Buying your first home can be a tedious and daunting task, and with the cost of renting almost as high as paying a mortgage if not more, it can be an uphill struggle to save for a deposit. However, there are numerous services available that are designed to make stepping onto the property ladder an easier process. One of the most important things is to ensure you have your finances straight, and then begin to devise a savings plan so that you are ready to purchase your first home with an initial deposit.
How much money can I borrow?
Every individual is different, and most of the time it comes down to your loan to value (LTV). The loan to value is a ratio between the value of the loan you take out and the overall value of the property as a whole, expressed in the form of a percentage; any remaining value will be what is left for a deposit.
Calculating the LTV is relatively easy. Just take the amount you need to borrow, divide it by the overall value of the property you wish to buy and then multiply by 100 to reach a final percentage. To put this in perspective, if you wish to buy a house worth £300,000 and you have £60,000 available in your account to use as a deposit, you will need to receive a loan of £240,000 to complete the purchase on the property. Your LTV will be 80% as 80% of 300,000 is 240,000.
For mortgage lenders, the higher the LTV, the higher this is deemed as a risk due to more money being lent to someone with less capital to use towards a deposit in the first place. As mortgage lenders recognise the increased risk, they increase interest rates as a result — the lower the risk, the lower the monthly payments towards a mortgage. If you can afford a higher deposit, a mortgage with a lower LTV will be more beneficial to you in years to come as lower interest will be added to your monthly payments as well as an overall lower capital value to pay off during your mortgage term.
Property investments available on the market from buy to let companies like RW Invest work slightly differently to purchasing a traditional home as the risk is deemed higher again due to the off plan nature. A buy to let mortgage is not like an ordinary mortgage, and often the minimum deposit is significantly higher, with some lenders even refusing to mortgage properties of this type. If you are saving up to buy your first property, although property investment is incredibly rewarding in the long run, it is more straightforward to get your foot in the door through an ordinary mortgage.
Something to consider here is that you could look to increase your chances of getting a buy to let mortgage by partnering with someone else and buying the property together. This is a fairly common move taken by a lot of first-time buyers, and a great way of being able to generate a larger deposit and be in a better position to have the loan accepted. This is an excellent strategy to consider if you are looking to improve your chances of success when it comes to saving for your first home, and being able to afford it. So this is definitely worth considering when you are looking to enhance your options here.
Make sure you gain a better understanding of what you need to do to afford a rental property, as well as how the process works. You can go here to find out more about the process of renting out a home, and this might help you plan and prepare better to buy one. You need a clear idea of what your budget is going to be, as well as the rent you are planning to ask for on a monthly basis. Saving for your first home is tougher, and tougher still if it’s an investment property, so you need to prepare for this in advance.
Improving your credit score is the biggest factor in your financial life and one of the most effective ways to receive a mortgage with a high LTV, allowing you to access the property ladder easier. Your payment history and credit utilisation ratios are some of the most influential statistics that come into play here and are critical in many credit scoring models, representing around 70% of a credit score on the whole. View your credit score as a reflection of your credit payments over time, with the activity over recent months some of the most important. But how do you improve your credit score?
Upon assessment of your credit report lenders are mostly interested in how reliable you are at paying your bills in full and on time due to your payment history being an accurate indicator of how they predict you will be in the future. Set up automatic payments or calendar reminder to ensure you will never miss a payment and keep your balance low on any credit cards.
Are you a home owner or planning to buy?
