Should I fix my mortgage for more than two years?
The rates on two- and five-year fixed-rate mortgages are close – at Royal Bank of Scotland, for example, you can fix for two years at 3.18% and for five at 3.4%, which on a £160,000 mortgage means a difference of about £20 a month. If keeping your monthly costs down is your prime concern, the short-term deal will suit you better.
But when you get to the end of the term you are unlikely to want to move on to the lender’s standard variable rate, as it will be higher, so you will need to arrange another loan. If you stay with the same lender and do not borrow more, there won’t be any legal or valuation fees but you may get charged a product fee. This could mean coughing up £500 or more every couple of years.
Nick Morrey at the mortgage broker John Charcol says there is an argument for going for a three-year fixed-rate as opposed to a five-year one if you think property prices will rise. You will have made repayments and might have built up enough equity in the property to move to a cheaper deal – rates get lower as you move down to 90% then 85% loan-to-value. One caveat is that if you opted for a long mortgage term – 40 years, say – then you won’t have paid much off in those three years.
Most lenders now allow you to port your mortgage if you move home – so instead of paying it off early and incurring penalties, you simply move the deal to your next place.
I’m a first-time buyer but my partner isn’t – does that make a difference?
To some things, yes. If you want to make use of the new help-to-buy equity loan scheme, both of you must be brand-new to homeownership, in the UK and abroad. The same is true for the first-time buyer stamp duty relief in England and Northern Ireland, which will apply from July and mean no tax on homes costing up to £300,000.
Mark Harris, the chief executive of the mortgage broker SPF Private Clients, says that when it comes to home loans, each lender has its own interpretation as to who qualifies as one.
“Some lenders, such as Barclays and Santander, require both parties to meet the first-time buyer definition, whereas Halifax and NatWest allow – in the case of a joint application – for only one party to meet the definition. Other lenders define a first-time buyer as someone who has never held a mortgage or owned an unencumbered property in the past 12 months.”
If you have saved into a help-to-buy Isa or a lifetime Isa and want to use the money as a deposit, you will still get the government bonus even if your partner has owned before.
Are house prices going to keep rising?
The big question – and one that worries those hoping to buy and those who have just bought. Will you get left behind if you don’t act now? Will you regret it if you do and prices crash? Neal Hudson, a housing market analyst at BuiltPlace, says there are “still a lot of risks” in the short-term for the housing market but that things such as the new mortgage guarantee scheme “very clearly show that the government is keen to support the housing market and avoid a crash if at all possible”.
House prices are only really an issue if you want to sell or remortgage – while you are living in your property, the important thing is whether you can afford the monthly repayments, and whether you like it. You can try to protect yourself against negative equity, where your mortgage is worth more than your home, by starting off with the largest deposit you can afford. Buying the biggest place you can afford is also worth considering, as properties that other people can move up into when they need more space tend to stay popular when the market in studio flats is not doing well.
Ultimately, says Hudson, “trying to time the market is impossible” and you should “treat it as a home rather than an investment”.
Jonathan Harris of Forensic Property Finance says: “Buyers should think carefully before getting carried away in a bidding war and only pay what they can afford, tempting as it may be to overstretch yourself to get a particular property.”
People who live in expensive parts of the country are often tempted to get on the property ladder by buying somewhere in a cheaper location. Bear in mind that this will mean you can’t get a regular mortgage – if you plan to rent it out, you will need a buy-to-let mortgage and to be able to show that the rent will more than cover the repayments. You will also need a deposit of at least 25%.
Buying a property that is not going to be your main home will mean you face stamp duty if you complete after September, as first-time buyer relief is only available on a property you intend to live in. You will not pay the 3% surcharge on second homes, though.
If you plan is to later sell up and use any increase to help you buy in a different part of the country, remember that a 10% increase somewhere where homes are cheap may not mean you have kept up with a smaller rise in more expensive locations.
Should I get an extra survey done?
Unless you are buying a new build, getting a survey of your own done will reassure you that there are no big problems that you will have to pay to fix. Surveyors are often cautious and will flag up anything that looks like it could affect the property – sometimes you might decide that you are happy to go ahead with your purchase, and sometimes you may want to have further inspections done, or talk to the sellers about who will fund work that needs doing. A good surveyor can also tell you if an alteration you want to make is possible, which could be a dealbreaker if you hoped to extend or do a loft conversion. It may seem a big outlay and an easy cost to cut but it could save you a lot of money in the long term.
How much should I allow for other costs?
This is difficult, as some of the costs will depend on where you live and how much you are paying for your property. But beyond the deposit and any stamp duty, there are legal fees, surveys and moving costs to bear in mind. Which? has a good roundup of costs that shows legal work could cost up to £1,500 and a home condition survey up to £1,000. It puts the total between £1,330 and £6,140.
On top of those things there could be “repairs, etc, as well as the ongoing costs such as insurance, ground rent [on a leasehold] and general running costs”, says Harris.
