Friday, October 07, 2011

What mortgage choices are there for first time buyers?

With banks slowly relaxing their vice like grip on their purse strings, many first time buyers are starting to edge back into the market, but what options are available for those looking to step onto the property ladder?
For those unfamiliar with the mortgage industry, the plethora of products can seem overwhelming at first and make it difficult to know what to look at first.
A good starting point for any new buyer is a comparison site such as moneysupermarket.com, where you can check out the current deals in the market and see the rates on offer.
Whilst lenders are slowly starting to extend more credit, getting a mortgage is far more difficult than it used to be and the choices open depend on how much money you have to provide as a deposit.
As a general rule, the larger deposit you have, the more willing the banks will be to play ball and offer far lower interest rates than those on higher loan to value mortgages.
It is possible to find a mortgage with just a 5% deposit, but expect to pay a significantly higher rate of interest than with a 20% deposit, meaning it is not just more expensive, but more exposed to fluctuations in the market unless you pay to lock in the deal.
However, the majority of lenders will prefer not to lend to first time buyers with anything less than a 10% deposit, especially with the volatility currently in the property market and the economy.
The government has launched a new initiative to help first time buyers who only have a 5% deposit, which essentially provides a 20% loan that is not repayable for the first five years. This provides banks with the security they prefer and also means access to cheaper mortgages as just 75% of the property value is being borrowed.
Once you know how much you need to borrow from a lender, you need to decide what kind of mortgage you prefer.
There are many types of mortgage on the market, to suit all kinds of pocket as well as attitude to risk.
Fixed rate deals are very popular with new mortgagees as they mean the cost will not change regardless of what happens to interest rates, allowing household budgeting to be calculated with certainty and eliminating fears of rocketing repayments.
It is possible to find some fixed rate deals that are free, but many charge a fee for locking in the offer and they do lack flexibility should the interest rate fall.
Tracker mortgages are another popular option that allow the borrower to take advantage of any drop in rates but as they follow the dips and peaks in interest, the repayment levels are liable to fluctuate up as well as down.
One other option offered by some banks is a discounted rate mortgage, which still moves up and down like a tracker but at a lower rate of interest, fixed for between two and five years.
Experts suggest not setting up repayments at the top end of what you can afford, instead recommending leaving enough wiggle room for if interest rates shoot up or unexpected expenses crop up.
Different mortgage products are coming onto the market all the time as lenders start to actively look for new customers. Comparison sites can offer a real helping hand in identifying the best new deals and allowing borrowers to compare key features for different products.

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