Category : Mortgage

Equity Mortgage

Mortgages for first time buyers to stay in equity

Norine Collingsworth
Mortgages for First Time Buyers to Stay in Equity

Mortgages for first time buyers and equity

The UK government runs various affordable housing schemes for first time buyers including the Key Worker Living programme, and the shared ownership, aimed for key workers. However, for people who cannot get onto the home ownership ladder this way, mortgages is a viable solution to apply for. Most building societies and banks offer this type of loan that you can take out to buy your desired property. Mortgages are also available through specialist lending companies or by using a mortgage broker. Although, you can always get a mortgage directly with the mentioned institutions there are other convenient ways to buy mortgages based on information or advice that you may receive and this will help you stay in equity.

The Internet is one of those sources that you can look at toward broadening your knowledge on mortgages. Government offices can also assist you to find the best deals through established organisations and there are a number of advisors that can point you to the lender that can provide a mortgage suiting your particular needs. However, the first golden rule when buying mortgages for the first time is checking the firm you plan to go with as mean of preventing frauds.

The Financial Services Authority
The Financial Services Authority

The Financial Services Authority is one of the best resources that you can find online to guide you in this first experience. In fact, there is a small free booklet (Choosing a mortgage – taking the right steps) that you can download at this address: www.fsa.gov.uk/pubs/public/mortgage_steps.pdf In this publication, you will find all the basics that will help you to differentiate the different types of mortgages available on the market, as well as the pros and cons of buying any of them, including the estimate of both costs and risks involved in each case. Due to such risks, not only the Financial Services Authority but also many lenders advice is to take insurance along with your mortgage so you can cover any eventuality repaying your debt.

Home equity

Home Equity
Home Equity

Some lending companies can also provide you with a free impartial service with no obligation to buy after choosing from about 7,000 different mortgages available in the British Property Market which give you the best chance of being in equity. However, study all the terms carefully before buying any mortgage, because the market is moving very fast, leading to significant increases in home prices. Before buying a mortgage get as much information as you can, whether from mortgage brokers or lenders you are about to deal with. Without knowing “who is who” in the property market, you can be at risk when shopping around trying to find the best mortgage deal. Another fact to take into consideration is how you are going to pay off your debt. There are two basic repayment options attached to your mortgage’s terms: “interest only” or “repayment”.

Interest only allows you repay monthly repayments during a specific period of time, but you are only paying the accrued interests, not the mortgage, which should be paid when the term agreed between lender and borrower ends. With the repayment option, however, you make monthly payments during a period of time as well, but repaying both part of the money borrowed and the interest. Choosing one or another depends on whatever is easier for you, but it is always wise to get advice from a financial expert before buying a mortgage for the first time.

Equity Mortgage

Handling Negative Equity

Norine Collingsworth
Handling Negative Equity

Dealing With Negative Equity

Since the credit issues first hit in 2019 and with the effects of the subsequent recession still being felt very strongly, the housing market has sustained one blow after another.

Where once house prices seemed to be caught in an ever-upward spiral, today many areas have plunged back to the price levels of 2006, resulting in a significant number of homeowners being caught in the trap of negative equity.

Negative Equity Occurs
Negative Equity Occurs

Negative equity occurs when the mortgage outstanding on a house exceeds the current market value of that property. For this reason, it tends to affect first-time buyers with smaller deposits the most, along with those who have recently remortgaged heavily to release equity. With a small deposit, even a slight percentage drop in the market can result in negative equity, making it nearly impossible to obtain remortgages or sell without making a loss.

There are ways to avoid the dreaded negative-equity trap however. If remortgages aren’t available to you with your current lender, look around to see if there are any available remortgages for people in your position. Just check the terms of your existing mortgage first, so that no penalties will be incurred if you change lenders. Remember too that negative equity is only a problem if you’re either looking to sell or investigating remortgages. If you can avoid selling, then do. If you can’t find a favourable remortgage, then investigate options to over-pay on your existing mortgage to build up your equity in your home. As get closer to 10% equity or more, you’ll find that the range of remortgages available to you opens up.

Negative Equity

Negative Equity
Negative Equity

Most mortgage providers will allow regular over-payments up to a certain amount. Avoid going over this limit, though, as there may be penalties attached. Alternatively, it is often possible to reduce the mortgage term and so pay more each month without penalty. Just be aware that these payments will not be flexible. It may be that saving into an ISA and then making a lump-sum payment works for you. Speak to your mortgage lender to find out what is available and possible.

There are different ways to bring in extra income as you seek to boost your savings or pay down the mortgage. Taking in a lodger can be an option if your lender and insurance provider will allow it. Some have even resorted to renting out their homes and moving to smaller rental properties for the duration (again though, you must have permission from your lender.) Overtime, second jobs, cash back sites and budget shopping are all ways that households are using to increase their income and minimise costs, so don’t rule anything out.

Mortgages more than house value make negative equity

Mortgages Morethan House Value Make Negative Equity
Mortgages Morethan House Value Make Negative Equity

Talking to your lender is key and, as a general rule, you should make contact before considering a way to avoid negative equity in your home. With three-million homeowners currently experiencing the problem, lenders are well placed to offer advice. There may be other options available, such as switching on to an interest-only mortgage for a period of time. If your mortgage lender sees you taking responsibility for your repayments, engaging with them proactively and not sticking your head in the sand, they are more likely to work with you in times of difficulty.

Another useful strategy is to take out income-protection or mortgage-protection insurance in case you lose your source of income. This will provide money to cover your repayments should the worst happen. However, as with remortgages, do shop around for the right policy, as prices and cover vary wildly.