Hello and welcome back to the Mortgage Protection podcast. This tomorrow, we’re going to be helping first time buyers and I’ve got months from financial markets. How’s it going?
You write very well. How are you? Yeah, really good. Thank you. I’m going to dive straight in with some questions for sort of first time buyers. And I suppose one of them is sort of a broad one and it’s probably quite obvious.
But what actually qualifies us as a first time buyer, as it sounds a bit obvious, but it’s to do with ownership and it’s to do with how you own the property before. And that’s down to residential property, not commercial property. For example, if you jointly owned, you have to have not owned a residential property before. That doesn’t just apply to be purchased. It also is if you’ve inherited it or want it. And actually many of them, that that would apply.
And similarly, if you own property overseas, you are still classed has owning property.
So you literally cannot own any of the property before, even if you’ve sold it, even if you sell that other commercial property, that’s quite rare.
And then even if you had a commercial say it had a living, an actual living course attached to it, that was such a purchase that you also would not qualify as first time buyer.
And what kind of deposit will I need as a first time buyer? So we’re recording it’s October 20, 20 at the minute.
And I suppose can that change over time prior to what’s going on at the moment with covid-19, you could have put down five percent deposit as soon as we were hit with this crisis. I call it that. Basically all the high LTV, LTV, we mean loan to value. So a five percent deposit would be 95 percent LTV. All that high LTV lending basically disappeared. So at the moment, it’s 85 percent the minimum you’ll need for a deposit if purchasing the rest of that scheme without any additional sort of help to buy for stuff like that.
If I’m a first time, I’ve never done this before. So, like, how does it work getting a mortgage? What’s the process if I’m a first time buyer?
First of all, you need to know how much you can actually borrow because that will determine what kind of property you can afford, obviously. So there’s not really any point going out and looking at places like this put in offer and that you can’t get a mortgage on it. That’s why I recommend going to a broker first. But even if you don’t do that and there are plenty of sort of calculators on the Internet that you can find other information to give you a sort of general idea before you go out into the market.
And then what I always recommend doing is once you’ve sort of seen some insight prior to getting an offer, I often obtain to find what’s called a decision in principle. And this is essentially a lender vouching for your ability to borrow the funds to purchase the property. And that basically gives you a bit more if you want to call it off your offer. Basically, you have a certificate stating that you are good for the amount of borrowing that you require to make that offer.
Yes, I suppose that you make an offer. If your offer is accepted, Purrfect, then you go to submit an application. This is where the lender will do a full assessment of your ability to borrow. So this is based on your income, any credit commitments you might have, and also the value of the property. So lenders will complete what’s called a mortgage valuation. Now, this is a home buyer survey, which I would also recommend you do as by not just the first time buyer.
And a mortgage valuation is basically the lender stating that this is a suitable security on which for them to lend. So it’s nothing to do with that. This going to show off things like damp or Japanese knotweed or whatever you want to call it, anything like that. This is just them saying we will lend on this piece of land with a building on it once that’s come back, OK? So then why don’t we do this side by side? At the moment, it’s quite slow.
They will assess your income based on evidence you provide them with. So the bank statements, they also might need to verify you in terms of IP and address and that sort of thing. And then if that’s all accepted, you get a mortgage offer at that point. It sounds to the solicitors really that you’re dealing with. So if you’re a first time buyer, obviously you’re at the beginning of the chain. So it can be quite quick. But if you’ve got a new build, you basically just have a moving date.
And that’s the date that you will complete on your mortgage, which is the day that the funds are transferred to whoever you’re purchasing from. And your account is essentially life. And then that’s it, really.
And then are there any sort of pension schemes earlier? Are there any sort of specific for first time buyers?
Yes, there are two schemes available under the Help to Buy scheme, although this is changing in April next year. But I’ll go now anyway. So this first one is helpful, actually. So this is when the government will lend you up to 20 percent of the value of the property outside of London. And when you put it down five percent deposit and in London they lend you up to 40 percent. Basically, this is interest rate for five years, after which point you do start paying interest on the way the actual loan works.
Is the amount you owe the government in repaying your actually based on the value of the property, if your property price goes up and you borrowed 20 percent of the purchase price, you will still owe them 20 percent of whatever you sell it for. However, the rest of that capital gain is yours. And similarly, if your property price goes down when you come sell it, you will the government less money than you owed them at the start. The second of these is called shared ownership.
This is the one I’m less of a fan of the two, to be honest. And this is where you essentially purchase a percentage of the property, for example, 40 percent, and then you pay rent on the other 60 percent. Any increase in the value of the property? You only realize that yourself on the percentage of the property you own, then you do have the option to staircase, which is where, for example, every five years, for example, you say, I’d like to increase my share of the property.
And it’s basically to help people who may not have the deposit or basically the ability to raise enough as a mortgage to purchase an entire property.
And then how do I know that I can make my monthly mortgage payments, like with all my other bills?
What’s the best way to kind of work that out if you’re going to work out yourself? It could be quite time consuming, but it’s going to come consuming anyway. But if you were to do it by a broker, basically sit down and basically do a budget plan with you. So first of all, you calculate all your if you committed expenditure in terms of expenditures that you cannot get rid of, for example, if you have loans outstanding and a high purchases, credit cards, that sort of thing, that would go to an essential expenditure.
This is stuff like food, travel, utility bills, all that sort of stuff, clothes. And then after that, you kind of got I would always include always overestimate as opposed to underestimate stuff like all of that kind of the football, that sort of thing. In terms of how that relates to mortgage lenders have their own inbuilt affordability calculators anyway. So what they will lend you is based on what they will accept as sort of your maximum monthly payment, even if you are borrowing one hundred and fifty thousand, they wouldn’t say they wouldn’t then let you say, oh, but I want to borrow that over five years if that’s not going to be affordable to you.
