Atom bank tells us everything the first time buyer needs to know about mortgages
For a first time buyer, the word ‘mortgage’ has the power to instil a real sense of fear: knowing where to start can seem like a daunting task, to say the least. Whether you’re hoping to escape the relentless cycle of renting life, be free of your parent’s home, or simply make it on your own, securing a mortgage is the first step to becoming a homeowner.
Want to get yourself into the best position to buy, but don’t know how? Luckily, Paul Elliot, Head of Mortgages at Atom bank, has stepped up to the plate, providing his expert advice on how best to tackle securing your first mortgage.
How do you find the best mortgage deal?
Though there are many mortgage suppliers out there, knowing which deal is the best one for you can be a tricky task to undertake.
“I will always suggest that you seek out independent advice first – an independent mortgage broker will scour the market for you so that you can trust that it’s the best deal for you. Independent brokers have access to lots of different lenders in the market and have a regulatory obligation to recommend the best deal for your personal circumstances. With no sales agenda in the way, you should make an independent broker your first port of call!”
We also spoke to first-time buyer, Gabriella Smith from Leeds, who told us how much she recommends finding an advisor you can rely on. She adds:
“Our mortgage advisor was extremely helpful and down to earth, and booked in appointments to have thorough calls with us at each stage of the process. Because she was so friendly and open, we felt we could ask her any questions we had along the way.
“I’d definitely say to anyone looking to get a mortgage, to make sure they get a good advisor that they trust, or that’s recommended by a friend or relative”
How much deposit is needed for first-time buyers?
Knowing exactly how much mortgage deposit is the right amount is a challenging question – one that makes deposits even more difficult to save for in advance, especially as you don’t yet know the amount.
“Often a larger deposit, and therefore a lower LTV (Loan to Value), means a better rate, so you could save serious money on the amount of interest you pay in the long term if you have a larger deposit. However, it’s also worth considering the different mortgage options available if you’re keen to get on the property ladder sooner, such as 95% and 90% LTV mortgages.”
What’s the best way to save for a mortgage?
Budgeting may just be the most tedious part of the house buying process – but it’s probably the most important one, too.
“Creating a budget planner is a really simple way to keep track of your outstanding financial commitments and your disposable income: the more you know about your outgoings, the more control you can have over your finances, which can make you seem like a more desirable candidate for lenders.
“Make sure you take a detailed account of your budget into your first meeting with your broker, the lender should then be able to give you a more accurate mortgage decision.”
Can I get a mortgage while self-employed?
Our salaries are always a sensitive subject (though they shouldn’t be), and many first-time buyers worry that if they’re self-employed or work part-time, they might not be eligible for a mortgage.
“Much to many people’s surprise, you don’t actually have to be in permanent employment to be eligible for a mortgage. Lenders still offer mortgages to self-employed people and contractors.
“I’d suggest digging out some up-to-date accounts if you’re self-employed – detailing any salary and dividend payments received, as well as your Self-Assessment Tax Calculations from HMRC, which will generally be needed to determine your income.”
What credit score do you need for a mortgage?
Do you have a less than perfect credit history and wonder how this will impact your chances of getting a mortgage? Though it might seem that all hope is lost, Paul suggests otherwise.
“There’s no exact minimum credit score for a mortgage – each lender has different requirements that have to be met for you to qualify for a loan. They will look at your whole credit history and may still offer you a mortgage if it’s not perfect, although you may have to pay higher interest rates. A low credit score means that you may be able to borrow from fewer lenders compared to someone with a higher score, and it may be more expensive when you do.
“Currently, we don’t use credit scoring in our lending assessment for less-than-perfect-credit mortgages, which means there is no minimum credit score you need to achieve.”
What is the difference between a fixed and variable rate mortgage or an interest-only or repayment mortgage?
To the untrained eye, there’s only one type of mortgage – but the term is an umbrella that hosts a few different sorts of mortgages. So what is the difference between a fixed-rate mortgage and an interest-only mortgage, you ask?
“Fixed-rate mortgages have an interest rate that will remain the same throughout a specified fixed term of your mortgage payment. For example, for a two-year fixed mortgage, the rate would not change during the first two years of the mortgage term and then revert to the lender’s standard variable rate (SVR). A variable-rate mortgage (or tracker rate) is one that tracks a benchmark, usually Bank of England base rate. This means that when the Bank of England base rate goes up or down, your mortgage rate moves in line with this. At the end of the variable rate period, you’d then revert to the lender’s standard variable rate (SVR).. “
“An interest-only mortgage, however, is a loan where you only pay back the mortgage interest each month during the term of the mortgage. Meaning that you don’t actually pay off the loan, just the interest on the loan, with the loan still having to be paid in full at the end of the agreed term.
“A repayment mortgage, on the other hand, requires you each month to pay both the interest on your mortgage as well as some of the actual loan itself within the set mortgage terms, such as 20 years. Each month the amount left on your mortgage should get smaller, and will be completely paid off at the end of the mortgage term.”
For more information on mortgages, visit the Atom Bank website.