Confidence is on the rise among first-time buyers, according to a survey from Abbey. It seems the 0.25 per cent interest rate cut in August did its bit to boost confidence levels among homebuyers-in-waiting, with 34 per cent of those asked saying they are confident they will be able to buy in 2006 compared to 29 per cent of those surveyed three months ago.
Costs
But for those who have already made it on to the housing ladder, a recent survey from Abbey reveals that after the excitement of househunting and browsing for furniture, few first-timers were ready for the tidal wave of other costs that come with the homebuying process .
According to Abbey, three-quarters of first-time buyers failed to put any money aside for homebuying costs. These include solicitors fees, stamp duty, property valuation costs which all lenders charge separately from your mortgage application fees structural reports and moving costs. In total, these can amount up to £5,794 for a higher-value property, which must mean that thousands of FTBs are deducting them from their deposit, or throwing these charges on to credit cards and overdrafts, or taking out other loans to cover them upfront.
But for first-time buyers who have been saving for, say, three or more years to put away a £10,000 deposit, seeing it halved in one fell swoop may come as a nasty shock. The knock-on effect is that a smaller deposit also limits the number of lenders happy to offer you a mortgage, and those who will are likely to subject you to higher mortgage rates. Most lenders will give you the option to roll any fees into your mortgage. But bear in mind that if you take this tempting option after interest charges on this extra amount, you will have paid the fees many times over by the end of your mortgage term.
Getting professional advice
One of the best ways to help yourself as a first-time buyer is to seek out independent, professional advice. Family and friends are understandably the first port of call for many first-time buyers, but mortgage advisers can offer more than advice and market knowledge.
Often mortgage advisers can offer borrowers access to a range of exclusive products that are not available through a high-street branch or mortgage lenders website, says Linda Will, managing director, Accord Mortgages.
The bells and whistles on offer that are particularly attractive to first-time buyers can be anything from a low fee (or no fee at all) to a better mortgage interest rate, says Will.
However, first-timers in particular would do well to talk to an adviser, who is there specifically to answer any questions and act as your guide. Only 18 per cent of non-homeowners claimed to have a clear understanding of the mortgage market in a recent survey from IFA Promotion. Many people also agreed that advice was important when arranging a mortgage, but just 8 per cent of potential homebuyers less than homeowners say they would go to an independent financial adviser (IFA) or mortgage broker.
Help yourself
Nowadays, people of all ages are researching their mortgage and homemoving options on the internet before going househunting. And when it comes to mortgages, research tools like www.johncharcol.co.uk, and www.bradford-bingley.co.uk are certainly useful and offer everything from mortgage search engines to how to negotiate over sales prices and useful Q&As.
Many mortgage lenders offer mortgages labelled first-time buyer loans, specially tailored for people with either no deposit or a lower amount than those who are already on the housing ladder because they have sold a house before.
Many of these tailored loans also generally let applicants stretch their incomes further because they assess people on income and affordability, which takes into account the amount of disposable income left at the end of the month.
Some of these, like Nationwide Building Societys flexible tracker currently offered at 5.04 per cent, take a deposit of 5 per cent, have no overhanging redemption penalties (which tie you to the deal after the low initial rate has ended), no application fee and no higher lending charge.
These deals are great if you want to avoid some of the upfront mortgage-related charges, but at 5.04 the interest rate is higher than other rates out there which would give you a lower monthly repayment.
A John Charcol exclusive, for example, available only through intermediaries, is offered for six months at 4.55 per cent, and then reverts to 5.95. It also has no application fee and only needs a 1 per cent deposit, which has obvious appeal to those having problems saving.
If you have a deposit that equates to 5 per cent of the price of your property, many more mainstream products are available to you which may not have the same first-time-buyer features, but may well be better value in the long run. Also, while many people are captivated by headline rates, another way to compare the cost of one mortgage against another is to look at true cost or APR (annual percentage rate), which calculates the cost of all the interest plus all other mortgage-related fees.
Higher lending charges
Another thing to be wary of are higher lending charges.
Some mortgage lenders still charge borrowers with small deposits considered to be less than 25 per cent a higher lending charge which can amount to thousands of pounds. When the average buyer, let alone FTB, pays roughly £188,000 for a property, this means, in this case, that those with deposits of less than £47,000 can be charged a percentage of their mortgage borrowings.
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