So you've found your dream home and it's time to sort out the finance. Everyone's circumstances are different and you'll need proper financial advice before making such a big decision, but here are a few pointers to help you get started.
What types of mortgages are there?
Fixed-rate mortgages are fixed for a set period (typically 1-5 years) after which you move on to the lender's standard variable rate (SVR). Interest rates are typically higher than for variable-rate mortgages but you know exactly what your payments will be for those years and that can be really helpful, especially if you're just starting out on the property ladder.
Tracker and discounted mortgages are both types of variable-rate mortgages. Trackers are linked to the Bank of England base rate while discounted mortgages give the borrower a reduction on the lender's SVR - usually for a fixed period of time, before they move on to the full SVR.
How much can you borrow and how long for?
Age and income are key considerations here. Are you hoping to retire early? You won't want to be paying a mortgage then so will need something shorter term. Remember, longer-term mortgages mean lower monthly payments but more interest paid overall.
As a rough guide, you can borrow about 2.5-3 times your household income but lenders will also check outgoings and want to be sure you'll be able to make payments should interest rates go up - as will you, just in case.
Lenders have tightened up on how much they will lend in recent years but it's still possible to find good deals. Two key tips:
- The bigger your deposit, the better the interest rate.
- Think about what will happen if interest rates go up. Rates are low but likely to rise soon. You need to be sure you'll be able to meet your commitments even if interest rates go up to 6% or higher.
Finally, beware extra fees such as arrangement fees and early redemption penalties. Read the small print before you sign, particularly concerning what will happen if you move.
Whether you've already seen your dream home here at Shanly Homes, or you're just thinking about moving, it's wise to take a close look at what's available. Sites such as moneysupermarket.com and moneysavingexpert.com are good ports of call when you're first looking, to give you an idea of the latest deals.