First Time Buyers: Tips from a London Mortgage Advisor
by Sam Thomas — Posted on 10 June, 2019
Read our London based mortgage advisor’s guide below to understand some of the terms associated with the different mortgages for first time buyers.
Integrated Mortgage and Legal services under one roof
Starck Uberoi Solicitors works in partnership with Starck Uberoi Mortgages in a joint venture relationship to provide first time buyers with a comprehensive and seamless mortgage and legal service. Our coordinated service means our clients enjoy support that reaches beyond boundaries set by other solicitors and mortgage advisors.
Buying your first home is a big step and you need to find the method that’s most suited to you. There are many ways of getting onto the property ladder like Help to Buy and Shared Ownership mortgages. Our Advisor’s guide goes into depth to help you understand some of the terms used when discussing your first mortgage.
A Residential Mortgage is the most common type of mortgage with over 80% of mortgages being for homeowners. A Residential Mortgage allows you to take out a loan from a bank or building society using your home as the security asset against the loan. Loans usually work with a 5-25% deposit with the rest coming from a bank or building society. The higher the deposit the less risk you pose to the lender, so the more inclined they will be to lending against your property.
Mortgages work by allowing you to make monthly payments at an agreed rate for a certain period of time. This can either be a fixed rate, variable or tracker. The fixed rate period usually lasts between 2 and 5 years. If the mortgage is not switched, then your payments are moved onto the (usually) higher variable rate at the end of the fixed rate period. The variable rate is a certain percentage, set out in your initial mortgage offer, above the Bank of England base rate or LIBOR and tends to be much more expensive than your previous fixed rate.
To avoid the variable rate it is common practice to re-mortgage and move onto a different product, either with the same or an alternative lender. You must be aware that early redemption charges can be incurred if you choose to re-mortgage too early. It is better to either wait until the end of your fixed rate period or choose a product with either a porting (move from one property to another) option or one with no Early Repayment Charges (ERC’s). We recommend getting in touch with us at least 4 months before the end of your fixed term so we can assess your current circumstances, as well as your future plans, and arrange a suitable option for you that takes these matters into full consideration .
Help to Buy
Help to Buy is a Government scheme that helps first time buyers get on to the property ladder. The Government will agree to provide a percentage of the deposit towards your home through the Homes and Communities Agency department (HCA). You usually only need a 5% deposit for a Help to Buy mortgage as the Government will boost your deposit up to 20% or more (up to a maximum of 40%) within London.
This equity loan can be repaid at any time without incurring ERC’s unlike a conventional mortgage. If the loan is not repaid and you decide to sell the property then the Government can reclaim its percentage interest in the property.
The Help to Buy scheme can only be granted on New Build properties worth up to £600,000.00. The scheme only applies to residential, owner-occupied properties. In other words, you cannot rent out your Help to Buy property.
In order to qualify for a Help To Buy purchase you must, in addition to obtaining a mortgage, also apply directly to the Government scheme for the Authority To Proceed (ATP). This is done via the online portal and is something we can assist with.
Shared ownership involves buying a share in a property and paying rent on the remaining share. The rent you pay is to the co-owner of the property, this will usually be a Housing Association. You are initially able to purchase between 25 and 75 per cent of the property. Shared ownership is particularly pertinent in London due to property prices.
You can gradually increase your share of ownership by way of Staircasing. Staircasing allows you to increase the percentage share of the property that you own. The higher the share of your ownership the less rent you will have to pay to the co-owner. If you become a 100% owner, you will no longer have to pay this rent.
The main benefit of buying a property with shared ownership is the cost – as the rent is usually less than what you would pay in the open market. You will also benefit from security of tenure, i.e. the right to continue to occupy the property at the end of any fixed term, which you won’t necessarily get in the private rented sector (as long as you keep up with your rent payments).
Do first time buyers have to pay Stamp Duty?
Stamp Duty Land Tax is a tax that is incurred when buying or transferring a property. First time buyers benefit from tax relief on property purchases up to £300,000. Therefore as a First Time Buyer, you will pay 0% up to £300,000, then a reduced rate of 5% from £300,000.00 to £500,000.00. For example, for a house valued at £400,000, the stamp duty payable will be £5,000 as you pay 0% for £300,000 and 5% on the remaining £100,000. A purchase for £300,000 or less will incur no stamp duty.
To provide comparison, the standard residential rates of SDLT have been copied below from the HMRC website:
|Portion of consideration||Current standard rates||Rate for first time buyers|
|Up to £125,000||0%||0%|
|Over £125,000 and up to £250,000||2%||0%|
|Over £250,000 and up to £300,000||5%||0%|
|Over £300,000 and up to £500,000||5%||5%|
The role of the Mortgage Advisor
We, the Advisors will:
-Assess your current situation
-Discuss and consider your future aspirations and contingencies
-Advise you on the best product available on the market
-Process your full mortgage application all the way until the offer is received
The role of the Solicitor
We, the Solicitors will:
-Review the terms of the lease and other documentation and advise you as to your obligations
-Raise enquiries about the property with the vendor
-Comply with lender requirements and special conditions
-See your matter through to completion including paying Stamp Duty and registering the title at Land Registry
How Starck Uberoi can help
Are you considering buying your first property and are you in need of professional mortgage advice? Our experienced mortgage team will deal with your matter efficiently, and negotiate with mortgage underwriters to ensure you get the best deal. Our experienced Conveyancing solicitors work together with the mortgage team to provide a seamless property transaction. For more information, please visit our Mortgage or Conveyancing pages, or to book an appointment please call 020 8840 6640. We are based in Ealing; our West London Ealing office is located 10 minutes from Ealing Broadway station. For an appointment at our London Belgravia office which is a few minutes from Victoria Station then please call 020 7824 5118.