Getting Your First Mortgage in Manchester
Getting your first mortgage in Manchester
Below are a list of things that you should talk through with an advisor when getting your first mortgage in Manchester, or elsewhere. I just like doing local mortgages the most!
Also see What Does A Mortgage Broker Do?
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How much can you borrow for your first mortgage in Manchester?
To decide how much you can borrow, lenders will look at two main things. Firstly, they will look at your income. Then they will look at your credit commitments.
Typically, you may be able to borrow around 4.5 times your annual income. People in some jobs can borrow more.
Then, for every bit of credit commitment you have, the lender may reduce what you can borrow. Credit commitments are things like personal loans, student loans, car finance, and credit card balances. Most lenders also deduct extra for things like child care.
Different lenders will offer to lend different amounts to you depending on how your commitments are made up. That’s why using a mortgage broker can save you time and money, and help you get the home you want, when getting your first mortgage in Manchester. See things to consider when using a broker.
One lender may treat a self-employed person very differently to another lender. Some take the average of your last two or three years income, some the lowest, some the latest. It’s a mine field unless you know which lender does what.
For example, Santander and Coventry will consider lending to you based on your latest years accounts. Halifax can consider you if you have only been trading one year. For directors, some lenders, including Virgin, will allow you to use retained net profit when assessing what you can afford to borrow.
Should you go for a fixed or tracker rate for your first mortgage?
Most people arranging their first mortgage in Manchester tend to choose a fixed rate. This is because it makes budgeting easier.
Fixed rates tend to be slightly higher than tracker rate mortgages. Most first-time buyers prefer to have the certainty of what their monthly payment will be. Knowing that you are protected from increases in your payment is often a price worth paying. On the down side, you can’t benefit if interest rates go down.
Most fixed rate mortgages have a tie in period. During this period there are penalties if you want to remortgage, or your options may be restricted if you want to move home. That’s why it’s important to consider how long you are willing to fix your first mortgage in Manchester.
How long should the initial period be on your first mortgage in Manchester?
An initial period is the time that the mortgage is arranged on it’s introductory rate before it changes to the standard variable rate. Interest rates in the initial period, or fixed period, are often a lot lower than the standard variable rate of the rest of the mortgage.
Although you may be getting a ‘discount’ during the initial period it usually comes at the cost of flexibility. For example, if you wish to move home during the fixed period you will be tied to your current lender, who may not offer you the best deal, or lend you enough to secure the new home. You may be able to get around this by paying a penalty, but this could be thousands of pounds. If you needed to move house and get a new mortgage, and you still had a £150k mortgage with 4 years remaining on the initial period, this could cost you £6,000 in penalty charges!
You can usually pick between 2, 3, 5, and sometimes even 7, 10 and 15 year initial periods. The longer you fix for, the higher the interest rate usually is.
Things to consider when choosing an initial period
- How long you expect to live in the house
- Your relationship status
- Having the flexibility to review your living arrangements sooner could be beneficial if you are single but hope to meet a partner soon
- If you split up with a partner and have a long time left on your initial period this could cause huge problems
- Buying a place to get children into a local school will probably mean you are committing to an area for longer
- Your career progression
- If you expect to have pay rises in the near future what you can afford to borrow could change dramatically
- You may also need to be able to move to take a promotion. Don’t let a fixed mortgage take that option away!
Your mortgage should be arranged around you. It’s your advisors’ job to take the time to learn about you and recommend something that suits your needs.
How long should you have your first mortgage for?
It’s old fashioned to think of mortgages being 25 years long. This was popular in the past though, but back then houses were cheaper, and more in line with wages.
The longer you have your mortgage for the lower the monthly repayment will be. But this will cause you to pay more interest in total.
It’s common for people to take their first mortgage in Manchester over 35 years or more. There’s even the option of up to 40 years, and the minimum will depend on the amount you are borrowing, and your affordability.
But wait! Just because you take a mortgage of 25, or 30, or 35 years does not mean you will have it that long. At the end of your initial period you may be able to remortgage and reduce, or increase the term.
A common strategy for first time buyers when arranging their first mortgage in Manchester is to take a long mortgage term and a lower monthly payment. This is because the first couple of years of owning a home can be the most expensive. You have to buy furniture, decorate, get used to the running costs of the home, it’s an expensive time.
Once the big purchases at the start are out of the way you can look to reduce the term. You may also be able to make overpayments on your mortgage without a penalty.
What is a good interest rate when arranging your first mortgage?
Sorry, there literally isn’t a correct answer for this. It completely depends on your objectives and your circumstances.
Of course, it’s better to get the lowest rate available when arranging your first mortgage in Manchester but you may not qualify for the lowest rate on the market.
It’s no good applying to a lender with a rate 0.01% lower if they won’t lend you the amount you need.
You also need to consider fees when arranging your first mortgage. An arrangement fee of £999 with a lower interest rate could leave you much worse off than a mortgage with a slightly higher interest rate, no arrangement fee, and £500 cashback!
What fees do you need to consider when arranging your first mortgage?
A lot of lenders will have mortgages without these fees. Some will have two versions of the mortgage, one with an arrangement fee, and one without. The one with the arrangement fee often has a lower interest rate. It’s important to calculate if the lower interest rate is actually going to save you enough to warrant paying an arrangement fee though.
Other fees when buying a home include
- Conveyancing fees, I usually tell clients to hold back at least £1,200 for this
- This is all the legal work that your solicitor does to transfer the property to you
- Broker fees, this could be nothing, to £1k+ depending on how complex your case is
- If you’ve got decent credit and you’re buying a normal home you shouldn’t expect to pay a fee
- See my fees here
- Home buyers reports
- You may want a surveyor to write a report on the home you are buying. It will point out faults and maintenance points you may have missed. They are typically £300 – £500 and are optional.