Guide for First Time Property Buyers

Buying your first property is a daunting prospect, especially in the current climate. With many different types of mortgage to choose from and uncertainty over the future of UK house prices, it is small wonder that the percentage of first time buyers continues to fall.

A survey conducted by the Council of Mortgage Lenders (CML) has shown that almost half of all first time buyers under the age of 30, receive financial help from a family member to help them provide a deposit on their first home.

This shows a marked increase from the same survey conducted in 2006 which showed that 38% of first time buyers received financial help. Although house prices have fallen by 14.6% this year (according to the Nationwide) first time buyers are not able to take advantage of falling prices as lenders now require substantially larger deposits. The CML reported that the average first-time buyer needed a deposit of £14,500 in 2007, yet in the second quarter of this year, this had risen to £19,000.

The Best Home Mortgage website is an independent guide and gives an overview of the different types of mortgages on offer, the costs you can expect and the decisions that you will need to make when making your first purchase.

If you would like to speak to one of our mortgage experts, give us a call on 0845 8620 866 or fill in our callback form and we will be in touch.

• How much can I afford
• Repayment or interest only
• Which mortgage is right for me?
• Early repayment charges
• Fixed rate or Discounted mortgage?
• Leasehold or freehold?
• Conveyancing and surveys

The latest Nationwide house price index reveals that the average house price in the UK now stands at £158,442, a 0.4% decrease from October.

The year-on-year decrease from November 2007 is 13.9%, down from 14.6% last month.

Fionnuala Earley, Nationwide’s chief economist, said: “In spite of the moderation in house price falls recorded in November, with the economy in recession, conditions do not appear very favourable for a swift recovery in the housing market. The labour market is weakening, which will inevitably hinder market demand, particularly when property remains expensive relative to earnings.

“With prices falling at their current rate there is also little incentive for new borrowers to hurry into the market. However, there are a number of measures which should provide some support to the market in general and help existing and potential homeowners in these difficult times.

“The Monetary Policy Committee’s decision to reduce interest rates by 1.5% at the November meeting took most commentators by surprise. It was a bold step and has left no doubt that the focus of their concerns has shifted from inflation to deflation.

“While not aimed directly at the housing market, such a substantial shift in the Bank Base Rate will help a significant number of existing and potential homebuyers. Different borrowers will be affected in different ways by rate cuts. The estimated one-third of borrowers on tracker mortgages will have benefitted one-for-one from Bank Base Rate cuts.”

A new move to make major lenders wait at least three months before taking repossession action has been welcomed by the Royal Institution of Chartered Surveyors (Rics).

“This scheme should use the existing Isa structure allowing use of the full £7,200 limited and supported by an additional government contribution,” Rics said.

Published in Mortgages on 20 November 2008

The Bank of England’s dramatic 1.5% cut to the base rate has made some standard variable rate mortgages cheaper, but are you going to benefit?

Standard variable rate (SVR) mortgages have been a huge no-no for borrowers for as long as I can remember.

That’s because in normal times, you’re much better off borrowing on a mortgage ‘deal.’ So when you first take out a mortgage, you might sign up for a three year introductory deal where you’re paying a better rate than the SVR. Then when the three year period is up, you switch to another special rate deal and avoid the dreaded SVR.

But all that has changed because, bizarrely, the banking crisis has now forced lenders to price SVRs so competitively that some are now among the best mortgages on the market.

As you know, the Bank of England cut the base rate by a bold 1.5% earlier this month. Since then, the government has put serious pressure on the largest lenders to pass on the cut to borrowers. And suddenly lots of SVRs are attractive.

Most of the big mortgage lenders have indeed chosen to pass on the rate cut, reducing the SVR by the full 1.5%. But, interestingly, Barclays and HSBC — both of which turned down help from the government’s £37 billion bank bail-out — are yet to apply a similar cut. Although HSBC will be reducing the SVR to 5.44% from 5 December.

Nationwide is currently offering the most competitive rate on the market at 4.69%. A borrower with a £150,000 mortgage (over 25 years) would pay just £850 a month.

But, don’t forget, SVRs haven’t reduced across the board. If your mortgage deal is almost up, don’t make the mistake of assuming your lender’s SVR is necessarily a good bet.

At the other end of the spectrum, Chelsea Building Society’s SVR is far higher at 7.24%. Here monthly repayments would set you back £1,083 — that’s £233 more each month than a borrower would pay on Nationwide’s SVR.

Should you choose the SVR now?

If your current lender has a brand new, cheap SVR and your introductory deal with them is due to end soon, lucky you! There’s certainly a case for sticking where you are — at least in the short-term.

Better still, you’ll be moved onto the SVR automatically if you don’t do anything else, so it should be a hassle-free option. And you won’t normally have to shell out for an arrangement fee, or be tied-in if you decide you want to remortgage elsewhere later on.

For those of you with a relatively small mortgage, avoiding high remortgaging fees becomes even more important. It may be more cost-effective to move onto your lender’s fee-free SVR, rather than pay arrangement fees for a special rate with another lender — even if that rate is lower. Make sure you compare mortgage deals on the basis of true cost before you take the plunge.

