Climbing the property ladder has become more challenging than it has ever been, especially with rents increasing to soak up the money you would like to use to save for a deposit. Many potential first-time buyers, therefore, get to the point at which they have managed to cobble a deposit of five per cent and then start looking at mortgage options. But before you plunge into trying to get one of these mortgages, there are just a few things you need to remember.
Since you need to have a 5 per cent deposit, first-time buyers are prevalent with 95 per cent LTV mortgages. The benefit is that they appear to have higher interest rates than 100% LTV mortgages. It's still necessary, however, to shop around to make sure that you get the best offer for your needs.
Ninety-five per cent of LTV mortgage offers are those where you can put a 5 per cent deposit on the property you want to buy, with the remaining 95 per cent of the overall cost that is offered by the lender. The LTV factor refers to Loan-To-Value, so 95% of LTV mortgages are where the lender advances 95% of the house purchase price.
Unfortunately, these small lenders then bring in additional criteria and requirements that you have to meet to be able to take out this form of mortgage because of the perceived high risk of making a deposit.
A decent credit record is the first thing you would need to qualify for a 95 per cent LTV mortgage. You would need to show that you have a strong history of making payments on time and not getting behind payment items like credit card payments. You should also be registered on the electoral roll in addition to this and have a robust, steady work or self-employment income of more than two years.
To be able to afford the payments, you would also need to have a decent income. If you purchase a property on your own, lenders will usually give you between three and four times your salary. To determine how much you can borrow and what the likely repayments will be, a mortgage broker will be able to analyze your application rapidly.
One of the recent assessments that have been financially identified is to help lenders assess the amount of risk. You would also need to prove that you will be able to afford to make repayments, even if the interest rates rise dramatically in the future. A proof of your income will be needed and outgoings, particularly if you have credit cards that are not clear every month.
The most significant danger is that you would possibly not get a mortgage if you are on a low income. There is also the fact that you could find that you end up paying up to 6% interest on your mortgage, which is much higher than for mortgages with lower loan to value ratios.
You will find that your repayments go much higher at the end of your fixed-rate agreement.
A mortgage broker understands the lenders available on the market in a specialized way. They will be able to review your application quickly and give you the best advice on what options at 95 per cent loan to value are open. For each mortgage product, they will negotiate rates and charges and give you an idea of how much you will borrow and what the exact repayments will be each month.
Remember, it's essential to review your credit score before you apply for a mortgage.