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Most mortgage providers now offer first-time buyers the chance to access 5% deposit deals, meaning that they benefit from a 95% LTV (loan to value) ratio. Government efforts to help more young buyers onto the property ladder have encouraged this, and things like the Help to Buy scheme have done a lot to improve young people’s access to the property markets.
But while low high LTV rates are available, your options could be limited if you are restricted by a 5% deposit. Saving that bit more and switching to a 10% deposit instead could increase your options and allow you to access a better deal in some cases. Lower deposit levels generally lead to higher interest rates and less flexibility.
When saving for your deposit, don’t forget you will need money for other property purchase costs as well, including the arrangement fees and, if you’re looking at property over £125,000, stamp duty.
Although it is possible to use an unsecured personal loan, or credit card loan to boost your deposit, this is a risky decision. Not only are mortgage lenders less likely to approve applications that require the use of a loan to pay for the deposit, but the amount you’re allowed to borrow may also be reduced because your outgoing expenses will be greater.
Similarly, as a first-time buyer, borrowing extra money for a deposit on top of paying for your mortgage can add another layer of financial risk to your lifestyle during an already turbulent time.
Recent government efforts to encourage home-ownership have created an exception to this rule. The Help to Buy Equity Loan scheme offers a comparatively low-risk loan for first-time buyers looking at new-build homes.
The government will lend you up to 20% of the cost of your new build home and you won’t be charged any loan fees on this sum during the first five years of owning your new property. Interest rates do come into force after this point, but they are lower than many commercial rates
Lenders follow the general rule of lending around 4x an individual’s annual salary. For joint applicants, the guide is either 3x the collective salary or 4x the first salary plus 1x the second.
However, following the Mortgage Market Review (MMR) by the Financial Conduct Authority – the regulator for financial services in the UK – lenders are now also obliged to take into account your personal expenses so that they only lend what you can really afford to pay back. If you have other debts to pay, high bills, or other outgoings such as childcare, then you will be able to borrow less.
Lenders are under strict regulatory obligations to ensure that they only lend to borrowers who can reasonably afford to pay it back. Under new rules imposed by the Financial Conduct Authority they will not only check your income and weigh up whether you have had any financial difficulties in the past, they will also look at your other spending commitments such as other loans, childcare and even your usual entertainment budget.
As with most financial products, lenders will consult your credit profile and assess how you’ve fared with financial products in the past. This can determine not only whether or not you’ll be offered a mortgage, but also under what terms.
First-time buyers that have a limited credit history may have difficulty in proving they are a safe borrower. However, there are steps you can take to prove your credit worthiness, such as taking out a credit card and demonstrating your ability to make payments each month