What first-time buyers need to know

Could 2010 be the year you buy your first home? With the stamp duty holiday and low house prices, many first-time buyers are hoping to take their first step onto the property ladder this year. Felicity King-Evans talks to moneysupermarket.com mortgage expert Hannah-Mercedes Skenfield about some of the key issues for new homebuyers…

House prices are low, there’s a stamp duty holiday for first-time buyers, and the mortgage market is finally starting to ease.

Across the UK new buyers are starting to wonder if this could be the year they finally get onto the property market.

So, I’m catching up with Hannah-Mercedes Skenfield, Moneysupermarket.com’s mortgage expert, to find out a little bit more about the state of the market. 

Q1: So Hannah, is now a good time for people to buy their first home?

Hannah-Mercedes Skenfield: Well Felicity, there’s no definitive answer to that, although it’s a very good question and probably the one that I get asked most.

We’ve had the recent announcement about stamp duty for first-time buyers, so now if you’re a first-time buyer and you’re buying up to the value of £250,000 you won’t have any stamp duty land-tax to pay. There are also more mortgage rates available at the moment, so there is more opportunity and more choice for people.

That said though, it all comes down to your personal circumstances – you’re still going to need a really big deposit, and if you haven’t got that then now is not the time to be looking for a first house.

Q2: So how big a deposit should first-timers save and how does that affect their mortgage rates?

HMS: What you’re going to need is a minimum of a 10% deposit. That said though, the best rates are still only available for those people with a 75% loan-to-value (LTV), so that means they’ve got a minimum of a 25% deposit.

What you’ll find is the bigger your deposit, then the lower the mortgage rates are that are available to you. There are still, however, some good deals available at 90% LTV - so that’s 10% deposit – that’s going to be your minimum.

FKE: If you’re a new buyer, you might not be entirely clear about your mortgage choices are. Your two main options are a fixed rate, which stays the same for a set period, or a tracker, which co go up or down usually depending on the Bank of England base rate.

This graph shows what could have happened to your mortgage repayments depending on the mortgage choice you made five years ago - the fixed rate is blue and tracker is red.

Of course, rates can go down so the next move has to be up. But it's impossible to say for certain whether that will happen in months or years, so which is best for first-time buyers  

HMS: Well on paper variable rates will look an awful lot cheaper, and the rates will be a lot lower. They’ll also allow you the opportunity to overpay in many cases as well. That said, in most cases they’ll be fixed to something like the Bank of England base rate, so there is the opportunity there where rates could possibly go up, and so could your mortgage payments.

So if you’re a first-time buyer and you’re working on quite a limited budget then a fixed rate mortgage might be better for you. That’ll give you the security of knowing exactly how much you’re going to pay each month for a period of time, say two to five years.

Q4: So buying your first home can be pretty stressful and complicated – what pitfalls are there that first-time buyers should look out for.

HMS: So the house buying process can be quite stressful, but it can also be really exciting to, so when you’re looking to get your first property and indeed your first mortgage then there’s one piece of advice that I can really give you, and that’s to do the maths.

Now, when you look at a mortgage product you’ll have a headline rate, the rate that you’re going to be charged, and then you’re also going to have a set of fees as well, and it’s really important that you don’t just go for a very low headline rate, because often there can be some quite high fees behind it.

So if you look at the complete package, check out how much it is going to cost you every month and also how much it’s going to cost you over the longer term as well – and that’s really important for your first property.

FKE: There’s a lot to think about when you’re buying your first home, but as Hannah says the more time you’ve got to research the market the better. One thing that’s really important to remember is that it’s not just a property investment, it’s where you’re going to live, so you need to make sure you’ve right and affordable choice.

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