So, after weeks or even months of searching, you’ve finally found your dream home and you’re ready for your first residential mortgage. Time to celebrate as surely the hard part is over, right? Well, unfortunately not.
Buying a property is never a small undertaking. Throughout the process, you’ll have many important decisions to make that will affect your mortgage repayments for decades to come.
To obtain a standard residential mortgage, you’ll have to:
Decide on the type of mortgage that works best for you
Find a property within your budget
Save for a deposit
Complete and submit a mortgage application
Deal with stamp duty and surveyors.
If this sounds like too much to deal with and you’re feeling overwhelmed and intimidated, it’s completely understandable, particularly if you are buying your first home.
Whilst purchasing your first property can be stressful, it is also incredibly rewarding and gives you a great level of security heading into the rest of your life.
As a professional and experienced mortgage broker in the UK, we’re here to make the process of buying a house as smooth and stress-free as possible.
Read below for more information on residential mortgages and first-time buyers, or give a call directly on 01738 583008 to elicit our help.
A residential mortgage is a mortgage given to a person or group of people looking to purchase a home for themselves.
The residential mortgage loan stipulates that the property has to be used as a home for the same person who took out the mortgage. The property cannot be bought and then let out to other tenants – for this you would need a buy-to-let mortgage.
You may be allowed to sublet your property with a residential mortgage, but it could incur a higher interest rate. Residential mortgages are among the most common mortgage types and have a relatively basic set of rules and principles.
If you’re a first-time buyer in Scotland, it’s more than likely that you’ll be looking for a standard residential mortgage to purchase your first home.
If you’re interested in a buy-to-let mortgage as a first time buyer, read our blog on the topic to find out more.
Generally speaking, it’s never too early to start looking into mortgage options and preparing to get a mortgage.
If you’re a first-time buyer, the process is likely to take several months and possibly up to a year before you are properly settled and moved into your first home. Therefore, doing research and having a clear idea of what you want and how much you can afford will help your application move along faster.
We recommend looking into residential mortgage options even before you’ve started looking for a house to buy. This is important because:
It’ll let you know how much you can feasibly afford before you begin to set your sights on potential homes.
It helps create a smoother buying process down the line if you have a good idea of what is within your remit.
Having a mortgage agreement in principle makes you a more attractive buyer. This gives you an advantage over other buyers when you put an offer in on a property.
If you’re planning shared ownership with a partner, family member or friend, you’ll be able to understand precisely what kind of mortgage you’ll need before beginning the search.
A quick tip for getting a rough idea of how much you’ll be able to borrow is using an online mortgage calculator. This process is quick, and easy and will not affect your credit score.
However, please remember that this is just an estimate. You will need a Mortgage In Principle before you can make any official offers on house.
If you’re considering buying a new home, looking at your credit rating is a great place to start. This is an important component of the mortgage application process because your credit score will let the lender know how you handle your debt.
Your mortgage lender will look at your credit history to determine your reliability as a borrower and decide what kind of product and interest rates they’ll offer you. If you have a good credit rating, you’re far more likely to be able to borrow larger amounts and limit your monthly repayments. However, if you have a poor credit rating and you are seen as a risk, you could struggle to obtain a mortgage in principle.
It’s important to raise your credit score as much as possible to give a positive impression to the mortgage lender and give you the best chance of being accepted.
However, it’s important to note that each lender has its own criteria for its borrowers; no universal rating will provide a blanket guarantee of a mortgage. Every lender is different.
We’re often told that debt is a bad thing, but having well-managed debt records will improve your score significantly.
Without any debt on your record, the lender has no evidence that you’re a reliable investment for a mortgage. Both a poor history and little to no history are both very off-putting to a lender. Lenders are all about managing risk - and the more reliable you seem, the better.
Therefore, it’s a good idea to build your credit score before applying for a mortgage. A few steps you can take to improve your score are:
Registering to vote
Taking out a credit card and keeping up with monthly payments (always use an eligibility calculator first so failed applications don’t impact your score)
Always making sure you pay your bills on time
Check addresses on old bill accounts
Use a credit rebuild card if you’ve got bad credit
Avoid payday loans
Cancel unused credit and store cards
If you’re looking for further advice on raising your score, please get in touch, and we can certainly help you.
Although you can’t be officially accepted for a residential mortgage until you’ve had an offer accepted, it is possible to request a mortgage decision in principle from your preferred lender.
This is where prospective lenders are permitted to give you an indication of what they’d be willing to lend you, taking all your circumstances into account.
This gives you evidence to supply the seller of the property that you have the financial means to afford it, making you a more attractive buyer. An agreement in principle also gives you a clear idea of the type of property you can afford so you can narrow your search and focus on attainable properties.
When providing you with an agreement in principle, the lender will check your credit score and ask questions about your income and your deposit. These will form the basis of your mortgage agreement in principle.
