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In the first of a new series on personal finance, Paul Faithfull looks at the issues facing first time buyers at the young Bar
As house prices continue to increase across most parts of the UK, getting a foot on the property ladder is becoming more challenging.
The good news is that mortgage rates have been at record lows throughout this year. The best mortgage rates have always been available for anyone who has more than a 40% deposit, but rates at higher loan to values have come tumbling down, which will certainly benefit first time buyers with smaller deposits.
Following the implementation of the Mortgage Market Review last year, lenders have a far greater responsibility to ensure that applicants can afford the mortgage they require. This has meant that lenders will usually want to see your bank statements for the last three months so they can examine your outgoings. To give yourself the best possible chance of being accepted for a mortgage, there are a number of steps you can do beforehand.
Credit score
Having a good credit score is one of the most important. To help build a good score you should make sure you are on the electoral register. Get a credit card if you haven’t already got one, but make sure you pay at least the minimum amount off each month and close any credit cards you are not using. Try not to apply for any form of credit in the months leading up to applying for a mortgage. It is usually a good idea to obtain a copy of your credit report to make sure it is accurate. The main credit reference agencies, Experian and Equifax, usually charge a small fee for a copy or will offer you a free trial.
Up-to-date accounts
It is vital for self-employed applicants to have up-to-date accounts when applying for a mortgage, so having a good accountant is helpful. We would always recommend using a chartered accountant. Lenders would ideally want to see your last three years’ accounts, which will give them an accurate idea of your earnings and future earnings potential. If you have a poor year in respect of income, most lenders will take an average of your income over three years. However, if this is the most recent year, it may prove more difficult to get the loan you require. Again, a good broker will be able to guide you to the most appropriate lender, depending on your own circumstances. If you have less than three years accounts, you can still apply for a mortgage, but the choice of lenders becomes more limited. Ideally, lenders will want SA302s, which are issued by HMRC and confirm an individual’s annual taxable income. If accounts are not available, some lenders will, however, accept a chartered accountant’s certificate confirming earnings.
Saving for a deposit
Try and save for as big a deposit as possible. While it is possible to obtain a mortgage with only a 5% deposit, this will again mean you will be limited to the number of lenders you can access. You will also pay a considerably higher rate of interest than someone who has a 10% or greater deposit because you represent a greater risk to the lender. The rate you are offered usually becomes cheaper for every 5% of the purchase price you can put down, with the lowest rates available to those that have at least 40% to put down. The Bank of Mum and Dad have helped many of our clients secure bigger deposits and all lenders are happy to accept this, providing it is a gifted deposit and not a loan, otherwise any repayments will be taken into account when assessing affordability. Lenders are usually keen to support young professionals, although affordability is key to any lending decision. As a rule of thumb, you can usually borrow 4-4.5 times your sole or joint income. For barristers, there are a number of lenders that will stretch this multiple to five times your sole or joint income.
Bank statements
We have previously mentioned that lenders will want to examine your bank statements, so make sure you cut spending to a minimum. Cancel your gym membership if you are not going regularly, refrain from eating out at expensive restaurants and banks will also frown on anyone who they can see gambling with a high street bookie or online poker site.
New build properties
New build properties might seem appealing as often they come with incentives for prospective buyers, such as free white goods, free conveyancing and occasionally cash back incentives. Because of this, loans that require a 5% deposit are not usually available. However, the government’s Help to Buy Scheme does offer applicants the chance to buy a new build flat or house with a 5% deposit. Full details of the scheme can be found here.
Mortgage brokers
With so many mortgages available in the market place, it is not easy to identify which is the most suitable product and more importantly which lender is most likely to accept your application. If you are not sure, we would always recommend you seek the advice of an independent mortgage broker. They will get a full understanding of your financial situation and decide with you whether you want a fixed or variable rate of interest, and for what period of time, before making their recommendations as to which product to apply for.
Additional costs
Remember, there are additional costs involved with any purchase. Lenders will usually charge an arrangement fee for a product (although this can usually be added to the mortgage.) There will be solicitors charges and stamp duty payable on any purchase over £125,000. (Please see this link for the current cost). The lender will usually charge you for a valuation fee and we would recommend that you pay for a survey to make sure that the property you are buying is in good order and has no hidden surprises.
First time buyer advantage
Finally, as first time buyers, you are attractive to estate agents as you are not waiting for a property to sell. It is a good idea to get an agreement in principle from a lender, which will tell you how much you can borrow. A mortgage broker can help with this or alternatively you can approach a lender direct.
