by Mark Johnston
Britain is a nation that has definitely become fixated with house prices and given the coverage that the subject receives it is surprising just how many young professionals are still so keen in getting on to the property ladder.
With lenders requiring large deposits and stricter lending criteria’s it is no wonder that first time buyers can find today’s mortgage market somewhat daunting and all too often confusing.
Mortgage lenders traditionally used income multiples to decide how much to lend to potential borrowers, now it is all about affordability. According to moneyfacts.co.uk at least 30 lenders now lend on an ‘ability to pay’ system.
Undoubtedly though saving a decent deposit is vital, the bigger the deposit the less mortgage need.
First time buyers should still however remember that they are still in a very good position to buy especially as they are not part of the dreaded chain and therefore historically first time buyers were offered better deals than existing home owners or people looking to re-mortgage, present though this does not seem to be the case.
With fears of prices soaring even further out of reach a possible rate rises on the horizon, there is help available. Lenders have devised a variety of schemes and methods to give a much needed boost to those who lack the income or deposit to allow them to buy.
Lenders have it seems lept to the challenge to help first time buyers by introducing new products and also by becoming increasingly more flexible when it comes to lending.
For example, Alliance and Leicester, Nationwide and Halifax will all now lend over 40 years. While this can help with affordability it should not mask the fact that many borrowers will end up paying much more back over a much longer period than the standard 25 years.
Lenders have also begun to offer mortgages with incentives that hold particular appeal to first time buyers. These incentives include:
– cash back, ranging from a few hundred to thousands
– refunds on property valuation fees
– help with legal fees
– fee free mortgages
Cash back mortgages provide borrowers with a single lump sum of cash either on completion or after the first monthly repayment. Some lenders offer a sliding scale of cash back depending on how long the borrower is willing to tie themselves in to a deal for.
Whilst it does sound appealing to have some extra cash to help towards the additional costs of buying a home, these deals do not usually come with out strings attached, usually in the form of very severe early redemption penalties that may involve the repayment of some, all or even more than the cash back value.
David Hollingworth, spokesperson for London and Country mortgages, states “cash back offers can be worthwhile, of course you always have to factor in the rate as there is no point paying over the odds on your monthly payments just to get some cash back”.
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