Thinking of buying a house the first time can be quite exciting and thrilling, however, knowing how to go about it is a whole new challenge. Hence, this article is here to guide you through the process of buying a mortgage as a first time buyer in the UK.
First Time Buyer Mortgage Guide UK
The guide is aimed at first-time home buyer UK and covers everything you need to know about acquiring a mortgage on your first house. A first-time buyer is someone who has never bought a house in the UK or overseas before, but if you’re a prior homeowner trying to climb back on the property ladder, this guide is also for you.
Step By Step Guide for First Time Mortgage Buyer UK
The following is a step-by- step guide to following as a first-time buyer mortgage
Step 1: Make Your Calculations
Think carefully about whether a mortgage is good for you and whether you can afford one.
Is obtaining a mortgage the best option for you? Can you truly afford it, or will you find it difficult to make each payment? Recall, renting is not a derogatory term. It’s a no-brainer if the alternative is continuing to save or overstretching and having your first house repossessed. This also includes:
- Making a budget and determining what you can afford each month.
- To find out how much a mortgage will cost you, use our Ultimate Mortgage Calculator.
Step 2: Having a Deposit
Usually, a 10% deposit is required to purchase a home… but there is assistance available if you have less than that.
While 95 percent of mortgages have made a comeback in recent months, needing a 5% deposit. Interest rates have always been much lower if you have at least a 10% deposit, as our entire guide reveals. Having said that, there is assistance available if you just have a little deposit.
Step 3: Increasing Your Chances of Getting a Mortgage
The days of lenders offering mortgages at random are long gone. Obtaining the greatest mortgage package currently necessitates more than just a substantial down payment; you must also have an excellent credit score. You can improve your score by doing the following:
- Obtaining a place on the electoral roll.
- Examining your credit report (for free).
- Keeping credit applications to a minimum and not skipping payments
Step 4: Determine whether you want a fixed, variable, tracker, or other form of mortgage
Once you’ve determined that a lender will lend to you, you’ll need to decide what kind of mortgage you want. Hence, the benefits and drawbacks of various mortgage kinds, including:
- Mortgage repayment and interest-only mortgages
- Fixed-rate and variable-rate mortgages are available.
- Mortgage offsets and current account mortgages
Step 5: Obtaining a mortgage is more difficult if you are self-employed or a contractor.
Getting a mortgage if you’re self-employed or a contractor is difficult since you require concrete documentation of your earnings. Employees have it easier because they have pay stubs, but it’s far more difficult if you work for yourself or don’t have a fixed contract.
Step 6: Don’t forget to account for other expenses, such as mortgage fees and stamp duty.
When you complete the calculations, make sure to include the full cost of purchasing a property as well as the mortgage. You can try to minimize them, but you won’t be able to magically remove them. Hence, you should budget for:
- Mortgage cost: A fee charged by the lender for obtaining a mortgage — often around £1,000.
- Lenders charge a valuation fee to determine how much your property is worth – often approximately £250.
- Solicitor’s fee: To cover the expense of all legal work. Budget between £500 and £1,500.
- Stamp duty is a tax paid to HM Revenue & Customs based on the price of the property. In England, first-time purchasers do not have to pay stamp duty on the first £300,000 of the main residence home.
Step 7: Step-by-step instructions for obtaining a mortgage, including whether to go it alone or through a broker.
When it comes to applying for a mortgage, you have two choices: go directly to the lender or go through a broker. Though using a broker is often the best option because they can quickly pinpoint down the top deals. Also, most have special deals only available through a broker and also understand what sort of mortgages would best suit your personal circumstances.
Step 8: Be wary of the hard sale on insurance.
Some lenders have raised the prices of linked insurance products to compensate for decreasing revenues on headline mortgage rates. Consider the following types of insurance:
- Payment protection insurance for mortgages.
- Insurance for buildings and contents.
- Life insurance.
Buy To Let Mortgage Guide
A buy-to-let mortgage guide UK is for landlords who want to purchase property with the intention of renting it out. The criteria for a buy-to-let mortgage guide are similar to those for a conventional mortgage, but there are several important distinctions.
Who is eligible for a buy-to-let mortgage Guide?
You can acquire a buy-to-let mortgage guide UK if you meet the following criteria:
- Firstly, you wish to buy a house or a flat
- Secondly, you can afford to accept and understand the dangers associated with property investment
- Thirdly, you already own your own house, whether outright or with a mortgage.
- Next, you have an excellent credit history and aren’t overextended on your other borrowings, such as credit cards.
- Then, you earn more than £25,000 per year – if you earn less, you may have difficulty getting a lender to approve your buy-to-let mortgage.
