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The size of the mortgage should be decided before you start house hunting. You should at least have a rough idea about the price of the property you would like to buy. This will help you plan a budget and so, you can check up on your savings and then fix the approximate amount required as a mortgage.
The size of the mortgage would depend on certain factors which include:
The size of deposit
Your current earnings
Your current credit score
Your current debt, if any
There are chances that the first time buyers can get the biggest mortgage but it’s just logical and rational to critically analyse the mortgage cost and your borrowings for a certain period of time. You should consider the LTV ratio as it plays a big role in fixing your monthly repayments.
Above all, you need to keep in mind that you cannot overstretch yourself for the mortgage. Make sure that you are financially prepared to handle the increase in interest rates and do not have to go through any struggles for the repayments. For this, get yourself clear about the LTV and deposit amount.
Keep an eye on the deposit and LTV:
The size of the mortgage would depend highly on the ratio of deposit and the exact size of the loan. Known as the Loan to Value ratio, the LTV is a prime factor in getting you the mortgage. If you have a 10% value of the home as deposit then getting a mortgage becomes much easier.
However, if you choose the government’s Help to Buy scheme then you can get the mortgage even by paying as less as 5% of the value of the home as the deposit. One thing to note here is that the higher the deposit the lower will be the interest rates and so, would be the monthly repayments.
Different types of LTV:
100% LTV mortgage: As this does not require any deposit, it is considered as the riskiest of all and so requires guarantors for the deal.
Mortgages with LTV between 85% and 95%: As the deposit amount would be between 5% and 15%, the mortgage interest rates would be higher. However, these are most suitable for first time buyers to keep a foothold on the property ladder.
Mortgages with LTV between 65% and 80%: These are mid-range LTVs that offer competitive interest rates. The monthly repayments in this case are neither high nor low but still manageable.
60% LTV mortgages: As you pay 40% as deposit, these mortgages would offer you lowest interest rates and some big savings on the mortgage.
Something more about the monthly repayments:
As a potential borrower, you should be clear about the monthly mortgage repayments and how much can you pay comfortably. This is vital as you cannot afford to crack a mortgage deal that you cannot pay for.
You can choose between the fixed rate mortgages, variable rate mortgages and trackers mortgages. Choose as per your convenience and circumstances. The interest rates may change as per the financial trends and so you should be prepared for any unwelcome surprises.
Affordability Criteria:
The mortgage providers will gauge your financial aspects as well as your normal behaviour towards managing your finances. This can depend on various factors which includes the following:
Your income: Normally, the size of the mortgage is offered by multiplying your income. So, if you earn £20,000 then the mortgage provider may offer your £100,000 which is five times the income. They will consider the multiplication keeping in mind that you would be able to pay the repayments with your current income.
Your outgoings: It becomes important for a mortgage lender to know about your outgoings and routine expenses which could be anything including car insurance, childcare costs, insurance payments and any loans or monthly repayments. The provider should be convinced that despite all these expenses you can manage to pay for the mortgage.
Your Credit Score: This criteria shows your behaviour towards managing finances so, it’s not analysed just for the mortgage but also for any kind of borrowings. The providers will check your credit report and if they find it positive then only they would like to offer you the mortgage. They do it to ensure the security and safety of the loan.
For more details about the mortgage, you can check our website www.freepricecompare.com or you can also get advice from our friendly team of mortgage experts by calling us on 02034757476.
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