How to find the best mortgage for you – 6 tips including lenders offering ‘no deposit’ loans
IF you’re lucky enough to be in a position to start hunting for your first new home, signing yourself up for a mortgage might seem a little daunting.
And with a load of options to choose from and confusing jargon to sift through, sometimes it’s hard to know where to start.
But don’t panic: we’ve rounded up a list of six top tips to keep in mind while shopping around, including which lenders are offering “no deposit” loans.
Save for a deposit
To be in a position to buy a home, you’ll most likely need to have some cash in the bank saved to put down a deposit.
It’s also likely that you’ll have to save more now compared to what was on offer before the pandemic.
Pre-Covid, first time buyers could buy a home if they had enough cash for just a 5% deposit.
But when the pandemic hit, the housing market shut down, and because lenders couldn’t value properties, the minimum deposit rates hiked up to 20% in some cases.
However, this jump was short lived, and now major lenders are bringing back home loans which need a deposit of just 10% - see more details below.
Saving tens of thousands for a deposit is easier said than done - but there is help available to make your money go further.
You could apply for a Help to Buy equity loan, which means the government will lend you up to 20% of the home's value (or 40% in London) after you've put down a 5% deposit.
If you miss a payment, then your guarantor will have to foot the bill.
Barclays is offering a loan like this, called a.
It’s best to check exactly how much you can borrow and what you’ll be paying back with your mortgage provider.
Get your paperwork ready
You’ll have to check with your mortgage provider as to exactly how much you will be able to borrow.
Lenders will not only look at income, but also at regular outgoings and financial commitments such as utilities, childcare costs and travel, L&C Mortgages communications associate director David Hollingworth says.
Secondly, be honest about your financial situation with your broker so you can get the best advice for your circumstances. “Our research shows that 90% of people with a poor credit history are approved for mortgages,” Robinson says.
“This could be the result of smaller lenders operating in more niche areas to stand out in an incredibly competitive market - and a mortgage broker will help you find the most suitable mortgage.”
Next, try to pay down your debt as much as possible. Missing payments can hit your credit rating hard, so set up direct debits to avoid missing future installments.
And finally, lenders look at your credit rating to make sure you have a history of managing debt responsibly - so they may turn you down if you don’t have much of a credit history, Robinson says.
Using small amounts of credit, like a planned overdraft or a credit card, can help build up your credit rating and improve your chances of getting bigger loans in the future.
“However, it’s very important that you manage this debt sensibly and make your repayments on time, otherwise you could end up paying high interest rates and doing more damage to your credit rating than good,” Robinson says.
Here's how you can get on the property ladder with just a 5% deposit by using the new Help to Buy equity loan.
READ MORE SUN STORIES
Will the stamp duty holiday be extended past its March 31 deadline? Here's what we know so far?
And if you're looking for some saving inspiration, here's how one couple saved much more for their deposit by switching energy tariffs and batch cooking.