Update for first-time buyers on 5% or 10% deposits after lockdown

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Update for first-time buyers on 5% or 10% deposits after lockdown

If you’re a first-time buyer, you may be wondering how lockdown has impacted your plans.

Can you still buy?  Will your mortgage offer be affected? What if you’ve been furloughed?

Rightmove interviewed James Pagan, a mortgage specialist from Nationwide, and Lucy Pendleton, co-founder of James Pendleton Homes, a leading estate agency in London.

The interview was broadcast, but here’s a summary of what the two experts said.

It covers questions on buying a first home with a 5 or 10 per cent mortgage, and if being put on furlough will affect your mortgage application.

Questions about mortgages

Many of you wanted to know whether it’s still possible to buy a first home with a 5% or 10% deposit.

During lockdown most banks put mortgages with a loan-to-value of more than 70% on hold. But as restrictions in the housing market are lifting, and activity is increasing, many banks have begun to slowly lift some of the limits they’ve place on mortgages.

If you shop around you may find mortgages with 85-90%  LTV options. But at the moment 95% mortgages may be hard to find (though the Help to Buy scheme could  still be a viable option.

How will being on furlough affect my mortgage application?

It will depend on the lender. But if you can demonstrate that you are expected to return to work on a full salary after furlough, it’s possible the mortgage provider will take your normal, full earnings into account.

And other factors will be taken into consideration, too. Things like the size of the deposit, your  credit score, and your particular circumstances all count in the decision.

I’ve made an offer before lockdown and it’s been accepted; should I withdraw it and come in with a lower offer?

Though we all love a bargain, this decision should be made carefully.

Lowering your offer comes with some risks. The house that is perfect for you, may also be perfect for someone else. So, if the seller has another buyer lined up with a better offer, they could very well decide to go with them instead. This can be frustrating, especially if it’s taken you a while to find the house, and you’ve invested time and money in getting that offer through.

If you do feel you could get a better deal, or if your circumstances have changed and there’s a difference in what you can afford, speak with your estate agent. They should be able to advise you on what to do, and what the risks of lowering your offer will be.

After all, it’s in the estate agent’s interest to make the sale happen. But they also want to get the seller the best price for their home as possible. So they should be in a place to give you a well-balanced opinion. They will know if they could sell it to someone else for a higher price or not.

Making yourself attractive to mortgage providers and estate agents

There are two important points to take into consideration here. These are James’ tips:

     

  1. Your credit score. Look after it.
    It’s about having some credit, but not too much. Having large unsecured debts reduces your chances of getting accepted for a mortgage, so it’s best to consider how much of that you can trim down. But having some credit, where you can demonstrate a good track-record in things like managing a credit card, paying for your car, etc. are all healthy things for your credit score.
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  3. The size of the deposit.
    The more deposit you have, the more it helps. This influences the lender’s assessment of the risks involved in lending to you.
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And making yourself an attractive buyer to estate agents is important, too. Often more than one person will make an offer on a property, and it’s the agent’s job to advise the seller on which buyer they recommend.

So here are Lucy’s top tips:

     

  1. Work closely with the estate agent
    Most agents have a lot of experience and have developed a knack for identifying a serious and motivated buyer. So be open with them about what you’re looking for, your budget, timescales, and financial situation. 

  2. Have your Mortgage in Principle ready
    The  Mortgage in Principle  (aka Decision in Principle, or Agreement in Principle) is a certificate you get from the lender showing how much you can afford. The idea is that it’s half the way to a mortgage offer at that value.This means that it will speed up the process if the offer is accepted (which agents and sellers will like), and it also shows you have done your homework and mean business (another box ticked). 

  3. Engage with your solicitor
    At this point, you’re really just contacting the solicitor to let them know you will be instructing them as soon as you find your new home. Having chosen your solicitor beforehand will be a good advantage moving forward, and again, is another sign agents look for in a serious buyer. Lucy says it’s worth asking your agent if they have a solicitor to recommend. Because they work with many, they may already know the best ones in the area. And in most cases, you shouldn’t have to pay any fees until after your offer has been accepted, and you’re ready to close the deal. 

You can listen to a recording of the interview here. A disclaimed from Rightmove says: “Rightmove is not authorized to give financial advice; the information and opinions provided in our webinars are not intended to be financial advice and should not be relied upon when making financial decisions. 

“Please seek advice from a specialist mortgage provider.”

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