Mortgage buyers guide: Top tips for those looking to get on the property ladder

Figures released this week state that the Help to Buy scheme has helped to fund the purchase of over 7,000 homes since its launch last year.

Critics of the Help to Buy scheme had been worried that the scheme may ignite another property bubble crisis.

However it is not a view shared by all. Some would argue that it is the lack of new builds that is the biggest danger we face.

In the current financial climate many UK banks are acting cautiously in the mortgage market  through  fear of being blamed for any future crisis.

An example of these institutions is Lloyds who have recently announced that they will lend no more than four-times salary on mortgages above £500,000.

Mortgage Types

There are various  types of mortgages to consider when buying a property.  Here are some:

Fixed rate mortgage

The interest rate will remain the same during the fixed period, which can typically be between one to five years.

Advantages: Provides stability of payments for a specific period.

Disadvantages: If interest rates fall you won’t benefit and be able to pay less.  However with interest rates set to rise acting now could be a good move, but you could be looking at a significant rise in payments in the next five.

Tracker

The interest rate on a tracker mortgage is linked to the Bank of England base rate. So if the base rate changes, your mortgage repayments will go up or down accordingly.

Advantages: Good if interest rates are likely to fall

Disadvantages:  It could also mean some nasty surprises when interest rates start to rise.  If you are currently on a tracker it is advisable to get ready now to start increasing those payments. The rate rises won’t all come at once so you do have time to plan ahead, maybe shop around and see if you can get a better deal.

Interest Only

Your repayments will only cover the interest on the amount you borrowed and nothing will be paid off the original loan.

Advantages: The short term your monthly payments will be less

Disadvantages: You are only paying interest and therefore aren’t making a dent in your actual mortgage debt when you make payments. With this type of mortgage it is strongly advisable to have a firm plan to pay the capital off at the end of the mortgage before you even consider interest only.

Help to Buy

Advantages: The government is offering mortgage guarantees or equity loans to those who can only afford a deposit of five per cent.

Disadvantages: To be eligible, you will need a squeaky clean credit rating. There is also a high chance that your repayments will be a bit more expensive each month due to higher interest rates.

Post Courtesy of the Express.