How Much Will They Lend Me?
The amount you can borrow is all about affordability. Lenders look at your income compared to your outgoings and work out how much you have left over each month.
Some lenders are so stringent that even when you’ve paid debts off just before applying, they factor in how much available credit you have or see you as a risk if you’re using more than half the credit available to you.
Once these calculations have been made they will want you to be in credit in your accounts in case mortgage rates rise. Mortgage lenders will ‘stress test’ you on a higher mortgage rate, typically 6-7%, to check if you could still afford to repay.
What Does LTV Mean?
LTV stands for ‘loan-to-value’ ratio (LTV), which is the percentage of the property value as a mortgage. In others words, it’s the proportion of the property value that you’re borrowing.
To calculate this you subtract your deposit as a percent of the property value from 100%. If you pay a £20,000 deposit on a £100,000 home; that’s a 20% deposit, meaning you owe 80% meaning the LTV is 80%.
Once you have a mortgage, you no longer have a deposit, so it becomes all about what proportion of the property’s value you’re borrowing. LTV is not just dependent on the deposit paid into your property, but also by house prices. This is crucial — by buying a property, you’re investing in an asset with a variable value.
What Are Help To Buy ISAs Or Lifetime ISAs?
The Help to Buy ISA was set up by the Government in 2015 and the Lifetime ISA in April 2017.
Help To Buy ISAs
People aged 16+ can earn interest on their savings of up to 2.53% tax-free and then get 25% added on top when they use it for a mortgage deposit.
- You can save up to £1,200 in your first month, then up to £200 thereafter
- When used for a deposit, a 25% bonus is added
- The minimum you need to have saved to get a bonus is £1,600
- The biggest bonus possible is £3,000 (£12,000 savings)
- If you’re buying with someone who’s owned before, you can still get one but they cannot. If two first time buyers buy together, they can both get one.
- Your property must cost £250,000 or less and £450,000 or less within the London boroughs
- You don’t have to use it for a deposit. You can make withdrawals. You would still get the interest just not the bonus.
- Help to Buy ISAs can be used with ANY residential mortgage, even Help to Buy, but not buy-to-let
- You are free to get a mortgage from anyone
The Lifetime ISA (LISA) is to help you buy your first home or save for retirement. You must be aged 18 or over but under 40 to open one. Here are the basics.
- The LISA lets you deposit up to £4,000 every year
- It can be used as cash savings and accrue interest, or stocks and shares investment, so you get share growth/loss
- You can save up to £4,000 a year in a LISA. The Government will then add a 25% bonus
- The maximum bonus is £33,000 if you open it at 18 and save the maximum allowed every year, withdrawing it when you reach 50
- You can use your LISA to help you buy your first home if it costs £450,000 or less
- If you’re buying with someone who is also a first-time buyer you can both use your LISA savings and bonus
The key to being prepared as a first time buyer is to do your research, arm yourself with knowledge and be organised and methodical. Buying your first home is an exciting milestone. Conveyancing Supermarket are here to offer useful help and advice.