What does the current mortgage market offer first time buyers?
After the financial downturn, the mortgage industry was considered to be a bit unpredictable and understandably first time buyers were apprehensive entering into agreements with lenders. However, conditions have changed recently and the market has become less of a minefield for those just starting out in the world of home ownership.
A competitive mortgage market is a good sign because it means first time buyers generally have access to deals that represent better value for money. Of course, one of the most important considerations for most first time buyers is the deposit they are asked to pay when they take out a mortgage with a given lender.
At present, the mortgage market is not limited to products requiring a large deposit and this is good news for people who don’t necessarily have large deposits to hand when they find their perfect home. For this reason low deposit mortgage deals are popular with first time buyers and their renewed interest in the market is just the ticket to spur growth.
Deposit vs. LTV
So what sort of deposit might a new homeowner expect to have to pay when taking out a mortgage given the current market conditions?
Well, there are products out there devised especially for first time buyers and these often require a deposit of 15%, 10% or even 5% of the overall value of the property in question. With deposits this low, the buyers then enjoy loan to value ratios (LTV) of 85%, 90% and 95% respectively.
What’s so great about a low deposit?
The advantage of a low deposit and a high LTV is that you are able to get onto the property ladder sooner rather than later because you don't have to have huge amounts saved up. You then have the rest of your life as a homeowner to concentrate on paying off your mortgage, during which time you may climb the property ladder.
Of course, first time buyers are not always struggling for cash, in which case they may prefer to pay a larger deposit in order to have a smaller loan to pay off over time. This just depends on how you feel about your income, your job security, your savings and your career prospects. Putting down a larger deposit can mean lower interest rates. Mortgage lenders are usually happy to talk with you in detail about the best options considering your own circumstances.
Another matter to look into is whether you should be after a fixed rate or a tracker mortgage. Fixed rate mortgages offer a fixed rate of repayment while tracker mortgages will move in line with any Bank of England rate changes.