Mortgages for first time buyers can be daunting for those who are jumping onto the property ladder for the first time. To help the uninitiated, we have created this guide that explains the mortgages available and the role of a first time buyer mortgage advisor.
Residential Mortgages
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.
Shared Ownership
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 stamp duty 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.
The role of the Mortgage Advisor
-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
-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
Whether you are closer to our Brentford office, our Ealing office, our Belgravia office, our Pinner office, our Richmond office or our Canterbury office, you can arrange an appointment at whichever suits you best. Our partner, Raminder Uberoi, can also offer a Notary Public service at any of our London offices.