But it is always important to calculate that with a broker site because otherwise you’ll end up paying more than you can afford every month.
And the money, if you’re a mortgage broker, mortgage adviser, how else do you help me as a first time buyer? We talked about sort of budget planning, but what’s kind of your role in all of this?
I think a big part of it is I tell all the donkey work for you, which is I do a lot of chasing up lenders who are not supposed not doing what they’re supposed to be doing, chasing up solicitors who are not doing what they’re supposed to be doing. And I’m basically on your side, so I don’t represent the lender. I don’t represent anyone else. But you really protect particularly with a sort of with a purchase, particularly in the moment when things are just taking so long because we’ve seen this sort compression in the high LTV market, quite time consuming.
If you’re in the middle of the working day, you’re going to have to spend 45 minutes on how to say, why haven’t you? Why haven’t I got an offer? Why don’t you assess this documentation and also just knowledge of the market in general. If you’ve got your sort of niche cases that, say, other commercial property of things without using a broker, you might basically put an application that is just going to get rejected at source and you just waste a lot of time.
So, yeah, that’s that’s what I’d say. The main benefit is basically expertise and also time saving.
And then what about the different lenders? Because, you know, I suppose a lot of first time buyers may go straight to the say they banked with someone on the high street. They may go there first. You guys kind of look at the wider markets. All right.
Yes, I got your banks basically. Well, I say what I’d say to that, particularly at the moment when rates are already quite high. Obviously, the advantage of using a broker, you can go out into the market as a peer, being an appointed representative from what we were from a panel. So we have access to all the best lenders. There’s a chance, obviously, that having gone to your bank, they’ve told you the right. You go to your broker, they come back and say, yeah, that was the best rate.
That worst case scenario is you’re back to where you start from. You’ll be worse off from doing so.
And how does it work in terms of will it cost me anything to have that initial kind of chat with you to work out which lender is right? So much budgeting out, working at what I can afford depends who you deal with.
I personally don’t charge my clients in my face based in London in terms of property prices and mortgage values. Anyway, they’re already quite high. I don’t feel naked. I don’t feel the need to charge by, say, in terms of dealing with me and lots of other brokers in London who operate under a similar on a similar basis. There is no situation, to be honest, great financial chat. Worst case scenario, you go, OK, doesn’t allow going to be able to do what we set out to do, but I haven’t lost at all.
Like, oh, I’ve got more informed really on them. I can and can’t do.
And how has the kind of the covid-19 sort of pandemic affected, like the kind of the market for I mean we talked about the lack of maybe options post covid-19 and pre. Are there any other things we should be aware of if we’re listening right now on the back end?
The twenty twenty one thing I’d say is rates are changing literally on a weekly basis. This is down just a touch of. There is essentially a compression of the high LTV market. What I mean by that is because there are no longer products available, mortgage products available in five or 10 percent deposit. Basically, everyone into that bracket is either not got a mortgage or has basically had to come up with the extra deposit. So we’ve now got 85 percent loan to value, 15 percent bracket is now hugely inflated.
And I can give you an example of this. For example, I did an application for some clients in July of twenty twenty eighty five percent at their best rate, which is the one I recommended to them at one point seven four. As of today, and that’s the first time buyers are of today. The best rate first time buyers at 85 percent, two point eighty nine. So that’s a massive, massive increase over just a few months. And yeah, it’s just down to basically lenders acceptance of, well, perceived what they perceive as a higher risk now because we don’t know what’s going to happen with property prices.
Obviously at a higher LTV, this much is much more likely that a decrease in property prices would lead to you being tracked in negative equity. So that’s basically what this this inflated market is derived from at the moment.
I mean, there’s lots to think about there. I think if there were any sort of first time buyers listening in, it does sound like a bit of a no brainer to have a chat with Manizha or another broker just to just talk through your because everyone’s got specific securities. Assume the people you deal with. There’s no they’re not it’s not like a cookie cutter service is. It’s everyone’s got different income levels, different properties they’re looking at in different locations, right?
And also just different attitudes to risk in terms of looking to do one thing and get some people saying, well, the market’s inflated at the moment. How inflated are going to be and for how long do I want to lock myself in for five years. Most people are saying, well, absolutely not five years, but some people say actually, do I want to lock myself in for two years? Do I want to go on a tracker and see where we stand in a year?
Obviously, having a base rate at the moment is quite warm and there’s talk of going into negative interest rates. I don’t think that’s going to get your views on the market in November. I don’t think it will happen then. However, that’s something to bear in mind as well. You don’t have to lock yourself in at the current inflated rate. If, however, you do always run the risk of if you’re going onto a track, you do always run the risk of your payments increasing.
I’ve got to say, at the moment, I can’t see interest rates going anywhere up just because of the way the economy is at the moment, the way inflation is at the moment. You know, the inflation target is sort of creeping level of 2%. I think we’re currently at sort of a 12 month average of 2.5. I can’t see interest rates going anywhere, up anywhere, anytime soon anyway.
So those of us to go through, if we’ve got any specific questions, I assume I can go to the website, give you a call, an email or.
Yes. Yes, we can. Yeah. If you if you can talk about based on Common Street and the city of London, if you give me, I’m sure, why the details can’t be otherwise and go straight to the Financial Solutions website and get in touched by that.
And if you look wherever you listen to us, there’ll be a link directly there. Seemed to click on that and you’ll get the details straightaway. So thank you so much for your time. Really appreciate it. And I’m sure we’re going to we’ll speak to you again very soon. It’s nice having you to know that.