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First Time Buyers - Do your homework

First Time Buyers - Do your homework

Category: Mortgages

Updated: 31/10/2008
First Published: 10/05/2007

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Most of us grow up wanting to own our own home, but with house prices increasing at an alarming rate in the last few years, unfortunately the reality for some is that getting that first important step on the property ladder is becoming much more of a challenge.

Whilst mortgage advisers will be able to help you to look at your own circumstances and tailor you with a suitable product, it will pay dividends if you do your homework before you meet. The money search engine will give you a great idea of the kind of rate and deal you should be aiming at.

However, beware of the products that come with headline grabbing incentives such as a free valuation, free legal fees, a cash rebate, or free insurance - these freebies don't automatically make it a good deal. You may find hidden nasties in the small print. The application fee and interest rate may be higher than other mortgages for example, which could eliminate any benefit you may have received from these incentives.

Because house prices have increased at a faster rate than people's incomes, mortgage lenders have had to adapt their products and lending criteria to take advantage of the first time buyer market. As a result, they are now more than prepared to lend much higher amounts. Some lenders have been known to lend up to five times an applicant's salary, or alternatively basing their decision on whether they believe you can afford to make the monthly repayments.

It is essential that you also think about how much you can really afford rather than how much you want to borrow. Remember, you also need to take into consideration all of the extras such as utility bills, council tax, the TV licence and insurance premiums, as well as having enough left to buy your weekly groceries and general living expenses. They all add up.

On a more technical note, there are certain things you need to be aware of:

Very low interest rates

If you see a mortgage rate of two or three per cent, a word of warning - it may well mean that to get the low initial interest rate you are forced to accept an uncompetitive standard variable rate for a set number of years. Whilst this may not initially seem too bad at first, it could cost you thousands of pounds more in interest in the long run, especially with the size of mortgages that are required now.

Extended tie-in

With the scenario above, not only could it cost you more in interest charges, if you wanted to get out of the deal early, you could face penalty fees running into thousands of pounds.

High lending charges

If you put down a 5% deposit on your home, the loan to value (LTV) percentage is 95%, if you have 10% then the LTV is 90% and so on. What you need to check is whether your intended mortgage provider charges a higher lending fee, which they may charge for mortgages that exceed a certain level of LTV.

As you can see, the mortgage market may appear to be a bit of a minefield, but there are well-trained people out there that can help you navigate through it. Make an appointment with an independent financial adviser, and take the time to shop around for the best mortgage deals for you on before you go. Good luck!

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.