As the cost of living continues to increase, buyers purchasing their first home are feeling the pinch now more than ever. But don’t despair! Chief Operating Officer Greg Cunnington offers his advice to first time buyers in search of their first mortgage.
In this article, we explore what considerations are worth thinking about when purchasing your first home in the current economic climate.
Extend your mortgage term
When committing to a mortgage, buyers agree to have the loan for a certain period of time. On average historically this is 25-30 years, however in some circumstances lenders will allow you to shorten or lengthen these terms.
In these times of increased cost of living, one way to reduce the amount in your monthly payment is to extend the mortgage term. By extending the duration of the loan, it can be divided amongst more months therefore reducing your monthly payment. By proceeding on a maximum term basis, first-time buyers can stretch their money further. In some cases terms can extend up to 40 years so it’s worth speaking to a mortgage adviser for the most suitable solution. More and more lenders now offer this option, and we see an increased number of first time buyers proceed on this basis to assist with the initial monthly commitment. After all, there is often furniture and home improvement work to be done initially which is a consideration on budget.
The only stipulation you’ll need to bear in mind is you must be doing a job where you don’t have a legal requirement to retire early. Anyone else shouldn’t have a problem.
Secure a fixed rate for longer
Another way to maintain a monthly mortgage payment it to fix the rate for longer. With some lenders this is another way of bumping up your loan size if you’re happy to be tied in for longer, as they will let you borrow more if you take a fixed rate for five years or longer.
Choosing a fixed-rate mortgage is great for first time buyers who want security in knowing exactly how much they’ll be repaying each month as it will remain the same. Naturally, this will help with budget planning and keeping track of your outgoings.
Another advantage of a fixed rate mortgage is that is helps to protect you from increasing interest rates. If you choose a variable or tracker mortgage, every time the Bank of England changes the interest rate it’s more likely that your payments will fluctuate, making it more difficult to budget plan. With a couple of recent interest rate increases, and inflation meaning more are forecast, this security can give good peace of mind.
Be a conscious spender
We realise how exciting buying your first home can be! However, we encourage you to be a conscious spender in the run up to your completion. By spending within your means lenders will see you as a more reliable person to lend money to.
Additionally, that extra money can go towards your deposit. A larger deposit means a smaller loan, which may result in a lower interest rate. Short term perseverance is well worth it!
Whether you are looking for property in London or beyond, whatever your personal circumstance, our mortgage advisers are on hand to assist. Following an initial call, we can help you assess your affordability and total borrowing amount. Speak to one of our advisers on 020 3903 9875 or email enquiries@ldnfinance.co.uk.
This article was originally written for The Sun, however has been edited and updated. Correct as of May 2022.