New borrowers

But what happens if you aren’t an existing borrower? The trouble is — even though SVRs were once the lender’s bog standard, no frills home loan — now they’re far more attractive, many are simply no longer widely available to borrowers.

Nationwide’s SVR is really tempting, but alas it isn’t open to new borrowers or remortgagers. And you won’t be able to get your hands on Lloyds TSB’s 5% SVR now either. This is becoming a pretty common story these days.

SVRs are certainly more exclusive today than they have been in the past, but it’s not impossible to find a competitive deal which is still open to new borrowers.

Bristol & West, for example, offer an SVR at an appealing 5.49% which is available to all new customers.

What’s more, there’s no arrangement fee and no early repayment charge. You will, however, need a deposit, or equity stake in your home, of at least 25% to qualify.

Just one word of warning: if you can find a competitive SVR with a new lender do watch out for the arrangement fees. With SVRs you won’t normally be tied-in, so the lender has no way of knowing how profitable you’ll be to them as a borrower, or for how long. So to boost the lender’s profits in another way, arrangement fees have been creeping up.

Should you stay or should you go?

If you’re starting to think your lender’s SVR could work for you, do bear these points in mind:

• Your lender will decide what rate the SVR will be set at, so there’s absolutely no certainty what will happen to your repayments in the future.
• Your lender may choose not to pass on future base rate cuts. If your lender has already dropped the SVR by 1.5%, they may not be so keen to pass on further reductions to borrowers.
• Other deals may be more suitable for you. If you want to know exactly how much your mortgage will cost each month, go for a fixed rate instead.
• Tracker mortgages look attractive when the base is expected to fall because lenders have to cut the rates accordingly — unlike SVRs. Further reductions are on the cards, so you may prefer this type of deal.

Choosing the right mortgage can be been tricky. If you need help, why not speak to a broker at Best Home Mortgage.

The good news for homebuyers looking for the best home mortgage is that lending rose slightly in October, according to the Council of Mortgage Lenders (CML).

Total lending rose 7% up from the previous month, to £18.7bn. However, last month’s lending was still 44% lower than in October last year, just before the credit crunch triggered the current mortgage drought.

The Council of Mortgage Lenders (CML) said that despite the Bank of England’s cuts in interest rates, lending would remain weak in the next few months and 2008 may be the year which saw the biggest slump in home sales and prices on record.

Some experts have suggested that the fall in mortgage lending may now have reached a trough.

This week the Royal Institution of Chartered Surveyors (Rics) pointed out that its own surveys had shown a recent increase in enquiries from potential new homebuyers, a good indicator of future trends in home sales.

Even if mortgage lending and home sales stabilise at current levels, many experts are forecasting that prices will continue to fall, with some suggesting that they could go down by a further 15-20% in 2009 after a likely drop of around 15% this year.

According to new figures compiled by Moneyfacts, low-deposit mortgages are becoming more and more scarce. Homebuyers looking for the best home mortgage, are finding that there are less Low loan to value mortgages available to them than there had been previously.

A BBC report utilised the figures indicates that just 66 loans with an LTV of 90 per cent or more are currently available. This has dropped from 586 in August and 1,197 nine months ago, representing the dramatic change in the mortgage market .The change is absolute when compared to the market at the height of the property boom. Numerous lenders offered 100 per cent mortgage loans at this time, with Northern Rock providing the ‘Together Mortgages’ that offered up to a whopping 125 per cent of the property value.Borrowers with a low deposit face the difficult prospect of not being able to get on (or back on) the property ladder, as many lenders will only offer high loan to value mortgages at uncompetitive rates. It pays to shop around via the internet or using an independent financial advisor to find the best deal.  Although they are scarce, there are still some good fixed rate mortgages around at the moment. 

Struggling to get a mortgage?

Its a sad fact that in todays climate, if you’ve got less than 10 per cent equity in your home, then it’s now very hard to find anyone to lend to you. Nationwide have recently stopped lending to anyone other than existing customers with less than 15 per cent equity and many other lenders have withdrawn high loan-to-value (LTV) deals as well.

When the time comes to remortgage your home and you can’t find anyone to give you a new deal,  you’ll find yourself paying your lender’s Standard Variable Rate. This is usually much higher than the Bank of England rate and can mean a huge increase in your monthly repayments.

Several of the largest banks however reduced their Standard Variable Rates by the full 1.5 percentage points yesterday – and many more are expected to follow suit next week – which means that switching to the Standard Variable Rate may now not be nearly as painful as it once was.

Many lenders may even find that the SVR may actually be less than the rate they are currently paying. For example, as of 1 December, Lloyds and Cheltenham & Gloucester will have an SVR of just 5 per cent.

The flipside of being on a bank’s SVR, however, is that your mortgage rate is controlled by your lender and can change whenever the bank wants it to. So if there are future bank rate cuts, there’s no guarantee your rate will fall, although it’s fairly likely that you’ll pay more if the bank rate rises.

Currently less than 5 per cent of the country is paying the SVR, but Hollingworth believes this is likely to increase as more and more people find themselves with little or no equity in their homes and unable to remortgage.

