First Time Buyers: What We Did

Background

We were unaware of what would be needed and we were positive we would have at least another 2 years worth of savings to complete before being in a position to look at houses.

Using banking websites and other sites mentioned in my other blogs (Money Saving) we were able to get a rough idea of what percentage we needed to put down on the house.

Does the amount of deposit make a difference?

Its not necessarily the amount but more the percentage. Generally banks ask for 10%, however you will find by putting 15% you will have a quite large reduction of your monthly repayments, also if you make the mortgage term longer (40 years maximum [this will depend on your age]) you will see another reduction. However, by making the term longer you will pay a lot more interest. Therefore look to over pay each month.

Here's some calculations to prove the difference:

First time buyer looking at a house worth £120,000 with a 10% (£12,000) deposit will pay £579 which is at 4.3% APR over 30 years.

If we now take the same priced house but now with a 15% (£18,000) £498 a month will be repaid at 4.1%APR

This give you not only a better interest rate but also over the year a saving of £972... Almost £1000 this money could potentially pay for a holiday or even knock it off the borrowed mortgage amount (which I recommend). You will find most mortgage lenders will allow a free over payment service, however the amount will more than likely be capped.

My mortgage we are allowed over pay 10% of the borrowed amount each year. Basically this means if I borrowed £100,000 I am allowed to over pay £10,000 in the first year, meaning I now owe £90,000 (this does not include the money that have been paid via the mortgage). In the second year I am now allowed to over pay £9000, the third £8100 and so on.

Finding the right bank

Halifax was my initial bank. What you have to watch, every time you apply for a credit check (which the banks do when you apply for a mortgage) you leave little foot prints (some banks leave deeper prints than others), the more applications you complete the more footprints left. Even if you apply for credit cards, you can be making these foot prints appear on your credit check.

The banks will look at this and say ''why have you applied for so many credit checks?'' and potentially stop entering mortgage negotiations with you.

Other little things to be aware of

If you have a car finance plan, previous black listing / poor credit rating or a current loan (exception of student loan), this will lower the amount you will be able to borrow. Find about how deep your chosen bank goes into your personal financial situation. Some brush the surface, where as others go deep.

My advice

Take the mortgage proposal away from the bank, read it thoroughly and think about what you are trying to do. Really look into all of you finances. Talk to people who have got a house about the bills ad what they do to manage. Its not just about paying the mortgage, but also the food, gas, electric, insurances, council tax, water bills . . . phone bills, internet etc. Really think and plan it all out.