May 2016
We speak to Mark Finch from Goldfinch Financial Services about how Help to Buy can help first time buyers to purchase their dream Story Home.
Get organised: When applying for a mortgage, especially new build properties, try to be as organised as possible prior to applying. Banks will scrutinise applications now more than ever due to the mortgage market review. Documents which lenders could usually ask for include passports, proof of address dated in the last three months, last three months of payslips, bank statements and proof of deposit.
Access your credit file: During the process of applying for a mortgage, lenders will look at your credit file to see what loans and credit cards you have outstanding. It would be helpful to understand what is showing on your credit file.
Direct debits: Small missed payments will have an effect on your mortgage applications. It does not matter that you have just made the payment a day late; lenders will look at the credit file and make a decision to lend. Ensure that all credit cards or store cards are set up with a direct debit to ensure that at least the minimum payment is made.
Improving your credit score: Use credit, many people think this means carrying a balance on a credit card each month. That is not the case, it would be better to clear the credit card each month. You basically have to prove that you can handle credit responsibly. Therefore if you have a limit of £2000 and you only spend say £150 but pay it all back in full each month looks much better than having a credit card with a £2000 limit and the balance is £1950 and you only make the minimum payment each month.
Electoral roll: Ensuring that you are registered on the electoral roll will increase your credit score. Lenders will use it to help verify who you are.
Your income: Check your payslips before you apply for a mortgage. When a lender asks for your basic income, only tell them your basic income. The additional incomes all need to be broken down. Different lenders will treat each income in a different way.
Get a decision in principle before you reserve a property: It would be advisable to ensure that you can get a mortgage and also take the time to understand mortgages before you reserve or offer on a property. Once you reserve or offer things move very quickly. You do not have the time to think about your options. A new build property you will usually have to exchange contracts within four weeks.
2. What are the key features of Help to Buy which can help first-time buyers get on the property ladder?
With Help to Buy, the Government lends you up to 20% of the cost of your new home, so you only need a 5% deposit and a mortgage of 75%. You are not charged interest for the first 5 years, and you can repay this loan at any time.
See below a breakdown of costs using the example of a four-bedroom detached home, the Wellington, at Story Homes’ Dove Park development in North Tyneside:
Purchase price: £285,950
5% cash deposit: £14,298
20% Help to Buy equity loan: £57,190
75% mortgage: £214,462
Payments would be approximately £672 per month (based on a 30 year repayment mortgage on a two-year fixed rate mortgage based upon lowest rate).
Note: This is an example used for illustrative purposes only. Actual figures may vary.
3. Barclays has just launched a 100% mortgage product based on a ‘helper’s’ savings account. What are the benefits of this?
There have been a number of headlines in the press over the last week or so about 100% mortgages. This is nothing really new as although the lender does lend 100% of the property, the lender will always ask for some type of guarantor or additional security.
100% Family Springboard mortgage – Essentially the lender will advance 100% of the purchase price of the property but a relative would need to deposit 10% of the value of the property into a savings plan with the same lender. The 10% would attract interest during the time it is deposited but if repayments are not met on the mortgage then they may be able to use the savings to make up any shortfall. This scheme is not available to new build properties whereas there is another scheme, the 100% Family Guarantee…
100% Family Guarantee – The lender will advance 100% of the mortgage however this one is slightly different in the sense that no additional monies are required to be deposited with the lender. We find many parents want to help out children but they either a) don’t have liquid funds to help them out or B) don’t want to tie up their funds as they have plans for their money. In this case as long as the parents guarantee the mortgage and the lender can take a charge over the parent property (20% of the value of the new purchase) then no additional funds are required. In the past a guarantor would need to guarantee the whole mortgage whereas this way the guarantor is limited to 20% of the value of the property. There is a maximum property price of £250,000 for this product.
Many lenders understand that in a number of cases a family can afford the monthly payments on a mortgage but they struggle to raise the deposit plus all costs associated with moving, including stamp duty and solicitors fees.
Some lenders now offer a cash back facility to help with costs. If we stay with the example of The Wellington at Dove Park, stamp duty for that would be £4,297. There are lenders who would offer £2,500 cash back towards costs, reducing how much you would need to purchase your property. Also keep an eye out for special offers from the developer such as ‘home of the week’ which sometimes offers stamp duty or additional incentives on certain plots.
5. Are there any benefits to buying a four bedroom detached Story Home as a first property, as opposed to a flat or smaller three-bedroom property?
Coming from someone who is just about to have another baby, space means everything. The purpose of speaking to a mortgage adviser is all about planning for the future. Yes, mortgage rate and repayment costs are important, however it is more about what your future plans are and where you see yourself.
Purchasing a flat may cost less each month but whilst property prices are lower in the region it makes sense for me to look for the biggest property you can comfortably afford.
With the Government providing so much support through Help to Buy, it is making it easier to buy a family home.
It’s worth bearing in mind that each time you move you will have additional costs, including stamp duty, solicitor costs, estate agent fees – all of which are not cheap. Move a number of times and you will easily be spending thousands just in fees.
Discussing your options with someone is always beneficial just to allow you to make informed decisions. Do not over stretch yourself but clearly if you purchase a house over a flat and it is still affordable then you may not move again in the future when your family starts to expand.
Speak to your development’s recommended financial adviser as new build mortgages are very different to mortgages which are available to the second hand market. Do your research and make sure you choose the right option to fit your situation.
Disclaimer: All financial examples are indicative and subject to change. All information in this article is provided as generic advice and Story Homes accepts no responsibility for action taken as a result. Contact a recommended financial advisor for expert advice.
