Attention first-time buyers! You may be eligible for a whole range of preferential mortgage deals that are unavailable to re-mortgagers and second mortgagers. Lenders will sometimes dangle a whole goody bag of incentives to tempt you onto the property ladder, simply because they want your business – after all, a first-time buyer is potentially a customer for life!
First-time buyer incentives include:
First-time buyer discounted rate mortgages – these will have a preferential discount rate for a fixed length of time. This could be a low fixed rate or a generous discount off the lender’s standard variable rate (SVR) or Bank of England Base Rate. Discount periods typically last between two and five years, though can last longer.
Cashback – some deals give you a cash payout upon completion of the mortgage (either a fixed amount or a percentage of the loan). This can be particularly attractive to first-time buyers as the give you cash when money is likely to be tightest. This money can then be spent on whatever the borrower wishes – handy for solicitor bills or furnishing a house.
No arrangement/product fee – some mortgage deals benefit from no arrangement fee, i.e. the lender will pay the arrangement fee for you.
Free legal fees – look out for mortgage deals that pay the solicitor fees – this could prove a considerable up-front saving.
Free/refund valuation – A lender will value a property before lending money on it. Free valuations are free to the borrower, i.e. the lender will cover the cost for you. A refund valuation requires payment up-front from the borrower, with a full refund upon completion. But if the buyer later decides not to proceed, the valuation fee will not be refunded. A free or refunded valuation will save you around £300.
No Higher Lending Charge – with some mortgage deals, the lender will pay the HLC (sometimes called a mortgage indemnity guarantee or similar) as an incentive for first-time buyers to take their product.
Flexibility – a bank or building society may tempt you with the flexibility to make overpayments or lump sum payments when your wallet is bulging, or allow you to make an underpayment or take a ‘payment holiday’ at times when money’s tight.
Beware! (Yes, there’s always a ‘beware’)
In the world of finance you rarely get something for nothing, and the above perks will usually come with a mortgage ‘lock-in’ period to tie you to the product.
This means that if you switch mortgage before the lock-in period expires, you will have to pay an Early Repayment Charge (ERC). Also, if the mortgage has an overhang period, i.e. a period in which you have to pay the lender’s Standard Variable Rate (SVR), you could end up paying more than you initially save in the long run. Follow the link to read more about Mortgage Charges.
However, the attractive thing about first-time deals is that you make your savings right at the start of your mortgage, when you’re most likely to be cash strapped and you need all the financial help you can get. Also, it is possible to find deals with no early repayment charges, so keep your eyes peeled.
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