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FAQs for first-time buyers (part 2)

Last month we answered a number of the questions we are often asked by first-time buyers but we started to run out of room but we promised to pick up on the remaining questions at a later date …

… that date is today!

What does ‘exchange’ mean?

The exchange – or exchange of contracts to use its proper name – happens when the two sets of lawyers acting for the buyer and the seller exchange their signed contracts.  There is actually no requirement for you to be physically present for the exchange of contracts, only contactable by email or phone so you can provide us with your authority to exchange …

… and for us to tell you the good news that contracts have been exchanged!

The exchange makes the agreement between the buyer and the seller legally binding and means the buyer then has to pay their deposit and a completion date needs to be agreed.

However, one thing that people sometimes forget is the exchange date is also the date from which your buildings insurance has to start so you are fully covered should anything happen to the property before you physically move in.

How do I find a good mortgage deal?

There are hundreds of mortgage deals on the market so deciding which is best for you can be tough.

Some people ask for advice from a mortgage broker but although that won’t cost you anything, you may not agree with their choice so their involvement could just delay things.  It may be better just to research the current offers using the various aggregating and comparison tools available online.

Once you find a deal you think will provide the amount of money you need and offers repayment terms you will be able to afford, you can contact the lender.  They will respond with what they call a ‘Decision in Principle’ (based upon a credit check and the provision of some basic details from your side) which will give you a more informed view of the money they are likely to lend you to help you continue your search.

It’s important to remember that this is only offered ‘in principle’ and the terms and figures could change when you make your final application.

What are the different types of mortgage and which will suit me best?

As we’ve said there are hundreds of different mortgages on offer at any point but in general there are two types of mortgages:

  1. Fixed rates

Your interest rate won’t change during the fixed rate period you’ve signed up for no matter what is happening in the wider financial markets.  This makes them a good choice for those who like certainty rather than risk.

  1. Variable rates

Your rate will vary over the term of your mortgage, most likely in line with Bank of England Base Rate (with an agreed margin built in) so your repayment amounts will fluctuate.  As the interest rate will rise and fall – sometimes dramatically – this option is better suited to a less risk-averse borrower.

What are the different mortgage repayment options?

There are three ways you can choose to repay your mortgage:

  1. Capital and interest (or capital repayment) 

Each month you will make a payment that covers both capital (what you borrowed) and interest.  As long as you pay the required amount over the term of your mortgage, you will own your property outright once you’ve made the final payment.

  1. Interest only

This option is now starting to disappear having been hugely popular in the 80s and 90s.  Your payments are used to cover the interest on your loan, not the capital.  This means that at the end of the term of your mortgage you will need to have the money to pay off your mortgage or if you don’t, you need to be prepared to sell your home to cover the debt.

  1. Capital and interest (or repayment mortgage)

This is a combination of the two other options and is currently the most popular type of mortgage.  At the beginning of the term, most of your repayments cover the interest on your loan while a small amount reduces the capital.  Over the course of your mortgage this is adjusted so that more and more of your repayments go towards paying back the capital you borrowed.

That takes us to the end of our list of first time buyers’ FAQs but if you are in the process of finding or buying a new home and have any additional questions, please email me at Jeremy.Tulloch@collinshoy.com or call me on 0208 515 6600.   

Photo by Christopher Bill on Unsplash