- You’re under a specific age – lenders often have upper age limits of 70 or 75. This is the oldest you may be when the mortgage is paid off, not when it is first paid off. For example, if you take up a 25-year mortgage at the age of 45, it will end when you are 70.
What is the process of getting a buy-to-let mortgage Guide?
Buy-to-let mortgages are similar to regular mortgages, but there are some major differences.
The fees are usually substantially higher.
Buy-to-let mortgage interest rates are often higher.
Typically, the minimum deposit for a buy-to-let mortgage is 25% of the property’s worth (although it can vary between 20-40 percent ).
The majority of Buy to let mortgages are interest-only: This means that you pay the interest but not the principal each month. You repay the original debt in full at the conclusion of the mortgage term. Repayment-based Buy To Let mortgages are also available.
The Financial Conduct Authority does not regulate the majority of BTL mortgage lending (FCA).
There are a few restrictions, such as if you want to rent out the property to a close family member.
These are commonly referred to as consumer buy-to-let mortgages and thus are subject to the same stringent affordability criteria as a residential mortgage.
How much money can you get for a buy-to-let mortgage?
The maximum amount you can borrow is determined by the amount of rental revenue you anticipate receiving.
Lenders typically require that your rental income be 25–30% greater than your mortgage payment.
Talk to local leasing agents or look at rental ads online to see how much similar houses are rented for to get an idea of what your rent might be.
Where can I acquire a mortgage for a buy-to-let property?
Buy To Let mortgage Guide is available from the majority of the major banks as well as several specialty lenders.
Before you take out a buy-to-let mortgage guide, it’s a good idea to speak with a mortgage broker, who will assist you in selecting the best deal for you.
Making use of price comparison websites
Comparison websites are a wonderful place to start for anyone looking for a mortgage that is tailored to their specific circumstances.
Remember:
Comparison websites will not all produce the same results, so utilize more than one before making a decision.
Before making a purchase or switching suppliers, it is also critical to conduct some research into the type of goods and characteristics you require.
Don’t only look at the headline rates on mortgages. Other fees and levies are frequently involved.
Don’t rely on the sale of the property to pay off the mortgage.
Don’t make the mistake of expecting you’ll be able to sell the property to pay off the mortgage.
If property values decline, you may not be able to sell your home for as much as you had intended.
If this occurs, you will be required to make up the shortfall on your mortgage.
Taxation and buy-to-let: Capital Gains Taxation
CGT on buy to let second homes is charged at 18% if you are a basic rate taxpayer. And at 28% if you are a higher or additional rate taxpayer. When it comes to other assets, the basic rate of CGT is 10%, and the higher rate is 20%.
If you profitably sell your buy-to-let property, you will normally have to pay CGT if your gain exceeds the annual level of £12,300. (for the 202–23 tax year). Couples who hold assets together can share this allowance, possibly allowing them to make a gain of £24,600 (2022–23) in the current tax year.
You can lower your CGT bill by deducting charges such as Stamp Duty, solicitor and estate agent fees, or losses from the sale of a buy-to-let property in a prior tax year from any capital gain.
Any gain from the sale of your home should be recorded on your self-assessment tax return for that tax year and will be included when calculating your tax status for the year, potentially pushing you into a higher tax band.
Personal Income Tax
The rent you receive is subject to income tax. This must be reported on your self-assessment tax return for the tax year in which it was earned.
Depending on your income tax bracket, this could be taxed at 20%, 40%, or 45 percent.
You can deduct certain permissible expenses from your rental income, such as leasing agent fees, property maintenance, and Council Tax.
Mortgage Interest Deduction
Landlords can no longer deduct mortgage interest from rental revenue to decrease their tax liability. You will now be eligible for a tax credit equal to 20% of the interest component of your mortgage payments. This rule change could result in you paying significantly more tax than you did previously.
Conclusion
This guide is aimed at first-time home buyers and covers everything you need to know about acquiring a mortgage on your first house, including detailed steps that will help you.
Mortgage Guide FAQ’s
Can I get a mortgage for 5 or 6 times my salary?
Yes. While it’s true that most mortgage lenders cap the amount you can borrow based on 4.5 times your income, there are a smaller number of mortgage providers out there who are willing to stretch to five times your salary. These lenders aren’t always easy to find, so it’s recommendable that you use a mortgage broker.
How much do I need to earn to get a mortgage of 300 000 UK?
Most providers are prepared to lend up to 4 – 4.5x your annual income, which in this instance means that you will need to bring home a minimum of £66,667 – £75,000 a year
Can I get a mortgage on 30k a year UK?
Traditionally, mortgage lenders applied a multiple of your income to decide how much you could borrow. So, if you earn £30,000 per year and the lender will lend four times this, they may be willing to lend £120,000.
