Mortgages suitable for first time buyers vary, but generally, the offers you will get (or won’t) depend on whether you qualify for a mortgage in the first place. The first question first time buyers should ask themselves is if they can afford to pay back the loan amount they want to borrow. UK banks help with this assessment by asking potential applicants to provide information about their outgoings and main source of income. Those who are self-employed should provide their financial statements for the last three years. Several factors determine whether you qualify for a mortgage and what types of mortgages you are likely to be offered.
Banks take into account your income, which is not limited to your guaranteed income, but covers all sorts of income. You can present various types of income, including bonuses, disability benefits, child tax credits, working tax credits, and foster care allowance. Other types of income to include are maintenance, overtime, and commissions, along with area, town, and car allowance. Financial outgoings are another factor, which determines the amount of money you can spend on repaying your mortgage loan. These include overdrafts, hire purchase agreements, loans, store cards and credit cards, and others. Household expenditures are also taken into consideration, including food and utility bills, transport and travel, living costs, and entertainment. Finally, even first time borrowers are required to offer a deposit, and the larger the deposit, the lower the interest rate banks offer. There are different types of accepted deposits. Banks accept deposits in the form of personal savings, inheritance, gift from a relative, and equity from the sale of property.
Depending on these factors, some mortgages will be suitable for your financial situation. For example, applying for a buy to let mortgage may not be your first choice, given that it is a semi-commercial mortgage offered to applicants who intend to let properties to tenants. Flexible mortgages, on the other hand, allow borrowers to make additional capital payments, with borrowers making underpayments as well. No penalty applies. Borrowers are also allowed to take payment holidays and to redraw on overpayments. With these features, flexible mortgages are suitable for the circumstances of first time borrowers who have a variable income or are self-employed. A specific type of flexible mortgage is the offset mortgage, common in the UK. The main feature of this mortgage type is that interest charged can be reduced by offsetting the balance against the loan. The lender then charges interest on the basis of the outstanding net amount. Some lending institutions offer a current account mortgage where there is one account for all transactions.
The self-cert mortgage is another mortgage type whereby lenders do not require proof of income, and first time applicants should not demonstrate affordability. The statement of earnings which the lender accepts is certified by the borrower. Another mortgage with which the applicant’s income does determine the borrowing is the non-status mortgage. Here, it is sufficient that the borrower states they will be able to pay back the loan.