers.
- Removal Costs— Up to £871.
- Building Insurance—Depends on the size of your home.
- Furnishing and Decoration —Depends on how much money you want to spend.
- Mortgage and valuation fees—Vary between your lenders.
You should remember that first time buyers can get tax relief on stamp duty if the house is worth less than £500,000.
You’ll need to keep all of these costs in mind when you’re going out to buy your house. This brings us to the second most important question—what are your financing options?
Financing options for first time buyers
There are a lot of options out there for you, too many if you’ve never done this sort of thing before. These options can typically be sorted into three basic types:
- Personal incomes
- gifted deposits
- Going into the mortgage market
As mortgage broker’s ourselves, we feel that it’s better if we stick to explaining your mortgage options—especially since these are particularly complicated.
What is a mortgage?
Mortgages are one of the most popular ways of financing your home—especially now since the Bank of England’s held interest rates at a steady 0.01%. When you apply for a mortgage, your lender pays you money to buy the property and also stakes a claim on the property if you can’t pay them back. It’s a way for them to minimise their risk if you can’t repay your debts to them.
There are two basic types of mortgages:
Fixed rate mortgage
It’s when you agree to a pre-set interest rate on your borrowed money, no matter what the policy rate set by the central bank is. A lot of fixed rate mortgages have an early repayment charge, requiring borrowers to pay exactly according to their schedule.
People go for this if they’re following strict financial timelines where their payments don’t change based on external financial circumstances like policy changes or financial turmoil.
Variable rate mortgages
These mortgages have shifting interest rates applied to them, depending on the policy rates from the central bank. So if you take out a mortgage now and the Bank of England raises the value to 2%, then you’ll pay 2% interest rather than 0.75%. Of course, this can also go the other way and the bank could reduce the rates further.
Making the decision
You should do your research and take a good long look at your financial conditions before choosing either type of mortgage. It’s better if you go to a consultant who can help you plan out your mortgage payments and finances in a way that you comfortably pay off the debts.
Looking for a first time home mortgage adviser?
Sterling Capital Group works with a wide network of lending institutions to offer some of the best first time buyer mortgage advice. Our consultants have years of experience offering financial advice to clients and helping them pay off their debts.
Call us today to learn more 0207 822 2390.