You are in section Home Mortgages Mortgage guides First time buyers How exactly do I pay for a house?
So, how exactly do I pay for a house?
The good news: there are loads of options out there to help first time buyers finance their home.
The bad news: there are loads of options out there to help first time buyers finance their home.
Yeah. It can seem complicated if you’re not familiar with the system – but all the choice is designed to make it easier to find something that suits your exact circumstances. So, grab a coffee, put your buyer hat on and get reading…
Mortgages
‘Mortgage’ is a word we’re all familiar with but did you know it comes from the French word “mort-gage”, which literally means death-pledge. The good news is, these days’ homebuyers have a choice of mortgage term slightly shorter.
So what is a mortgage? It is a loan taken out from your lender (such as a bank or building society) to purchase a property or piece of land. You must then pay back the loan on a monthly basis, with added interest, for an agreed period – 25 years is common.
There are three main types of mortgage:
You pay back the amount you borrowed, and the interest, over the agreed period. The loan is completely paid off at the end of the term and the property belongs to you.
2Interest only
You pay just the interest to your lender each month. Then, at the end of the agreed term, you need to pay back your loan in full. This capital can come from savings, investments, pensions and shares and your lender will take a view on whether your chosen repayment strategy looks likely to pay off the capital at the end of the term.
An Offset Mortgage is an interest only mortgage. Basically, the money you have in your savings account is used to offset the money you owe on your property. So, if your mortgage is £100,000 and you have £20,000 in your savings account, you only pay interest on £80,000. If you need to dip into your savings, it’s cool – it just means that the amount you owe interest on goes up as your savings go down.
Offset Mortgages are only available to existing Offset Mortgage customers
When thinking about a mortgage you’ll need to work out how much deposit you’ll be able to save as this effects the LTV, or loan-to-value. This is all about how much mortgage you have in relation to how much your property is worth. For example, if you have a mortgage of £135,000 on a house that's worth £150,000, you have a loan-to-value of 90% - therefore you have to save £15,000 deposit.
Paying with cash
Buying a house with cash means covering the whole cost of a property up front. If you’re fortunate enough to be in this position, you won’t need a mortgage at all. However, for most first time buyers, this option is the stuff of dreams.
Affordable home ownership schemes
The government’s Affordable home ownership schemes were set up to help people buy a home. There are a few options available, and certain criteria to fulfil so it’s worth doing some research. Just remember that the schemes are usually intended to work with a mortgage, not replace one, so if you’re eligible, it’s likely you’ll still need to get a mortgage to finance your property. Unfortunately we are not participating in the affordable home ownership schemes but our mortgages come in all shapes and sizes, so there is bound to be one that suits you.
Shared Ownership
The shared ownership scheme was set up by the government to help you if you want to buy a home but don’t earn enough money to purchase outright. You buy just a share of a property, between 25% and 75%, from one of the UK's housing associations and then you pay the housing association an 'affordable rent' on whatever part you don't own. Later down the line you have an option to purchase a bigger share if you can afford it.
With Help to Buy: Shared Ownership you can buy a newly built home or an existing one through resale programmes from housing associations. The terms and conditions of shared ownership schemes vary in each country of the UK – if you’d like to know more, head over to your local government website.
Right to Buy
The Right to Buy scheme was set up to help council house and housing association tenants purchase their home at a discounted rate. It’s available to you if you’ve lived in your council or housing association property for a minimum of three years – as long as you intend to continue using it as your main home. The discounts available depend on where in the UK you live so for more information, please visit your local government website.
Buying your first house may seem daunting, but it doesn’t have to be. There are plenty of options out there – and lots of help if you’re struggling to get your head around it all.
The material contained in this document is for information purposes only and does not constitute advice.
You should obtain relevant legal or other advice if you are unsure about the effect on you of any matter in this document.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
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Our mortgages explained
We have lots of different mortgage options, from Repayment and Offset, to Fixed, Tracker and Standard Variable Rate. If you’re not sure what any of this means, we can help.
How much can you borrow?
We have a handy calculator to give you a rough idea of what you may be able to borrow – simply add a few details and get an indication in seconds.