First Time buyer Mortgages UK.

The first time you ever buy a house, the way you go about looking for mortgages can have a large effect on your future financial health. Tie yourself in long term to a deal whereby you are stuck on an expensive standard variable rate for many years after the initial deal which enticed you in originally, and you could be paying for it for years. You should shop around and think long term, even though you will have the short-term need to keep the mortgage costs down, as your income at the early stages of your career is likely to be pretty low. You may also need extra cash to make home improvements and buy furniture.

First time buyers do look for features in terms of their mortgage that immediately addresses their needs. Firstly, due to the lack of time they have had to build up savings, they are likely to need to borrow a high loan to value of their home. Due to this, a house price fall can very easily and quickly plunge a first time buyer into negative equity, where the remaining mortgage balance is more than the current value of the house.

The second feature is that with a first time buyer less likely to have a high income as they are at the start of their career, they may find themselves needing to borrow a high multiple of their income in order to buy the house they want. This is particularly prevalent in London, where house prices are high. First time buyers may stretch themselves when they take out their mortgage, making their payments a large proportion of their income and should interest rates rise they may not be able to meet the payments.

Put the two paragraphs together, and you have a possible nightmare scenario of someone unable to meet mortgage payments, and with a home valued at less than the mortgage balance remaining, meaning that the lender would re-possess a house which it would sell and not recoup their money. This means that the first time buyer will still owe them money.

The reason why so many need 100% of the value of their home is due to the fact that should they have any savings, they may have to spend them on the costs of arranging the mortgage and setting up a home. There are valuation fees, arrangement fees, legal fees, stamp duty, house furnishing costs and appliance buying costs.

Mortgage providers therefore should offer mortgages to help people get on the property ladder by offering 100% mortgages. They should also offer healthy discounts from the standard variable rate and look at cash back and rule relaxation on income multiples.

 

 

 

© AskFinancially.com 2008

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