With the first Covid-19 vaccine now being issued and with more to follow, 2021 should look radically different from 2020 (in a good way). If you are longing to buy your first home, then with interest rates at an all-time low and government-backed schemes to encourage home ownership still in place, this could well be the year you get onto the property ladder.
However, before you get started, here’s what you need to think about.
Build up your deposit – now!
Once upon a time you could take out a 100 percent mortgage with no deposit with relative ease. Not now. To qualify for a first-time mortgage today, most providers will be looking for an deposit of at least 10% (although lenders cut back on the availability of such products quite drastically during the pandemic) – one or two are offering mortgages with just 5% deposits. The larger your deposit the more choice you’ll have, so get saving and see whether your family can help you out too.
If they can’t, you could look at opening a Lifetime ISA (‘Lisa’). The Government will give you a 25 percent bonus on your savings if you can show you’re using the money for the deposit on a home. Certain criteria apply, all of which can be found here – https://lifetimeisa.campaign.gov.uk/
Get your legal and financial houses in order
Before any bank looks at your application, you need to try to ensure you have as clean a bill of financial health as you possibly can. Your credit rating is vital, so it’s advisable to pay off any outstanding bills and do everything you can to boost your rating: for example, did you open a bank account with a former partner but no longer use it? There are other things you can do to boost your credit rating. For example, Experian’s Rental Exchange Scheme is a great way to prove your financial health and boost your credit score by taking into account your rental payments. You can speak with our advisors to find out more.
Investigate what the ‘Help To Buy’ can do for you
The Government’s Help To Buy equity scheme is an option available to first-time buyers. Once you’ve saved up a five percent deposit, the Government will give you a 20 percent equity loan (up to 40 percent in London) based on the property’s value. This gives you a far larger deposit, meaning you won’t have to borrow as much off the bank.
Another bit of good news: you only have to start paying interest on the loan after five years’. However, there are caveats such as it only applying to new-build houses
Take your time to get the right mortgage
When Covid-19 hit in the spring of 2020, mortgage approvals plummeted. However, now they’re at their highest levels in 13 years, mainly due to the Stamp Duty ‘holiday’ that’s due to end on March 31st 2021. Currently, the Bank of England base rate is at a record low of 0.1 percent, which has had some effect on mortgage rates. According to the Financial Times, “the ‘effective’ interest rates – the actual interest rates paid – on newly drawn mortgages remain below pre-pandemic levels of 1.85 percent in January”.
For first-time buyers the key is to assess what your priorities are – and then act prudently. Are you willing to pay an upfront fee for a better long-term deal? Is the super-low rate you’ve heard about too good to be true? Should you buy mortgage-protection insurance? At Charles Cameron & Associates, our experienced advisors can advise you on the most suitable mortgage and guide you through the mortgage minefield, ensuring you get a deal that works for you over the long-term.