With SVRs at much lower levels, it may make sense for people to avoid remortgaging where possible, even if they have equity in their home. Remortgaging costs money – legal fees, valuation fees, and hefty arrangement fees. If you can stay with your current lender, you can avoid all of those charges. If you are thinking of remortgaging, take the fees into account when calculating whether your new deal works out any cheaper over two or three years.

Help…we’re buying a new house

If you’re buying a property, and are looking for a new mortgage, you’ll find that there’s not much on offer at the moment. This week, almost every lender withdrew all of their new tracker mortgages, as they waited to see what the Bank of England would do with interest rates. Meanwhile, there are very few discount rates available either.

If you’re looking for the good deal, the best thing to do is to wait for a few days. Lenders are expected to begin offering tracker mortgage products next week, although it’s not clear how far they’ll be priced above the bank rate. Tracker rates are still the throught to be the best option if you can get them, as almost all economists are predicting that the next rate in interest rates will be down – maybe even as soon as next month. The most pessimistic economists are predicting that rates may go down to 0 per cent.

If you do opt for a tracker, however, watch out for whether your deal has a “collar” – a rate below which your mortgage cannot fall. Nationwide and Skipton Building Societies are amongst a handful of lenders who already have collars on all of their tracker mortgages. In the case of Skipton, its collar is 3 per cent, which means that now the base rate has hit 3 per cent, its customers will see no further reduction if the bank rate is reduced further.

David Black, the head of banking at consultants Defaqto, believes that once banks begin to reissue trackers next week, collars will become even more prevalent. “When the new ranges of trackers get launched, you can expect far more to have a collar,” says Black. “I expect you’re also going to see bigger margins [between the mortgage rate and bank rate] as well.”

At the moment, one of the only trackers on the market is being offered by HSBC, at 0.99 per cent above the Bank of England rate. However, you’ll need a deposit of 40 per cent to qualify. If your finances wont stretch that far, Earl Shilton Building Society has a product which charges bank rate plus 1.75 percentage points – and you only need a 20 per cent deposit to qualify.

If you can’t wait to get a new mortgage – or you prefer the stability of knowing what your monthly payments will be – there are still plenty of fixed-rate products on offer. In light of expeced rate cuts in the future, fixed rates look particularly poor in value.

Woolwich, for example, has a two-year fixed-rate deal at 4.99 per cent, which is almost 2 percentage points above the current bank rate. If you can, hang on for a few weeks and there should be some much more competitive fixed-rate products available on the market.

I’m on a fixed-rate deal

Unfortunately, if you’ve got a fixed-rate deal at the moment, then you won’t see any benefits from this week’s rate cut. However, the chances are that you’ll have to think about remortgaging within the next couple of years, and, with a bit of luck, mortgage rates should be even lower than they are now by the time you start to shop around.

Even if your current deal is about to end, it’s probably worth hanging on a few weeks to see what deals emerge now that the Bank of England rate has come down. Significantly, Libor – the rate at which banks lend to each other, which is much more important when it comes to pricing mortgages – also fell significantly yesterday, increasing the likelihood that the banks will bring out some much cheaper deals over the coming days.

Melanie Bien, director of independent mortgage broker Savills Private Finance, says: “The significant fall in three-month Libor is more important in terms of new borrowing rates than the drop in base rate. Lenders have pulled their trackers and have been waiting to see what happens with inter-bank funding – they will now be under huge pressure to pass most of it on.”

It’s now all but impossible to get a mortgage if you have less than 5 per cent equity in your property, so keep an eye on property prices in your area, and if you think you’re in danger of hitting negative equity, try and make some overpayments to your mortgage to keep yourself in the black.

I’ve got a tracker/ discount mortgage

If you’re one of the lucky people to have a tracker mortgage, you should see your monthly repayments drop substantially next month. For example, if you have a £200,000 loan with 20 years left to run, your payments should fall by as much as £180 – depending on how much more you were paying above the Bank of England interest rate.

Those with discount mortgages should benefit as well. Discount deals are pegged to a bank’s standard variable rate (SVR), and many of the major lenders have begun to cut their Standard Variable Rates over the last two days. Others are likely to follow early next week.

However, David Hollingworth of London & Country mortgages, the fee-free broker, says that while it may be tempting to pocket any saving you make if you have a tracker or discount deal, it makes sense to consider using some or all of this money to pay down your loan quicker.

As house prices continue to fall, the amount of equity in people’s properties is diminishing. According to the Nationwide Building Society, house prices have fallen by almost 15 per cent over the past year, which means that if you bought your home for £200,000 last autumn, it may now only be worth around £170,000 now.

So, if you had a deposit of 25 per cent of your purchase price £50,000, you would have started off with 25 per cent equity in your home but will now have less than 15 per cent. You may find that once you come to the end of your current mortgage deal and have to remortgage, this becomes a problem, as few lenders at the moment are willing to lend more than 85 per cent of a property’s value.

Where possible, make overpayments on your mortgage to ensure you stay in the black, Hollingworth says that families are more likely to be able to get a mortgage next time around.