There are an increasing number of lenders willing to
grant 90% mortgages to first-time buyers, but that doesn’t necessarily mean you
should jump in without exhausting other possibilities.
You see, the cost of a 90% mortgage to first-time buyers compares quite poorly to those with a deposit of 15% or more; so much so that it could actually be beneficial to take out a separate loan to cover the difference.
Currently a first-time buyer with a 10% deposit can access a two-year fixed mortgage at a rate of 1.79%. Whereas having a 15% deposit in place would lower the rate on the same product to just 1.27% (meaning there’s 29% less interest to pay!).
If you’re reading this thinking a 0.5% difference in interest rates is negligible and all the mortgage rates seem very low, you’re right! But it can still make a real difference in the long-term.
Let’s say you’re thinking of buying a £125,000 house with a 10% deposit. On a repayment basis, you can expect to pay £465 each month towards the mortgage. But by raising your deposit to 15% those repayments would drop to £413 per month OR if you paid the same £465 a month as you were going to, the mortgage would be paid off three years quicker!
You may think you have little choice; and with the average property in Penicuik selling for £185,695, even a 10% deposit will require £18,570! But if you consider that by borrowing the additional £9,285 to step up to a 15% deposit could save you £77 per month in this scenario, you could actually afford to borrow this sum at 10% (interest only) to be no worse off.
You see, the cost of a 90% mortgage to first-time buyers compares quite poorly to those with a deposit of 15% or more; so much so that it could actually be beneficial to take out a separate loan to cover the difference.
Currently a first-time buyer with a 10% deposit can access a two-year fixed mortgage at a rate of 1.79%. Whereas having a 15% deposit in place would lower the rate on the same product to just 1.27% (meaning there’s 29% less interest to pay!).
If you’re reading this thinking a 0.5% difference in interest rates is negligible and all the mortgage rates seem very low, you’re right! But it can still make a real difference in the long-term.
Let’s say you’re thinking of buying a £125,000 house with a 10% deposit. On a repayment basis, you can expect to pay £465 each month towards the mortgage. But by raising your deposit to 15% those repayments would drop to £413 per month OR if you paid the same £465 a month as you were going to, the mortgage would be paid off three years quicker!
You may think you have little choice; and with the average property in Penicuik selling for £185,695, even a 10% deposit will require £18,570! But if you consider that by borrowing the additional £9,285 to step up to a 15% deposit could save you £77 per month in this scenario, you could actually afford to borrow this sum at 10% (interest only) to be no worse off.
So even though the interest rates on a personal loan might be higher than a mortgage, the shorter length of the loan means you’ll pay it off quicker. This will boost the level of equity in your home, which will help when re-mortgaging in the future and could save you money in the long-term. However, and it is a big however, certain mortgage lenders take a dim view about this sort of thing.
I’m not saying you should borrow more to stretch yourself and this certainly doesn’t constitute financial advice (you should consider contacting the registered professionals for that). But, I would urge you to ensure you’re accessing money as cheaply as possible to future-proof yourself and keep more money in your own pockets rather than in the banks coffers!
And, of course, there is another alternative although I
appreciate that this is an unpopular thing to say .... give up some of lives ‘less
essential’ ‘essentials’ and save the greater deposit.
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