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First-Time Buyers
First-Time buyers differ from other buyers in that they do not have any profit (equity) from their previous house sale to bring to the current purchase. First-Time buyers, therefore, usually have a need for higher percentage mortgage loans to value. They may also be looking to borrow large sums relative to their level of income.
Some lenders will lend higher loan-to-value percentages (+90%) to First-Time buyers having satisfied themselves that the borrower can afford such a high percentage loan. The borrower may be required to provide extra security for such a loan, usually in the form of a higher lending charge which reduces the potential loss if the house is taken into possession and sold at a loss. Alternatively, the lender may accept a guarantor (e.g. parents) to act as a personal guarantee to reinforce the status of the borrower.
Tips for First-Time buyers:
Saving for your first property can feel like an endless task as house prices soar compared to your savings. The tips below may be helpful when considering your first time property:
- Buy with friends - there is nothing stopping you from clubbing together with friends to take the first step. This will enable you to collectively borrow more.
- Borrow 100% - another way for First-Time buyers to obtain the capital to purchase a property is to borrow the full amount from the lender. However, this is potentially risky if the property loses value (negative equity) as you will be paying back a larger amount than the property is worth!
- Guarantor Loans - guarantor mortgages are where only the First-Time buyer is named on the mortgage deeds. The family member(s) assisting them are not named on the deeds, but instead provide a guarantee that they will be responsible for all the repayments if their son or daughter is unable to make them. Alternatively, some parents may find it easier to provide the deposit for the property as a gift or loan!
- Graduate Mortgages - these mortgages are often available on better terms than standard products because graduates have a higher long-term earning potential and greater job security, which in turn gives them a lower risk profile and enables the lenders to offer them loans with more generous income multiples.
- Borrow 100% Plus - a limited number of lenders offer borrowers the opportunity to borrow more than the value of the property. However, this is potentially risky if the property loses value (negative equity) as you will be paying back a larger amount than the property is worth!
- Interest-Only Mortgages - with these types of mortgages, monthly payments only cover the interest on the loan and do not pay off the amount owed. It is therefore important to establish from the outset how the loan will eventually be repaid. A First-Time buyer may take out an Interest-Only mortgage at the outset of the purchase with the knowledge that as his / her job prospects improve, gain promotion etc. they will revert to a repayment mortgage at a later stage.
- Home Buy - there are government schemes whereby social tenants, key workers and other First-Time buyers can buy a share of a home and get a first step on the property ladder.
- Shared Equity - shared ownership of a property with a public body such as a housing association. Here you buy a percentage share of a property owned by a housing association and then pay them rent on the remaining share you do not own. It's possible to buy a small share initially (e.g. 25%) and then gradually buy the rest of the property when you can afford to do so. This process is known as staircasing.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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