It can be confusing to know where to start looking for a first-time buyer mortgage. We guide you every step of the way.
Most first-time buyers only have a small deposit to put towards a new flat or house. It means that securing a mortgage - a loan against your new property - is necessary.
You will need to establish how much money you need to borrow, the size of your deposit, and how much you can afford to pay back your lender in monthly instalments. Try not to overstretch yourself financially by agreeing to a bigger mortgage than you can afford.
One of the biggest factors in influencing what type of mortgage you get is the size of your deposit. The minimum deposit you will need to access a mortgage is 5 per cent. However, you will be able to secure more competitively-priced mortgages with a deposit of around 25 per cent. As a general rule of thumb, the bigger your deposit, the wider the choice of mortgages and better rates you will be offered.
There are many mortgages available and it can be confusing. A good mortgage broker will be able to give you independent advice to find a first-time buyer mortgage that will suit your needs. They might also have access to exclusive mortgage deals that you would not be able to get on the open market. They often charge a fee for their advice.
Some mortgage brokers that operate through estate agents may offer restricted advice, and mortgage advisers at banks or non-bank lenders will only provide information on their own products.
The repayment options to consider when shopping for a first-time buyer mortgage, include:
A repayment mortgage, also known as capital and interest, allows you to pay back the mortgage, together with interest, regularly over the agreed loan term. It is the most common type of mortgage repayment plan. It means that your repayment mortgage will be fully repaid by the end of the loan term.
With an interest-only mortgage, your payments will cover just the interest charged on your mortgage, not the money that you borrowed from your lender. This leaves you free to pay back the loan at the end of the term.
You can invest additional money into alternative investments that will ensure you generate enough funds to repay the loan. On the plus side, your monthly repayments will likely be lower. However, the total sum of your debt does not decrease over the length of your mortgage term - unlike a repayment mortgage.
It is also unlikely that lenders will agree an interest-only mortgage with a first-time buyer. It is considered a more risky repayment plan. You will likely need a substantial deposit and plenty of proof that you have enough resources to pay back the loan to secure this type of mortgage.
The range of mortgage options available to first-time buyers is huge. Lenders compete fiercely on so-called headline rates, which is the interest rate you pay on the loan. Most buyers consider this to be one of the most important aspects of the deal as it dictates how much you will repay each month.
It is also worth paying attention to the standard variable rate (SVR), which is the lender's rate. The SVR can vary and it normally changes in line with the Bank of Ghana's Bank Rate. However, a lender can change its SVR whenever it likes. The SVR is what mortgages normally slip onto once the initial deal (typically between two and five years) comes to end.
Most borrowers are able to remortgage once they come to the end of their initial deal, but your circumstances may change. If you are looking to avoid upfront fees, you may want to choose products with low arrangement fees, which are charged by the lender for setting up the mortgage. However, these can sometimes be added onto the loan.
A fixed-rate mortgage means that the interest rate will stay the same for a particular length of time. Once the term comes to an end, you can expect to be transferred to the lender’s SVR.
The benefit of a fixed-rate mortgage is that you have the security of paying the same amount monthly regardless of whether your lender’s SVR or the Bank of Ghana Bank Rate changes. This mortgage is a good option for long-term financial planning. Many first-time buyers prefer the safety and stability that a fixed-rate mortgage can bring.
However, fixed-rate mortgages tend to be more expensive than mortgages hinged on variable rates. In addition, you would not be able to capture any of the benefit if interest rates were to drop – which, in this current climate, is unlikely.
A tracker mortgage typically follows the Bank Rate, the benchmark interest rate set by the Bank of Ghana, for a certain period of time. It often tracks the Bank Rate by a particular margin. It is a type of variable rate mortgage so your monthly repayments can change. If the Bank Rate increases, so will your mortgage repayments. When your deal draws to a close, your mortgage will likely be swapped with the lender’s SVR.
The interest rate on a discount mortgage is tracked at a discount to the lender’s SVR for a particular length of time. The rate can therefore vary. Normally, the steeper the reduction, the shorter the period of discount will be. When your deal finishes, your lender will normally transfer your mortgage onto its SVR.
The advantage of agreeing this type of variable rate mortgage is that you know that your rate will remain less than your lender’s SVR.
However, unlike the fixed-rate mortgage, you have no long-term stability. You will also risk being subjected to a jump in rates when your mortgage deal comes to an end.
Standard variable mortgage
If you agree a standard variable rate mortgage, it will be subject to your lender’s SVR, which normally does not have any deals or discounts included. Your lender controls its own SVR, meaning your monthly repayments can go up or down.
The SVR tends to be influenced more widely by the Bank of Ghana Bank Rate. But a lender’s SVR can change independently of changes in the Bank Rate. The advantage of a standard variable mortgage is that you can tap into some low rates.
However, you will have no control of, or security from rate changes from this type of mortgage. It will make it harder to plan your finances in the long term.
Capped rate mortgage
A capped rate mortgage has an interest rate limit in place for a certain period of time. It means that your repayments can vary but won’t be more than the cap, even if interest rates increase higher than the limit. Once it finishes, your mortgage will revert to the lender’s SVR.
Capped rate mortgages are currently all-but-extinct.
A capped rate mortgage and a fixed-rate mortgage are the only loans that guarantee your repayments won’t go above a particular limit.
It’s tough for first-time home buyers to save a big enough deposit to access mortgage deals and get their foot onto the property ladder. There are now a growing number of lenders offering mortgages that allow parents to contribute.
If parents or family members agree to take on some of the risk associated with lending to you, lenders are more likely to agree a bigger tranche of capital and at a better rate.
A guarantor mortgage allows parents or family members to cover repayments if you are unable to.
An offset mortgage allows you to link your current and savings accounts to your mortgage. You will be able to save money using this type of mortgage because it cuts the amount of interest due by only charging interest on the net balance.
Applying for a mortgage
You can apply for a mortgage in principle. It means that your proposed lender can be expected to provide a loan based on your current details and circumstances. It will provide reassurance that you are able to secure the first-time buyer mortgage you need to purchase a new property – and could speed up the buying process further down the line.
You will need to find a mortgage that you would like to secure and apply for it with the lender before you find a new home to buy. A mortgage in principle can sometimes come with conditions, such as the type of property that can be bought.
You may find that better mortgages are available by the time you’ve found a house or flat to buy. If this is the case, you may want to let the mortgage in principle lapse - but you might incur a fee for doing so.
When you have made an offer on the property you want to buy, you will need to make a formal application for a mortgage. The lender will reconsider your financial profile.
Lenders have tightened up their lending criteria in recent years. And each lender has a different set of criteria. There are a number of ways to boost your chances of securing a first-time buyer mortgage:
- Saving a big deposit
- Getting on the electoral role
- Cancelling unused credit cards
- Building a good credit history
- Maintaining a steady jobRegistering for both Tier-I & II pensions
Lenders will take into account a number of factors including income and bonuses, savings and outstanding loans that need to be repaid as well as habitual spending and outgoings. You will need to provide various documents so that the lender has proof that you will be able to keep up with your mortgage repayments now - and in the future. This usually includes payslips and utility bills.
If you have fulfilled your lender’s criteria and your offer is accepted, you are one step closer to becoming a homeowner for the very first time.