Know your stuff
Find out as much as you can about the type of mortgage you need before you begin your search.
Youll need to think about whether you want a repayment or interest-only mortgage, a fixed rate, tracker or discount mortgage, or a 100 per cent mortgage and learn about how fixed-rate periods and mortgage tie-ins work.
Work out how much you can afford to borrow
Mortage lenders decide how much to loan based on multiples of your income and your partners income, if relevant. Lenders differ in the amount they lend, but it is typically three to three and a half times income.
Lenders are become more flexible and some will loan you money based on your ability to repay the debt.
Work out how much it will cost to buy
After the effort that goes into saving for a deposit, many buyers forget to put aside cash to cover buying costs.
If your property exceeds the stamp duty threshold of £0000 you will need to pay stamp duty at a rate of 00 per cent.
You will also need to have cash available to pay your solicitor, to pay for searches, to pay for mortgage set-up fees and to pay for your removals.
Shop around for the best rate
Getting the best rate is crucial for cash-strapped first-time buyers. A £100,000 repayment mortgage over 25 years with an interest rate of 4.50 per cent will cost £555.83.
The monthly payments rise to £614.09 for an interest rate of 5.50 per cent. Use our mortgage search tool to help you get the best rate.
Family can help you out
There are a number of schemes recently introduced to enable family members to help out their offspring.
A guarantor mortgage, such as mortgages from Newcastle Building Society and the Co-op will enable you to borrow up to a limit and for your parents to guarantee any amount borrowed over the income multiple limit.
As your salary increases and you are able to take on more of the debt, your parents can gradually be released form the mortgage.
An offset mortgage may allow your parents to offset their savings against your borrowing.
Look for special schemes
There are mortgages specifically aimed at first-time buyers. HSBC has a graduate mortgage scheme which enable you to borrow up to 100 per cent for up to five years after graduation.
The scheme gives you the option to begin the mortgage on an interest-only basis to reduce costs and then revert to a repayment, once you can afford to.
Some offer cashbacks to help with homebuying expenses. Make sure you arent charged a high rate of interest for the privilege of a special deal.
Join forces with a friend
Clubbing together with a friend or relative could enable you to take your first steps into home ownership.
Up to four people can apply for a mortgage, but most lenders will base how much they lend on the incomes of two people only. Typically the loan will be three times the main income, plus one of the other incomes.
Rent out a room
If you have a spare room in your home you can earn tax-free income up to £4,250 each tax year.
Some mortgage lenders, including Bradford & Bingley, will factor in rental income into the amount you can borrow, so look for a mortgage lender than will loan on your ability to pay.
Rent of £4,250 could potentially increase your borrowing power by more than £13,000.
Dont pay a HLC
Higher lending charges (HLC) are charged on some mortgages if you borrow more than 90 per cent of the value of the property.
Charges are usually a percentage of the amount borrowed and can add thousands to the buying costs. Most lenders will allow you to add the charge to your mortgage, but this means you will have to pay interest on this for the term of the mortgage.
Unfortunately, some first-time buyer deals come with HLCs. But theres no need to pay a HLC as there are plenty of mortgages that dont charge them.
Extend the term of the mortgage
Most standard mortgages are repaid over a period of 25 years. But you may be able to ask for a longer term to reduce payments.
The term could be shortened when your income increases. For example, a £150,000 repayment mortgage taken out over 25 years with an interest rate of 5 per cent, would cost £876.89.
Increasing the term by five years would reduce your monthly costs to £805.23
Pay interest only
You could opt for an interest-only mortgage in the first few years then swap to a repayment when your income increases.
The repayments on £150,000 mortgage, over 25 years with an interest rate of 5 per cent would be £876.89 and with an interest-only option would be £625.
Its important that you either set up an investment to pay off the mortgage, or switch to a repayment mortgage when you can afford it to ensure that your mortgage is paid off. HSBC offer a scheme that enables you to switch after a few years.
High income multiples
Some lenders may be willing to loan more than the standard income multiples. Abbey and Nationwide will loan on ability to pay.
Some lenders may loan up to 5 per cent on the basis that they assume your salary to increase in the future. A mortgage broker will be able to find the best deals.
If youre seriously short of cash you may be able to add some of the buying costs to the mortgage. Mortgage set-up and completion fees can often be added.
But this does mean you will pay interest on the fee for the term of the mortgage.
Avoid mortgages that charge percentage fees
Some mortgage lenders charge an admin fee as a percentage of the amount borrowed. A fee of 0.5 per cent doesnt sound high, but is £750 on a £150,000 mortgage. Flat fees are usually lower.
FInd out how much you can borrow here