Applying a residential mortgage can be tricky, but If you’ve already got a mortgage in principle, you’ll have likely gathered most of the necessary paperwork and information required.
Next, you’ll need to attend house viewings until you find the home that is right for you. Now you can make your offer with your MIP, and if your offer is accepted, you’ll have to submit an official application to your mortgage lender.
As part of this application, you will have to provide proof of your identity, residency and income.
Your credit will be checked, and they may request references from your bank and employer.
Bare in mind that you may need to pay over the asking price if you want to secure the property you have your heart set on. This is when buyers use their own money (not borrowed from a lender) to pay over the asking price of the property, sometimes by a few grand, other times by 10 grand+, it all depends on the competition and the property in question.
In addition to the money spent on paying over the asking price, it's also important to remember that the mortgage application process can often be quite pricey due to extra fees such as; stamp duty, layer fees, admin fees or even mortgage agent fees.
Furthermore, you will want to keep extra cash behind as you will need to have enough left over to buy furniture for your new home, especially when buying your first home. People often save up enough cash for the deposit but then leave themselves strapped after these extra fees are added on.
Therefore, be prepared for all eventualities when it comes to mortgage applications when buying a home as you will need to have more than just the deposit saved up. We recommend having money put aside for the extra application fees, new furniture and to pay over the asking price, in addition to the deposit itself.
We understand saving up this amount of money can be challenging, especially for first time buyers. However, there are many helpful schemes available, all of which we can help you navigate if you choose us as your mortgage broker.
An interest only residential mortgage is a type of mortgage where the borrower only pays the interest charged on the loan amount each month, rather than paying off any of the principal amount borrowed.
This means that the borrower's monthly payments are lower than with a standard repayment mortgage, but at the end of the mortgage term, they will still owe the full amount borrowed.
Typically, borrowers who choose an interest only mortgage are expected to have a repayment vehicle in place, such as an investment or savings plan, which will provide the funds needed to pay off the loan at the end of the term. It is important for mortgage brokers to thoroughly discuss the risks and benefits of an interest only mortgage with clients, as it may not be suitable for everyone.
A fixed-rate mortgage allows you to pay a fixed rate of interest for a set time. This time period can vary from 2-10 years, depending on your lender. Fixed-rate mortgages are attractive because the monthly repayments will remain the same each month, making it easier to budget and plan your finances ahead of time.
A variable-rate mortgage is a mortgage where repayments will fluctuate based on the lender's discretion. You will pay what is known as a lender's standard variable rate (SVR) of interest, meaning the interest rate will change based on the current economic situation and the lending market.
Variable-rate mortgages are a less attractive mortgage to most people because they can be unpredictable, and in a poor economic downturn, you can be left strapped for cash whilst still expected to pay a high monthly payment.
Tracker Mortgages are a type of variable rate mortgage. The interest you pay on a tracker mortgage will vary monthly; however, the amount you pay will be linked directly to the Bank of England base rate. Tracker mortgages track the base rate and stay a set percentage above it all times.
The Bank of England base rate will significantly impact the changes in monthly repayments that you are expected to make on your mortgage, meaning you will find it hard to know in advance how much you will be paying back each month.
House prices have been rising steadily over the past few years in Scotland and across the UK. In 2022, UK house prices reach new heights with the market increasing by 11% in July 2022.
In August 2022, the average property price in Scotland was £195,391. The average price of a detached home was £349,000 (up by 12.3%), and the average price of a flat was £134,000 (up 6.7%) according to Gov UK statistics.
Due to the increased price of property, most people will need to take out a mortgage loan in order to afford a residential mortgage. It also means that you will need to save more money for a larger cash deposit to obtain your mortgage from the lender whilst also having money left over to pay over the asking price.
However, don't let this discourage you from taking out a residential mortgage. There are a lot of government-led schemes in place to help individuals get onto the property ladder and purchase their first home.
If you are eager to secure your first mortgage, looking to take out a new mortgage or considering moving to a new property, speak to The Lending Channel to see how we can help.
A few exciting and helpful schemes are available for first-time buyers in Scotland. This includes a mortgage guarantee scheme, which is available from some banks. Some offer a special first-time buyer mortgage of up to 95% of a property’s value. You might want to look into other schemes such as the First Home Fund that help first-time buyers get on the property ladder.
The best piece of advice for a first-time buyer is to enlist help and advice from a trusted and experienced mortgage broker.
With so many options out there, it’s easy to get overwhelmed and miss things that could have ended up saving you a significant amount of money and time.
The Lending Channel has helped countless first-time buyers secure their dream homes at the best residential mortgage rates available to them.
At The Lending Channel, we pride ourselves on finding the absolute best deal we can for our clients.
Using our extensive industry knowledge and connections, we ensure we scope out the best residential mortgage offers for you. Whatever your circumstance, whatever your history, we’re here to help you apply for a mortgage and purchase the property of your dreams.