As a first-time buyer the property market can be extremely overwhelming, and unless you’re fore-warned and fore-armed with the relevant information, it’s easy to fall into a number of traps.
Here are just a few common mortgage mistakes that are made by first time buyers – once you know about them, you can hopefully avoid them!
Going direct to your bank (and not looking anywhere else)
If you don’t know where to start when looking for a mortgage, one of the easiest routes to take is to go and speak to the bank or building society that you currently use. But just because it’s simple doesn’t mean that it’s the best thing to do. By going direct, you could be missing out on some great deals that are available in the rest of the market.
Speaking to a mortgage broker that offers a whole of market comparison will give you access to a wide range of deals, not just a limited set of products from one lender.
By all means speak to your bank as well, but don’t discount the advantages of using a broker. Not only will they be able to search the market for you, a good mortgage broker will be able to go through your application with a fine-tooth comb and help to iron out any problems before it’s submitted to the lender for approval. They’ll generally be aware of the types of mortgage you’re likely to be approved for so using them can be really beneficial, and you’ll hopefully avoid the pitfall of being declined at the first hurdle.
Not saving enough
Unfortunately you can’t just go to a lender these days and expect to be given a loan value of 100% of the property price – these mortgages simply don’t exist. In order obtain a mortgage, you’ll need to plan ahead, making sure you have at least a 10% deposit.
Not only that but you’ll need to be aware of all the other costs associated with purchasing a home. Not all brokers charge fees, but some do. There’s also the mortgage arrangement fee, the valuation fee and legal costs that need to be covered.
Depending on the value of the property, you may also need to pay Stamp Duty – you can find out just how much using a Stamp Duty Calculator.
It’s an expensive business but if you’ve planned ahead and are aware of all the costs in advance, it shouldn’t come as too much of a shock when it comes to handing over that cheque.
Forgetting about life insurance
Once you’ve got your mortgage, you’re committed to paying a significant amount each month for at least the next 25 years – it’s important to make sure you’ve got the right cover in place to protect against the unexpected.
You’d be wise to take out at least basic cover, which will pay off your mortgage in the event of your death but you may also want to consider add on items such as critical illness insurance, which will offer a payout if you were diagnosed with a serious or terminal illness.
The amount of cover needed will vary from person to person – speak to a life insurance adviser for impartial advice about the types of policy available and which may be more suitable for your needs.
Being fooled by low interest rates
Don’t be lured into a deal just because it happens to have the lowest interest rate on the market – make sure you’re aware of all the factors first, and compare deals like for like. How long is the advertised rate for? How much is the arrangement fee?
Arrangement fees are often added onto the value of the mortgage so can significantly alter the cost of your overall borrowing. A mortgage deal with a slightly higher rate of interest but little or no fee could actually mean that your repayments are cheaper over the length of the deal, so do your calculations before signing on the dotted line.
Locking yourself into a long-term mortgage deal
At first thought, fixed rate mortgages seem to offer a better deal than variable mortgages. After all, you know exactly how much you’ll be paying each month and you’ll be protected from any sudden fluctuations in the market, particularly in terms of the interest rate rising. But this also means that if the interest rates drop (unlikely in the current market, but never say never) you won’t benefit from a reduction in your mortgage payments.
Another key question to ask is how long do you plan on staying in your home – if you plan to move on in a couple of years, but are fixed into a long-term deal on your current property, you’ll need to find out from your lender if it’s transferable. If not, you could find yourself paying significant exit fees to free yourself from the deal.
If you plan on staying in your home a while then a fixed rate may be suitable, but if you’re looking for more flexibility then either a short fix or a variable rate may be better for you.
The above post is intended to be informative but does not constitute advice – financial, legal or otherwise. Any opinions given are the author’s own and do not necessarily reflect the views of SO Media or the Mitchell Farrar Group.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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