Contributor Paul Faithfull
Paul is the business development manager with Charles Cameron & Associates, which are the Bar Council’s approved Independent Mortgage Broker. He has previously worked as business development at Coutts and Royal Bank Of Scotland International.
The good news is that mortgage rates have been at record lows throughout this year. The best mortgage rates have always been available for anyone who has more than a 40% deposit, but rates at higher loan to values have come tumbling down, which will certainly benefit first time buyers with smaller deposits.
Following the implementation of the Mortgage Market Review last year, lenders have a far greater responsibility to ensure that applicants can afford the mortgage they require. This has meant that lenders will usually want to see your bank statements for the last three months so they can examine your outgoings. To give yourself the best possible chance of being accepted for a mortgage, there are a number of steps you can do beforehand.
Credit score
Having a good credit score is one of the most important. To help build a good score you should make sure you are on the electoral register. Get a credit card if you haven’t already got one, but make sure you pay at least the minimum amount off each month and close any credit cards you are not using. Try not to apply for any form of credit in the months leading up to applying for a mortgage. It is usually a good idea to obtain a copy of your credit report to make sure it is accurate. The main credit reference agencies, Experian and Equifax, usually charge a small fee for a copy or will offer you a free trial.
Up-to-date accounts
It is vital for self-employed applicants to have up-to-date accounts when applying for a mortgage, so having a good accountant is helpful. We would always recommend using a chartered accountant. Lenders would ideally want to see your last three years’ accounts, which will give them an accurate idea of your earnings and future earnings potential. If you have a poor year in respect of income, most lenders will take an average of your income over three years. However, if this is the most recent year, it may prove more difficult to get the loan you require. Again, a good broker will be able to guide you to the most appropriate lender, depending on your own circumstances. If you have less than three years accounts, you can still apply for a mortgage, but the choice of lenders becomes more limited. Ideally, lenders will want SA302s, which are issued by HMRC and confirm an individual’s annual taxable income. If accounts are not available, some lenders will, however, accept a chartered accountant’s certificate confirming earnings.
Saving for a deposit
Try and save for as big a deposit as possible. While it is possible to obtain a mortgage with only a 5% deposit, this will again mean you will be limited to the number of lenders you can access. You will also pay a considerably higher rate of interest than someone who has a 10% or greater deposit because you represent a greater risk to the lender. The rate you are offered usually becomes cheaper for every 5% of the purchase price you can put down, with the lowest rates available to those that have at least 40% to put down. The Bank of Mum and Dad have helped many of our clients secure bigger deposits and all lenders are happy to accept this, providing it is a gifted deposit and not a loan, otherwise any repayments will be taken into account when assessing affordability. Lenders are usually keen to support young professionals, although affordability is key to any lending decision. As a rule of thumb, you can usually borrow 4-4.5 times your sole or joint income. For barristers, there are a number of lenders that will stretch this multiple to five times your sole or joint income.
Bank statements
We have previously mentioned that lenders will want to examine your bank statements, so make sure you cut spending to a minimum. Cancel your gym membership if you are not going regularly, refrain from eating out at expensive restaurants and banks will also frown on anyone who they can see gambling with a high street bookie or online poker site.
New build properties
New build properties might seem appealing as often they come with incentives for prospective buyers, such as free white goods, free conveyancing and occasionally cash back incentives. Because of this, loans that require a 5% deposit are not usually available. However, the government’s Help to Buy Scheme does offer applicants the chance to buy a new build flat or house with a 5% deposit. Full details of the scheme can be found here.
Mortgage brokers
With so many mortgages available in the market place, it is not easy to identify which is the most suitable product and more importantly which lender is most likely to accept your application. If you are not sure, we would always recommend you seek the advice of an independent mortgage broker. They will get a full understanding of your financial situation and decide with you whether you want a fixed or variable rate of interest, and for what period of time, before making their recommendations as to which product to apply for.
Additional costs
Remember, there are additional costs involved with any purchase. Lenders will usually charge an arrangement fee for a product (although this can usually be added to the mortgage.) There will be solicitors charges and stamp duty payable on any purchase over £125,000. (Please see this link for the current cost). The lender will usually charge you for a valuation fee and we would recommend that you pay for a survey to make sure that the property you are buying is in good order and has no hidden surprises.
First time buyer advantage
Finally, as first time buyers, you are attractive to estate agents as you are not waiting for a property to sell. It is a good idea to get an agreement in principle from a lender, which will tell you how much you can borrow. A mortgage broker can help with this or alternatively you can approach a lender direct.
Contributor Paul Faithfull
In the first of a new series on personal finance, Paul Faithfull looks at the issues facing first time buyers at the young Bar
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