We could so easily focus on the negative doom and gloom but we should be looking at the positives instead. House prices are falling which has got to be a good news for first time buyers. You may find that neighbourhoods which were way out of range are now actually closer than you think. The latest figures from the Land Registry confirm that the average house price in August 2008 was £174,493, a 1.9% decrease from that in July 2008.

The Council of Mortgage Lenders Director General Michael Coogan said “Tighter lending criteria have clearly made it more difficult for First Time Buyers to enter the market”. Okay I agree that getting a mortgage as a First Time Buyer is harder than this time last year. The minimum deposit these days is 10% whereas last year it was possible to borrow over the value of your home. The days of lending over 100% is long gone which is no surprise and lets face it was never going to last. Putting down a deposit is a positive step and one which encourages people to save. So the bigger your deposit the better the mortgage interest rate will be. The good news is that some lenders such as Abbey and the Royal Bank of Scotland have reduced their rates and continue to do so which shows that lenders want to get back into the market by offering competitive deals.

So you can get together a deposit. Great! Now you need know how much a lender will be willing to lend you. Before you approach any lenders you need to know how to maximise the amount they will lend you. Time and time again I would find myself advising my clients to get themselves on the electoral roll. This is the biggy. If you’re not on the electoral roll this could reduce the potential lending amount. Contact your local council to get your self registered.

It’s a good idea to check your credit report if you have any doubts about your previous credit history. A lender will carry out a credit check to see if you have kept up with your past credit arrangements. If you have kept everything up to date and paid on time you will most likely have a good credit score which will mean you are a lower risk for the lender. The better your credit score the more you will be able to borrow. You can check your credit by downloading your report at www.experian.co.uk or www.equifax.co.uk.

Most lenders these days will calculate the amount they can lend by affordability as apposed to using just income multiples. This means they will look at your current income and also your existing credit card balances and loan repayments. Any current commitments will be taken off the total amount they will lend you. So by reducing any existing balances or even better paying them off before your mortgage completes you will be able to borrow more. Other ways to maximise your borrowing is to extend the term of your mortgage. This can make a big difference because you are stretching the loan over a longer period which reduces the monthly repayments thereby making the loan more affordable. One word of caution though is that you will be paying more interest over a longer term so it is always best to have the shortest term possible if you can.

So what happens if after all the above you still can’t borrow enough to get you that first house. You could consider purchasing with friends or relatives. By adding your friend or relative to the mortgage the lender will take their income into account as well as yours boosting the amount you could borrow. Many people who can’t borrow the desired amount opt for a Guarantor mortgage which basically means a relative will act as additional security for the lender by guaranteeing to pay the mortgage in the event of any arrears. By using a guarantor, the lender will either want the guarantor’s income to cover the whole mortgage or just the shortfall. Again, this is a high risk and legal advice should be acquired before going down this route.

If these options are not possible the only other option is to beg your boss to give you a pay rise instead or just save as much as you can so you don’t have to borrow more. Easier said than done? There are a few government schemes available to first time buyers with little or no deposit but there are certain criteria which need to be met to ensure you are eligible for these schemes. Catch my next blog post for more information on how these schemes work and to find out if it’s just what you’ve been looking for.

Your home may be at risk if you do not keep up repayments on your mortgage.

It also depends on your own personal circumstances. If you are a first time buyer you may require certainty of your repayments in the early years and want to go on a fixed deal. If you are the cautious type and don’t want to be worrying about your repayments increasing every time the Bank of England get together you’re probably better off on a fixed. Likewise if your budget is tight a fixed may be a better option for you, at least you will know what your outgoings will be. The downside to this is if the interest rates reduce, but you can’t have it both ways.

Lenders such as Nationwide have reduced their fixed rates recently and increased their tracker rates.  This may suggest a likely reduction in the Bank of England Base Rate. Of course lenders cannot predict the future either but it is usually a good indication. Any reduction in interest rates is a great move for people already on a tracker mortgage as a tracker will move in line with movements in the base rate by a certain percentage.

If you’re comfortable with the fact that your monthly repayments could go up as well as down and that you feel that an increase would still be affordable then a tracker at the moment may well be a good move. You would benefit straight away if you were able to secure a tracker deal just before the base rate reduces. But timing is everything. Any reduction in the rates ironically will encourage lenders to increase their tracker rates due to demand. On the other side of the coin fixed rates are reducing so it could be a good time to secure a rate.

Your home may be at risk if you do not keep up repayments on your mortgage.

So the main reason for re-mortgaging is to save money by finding a better deal than paying the high interest rates on the standard variable rate. It is usually not advisable to re-mortgage while you are tied into a deal period however sometimes it is unavoidable depending on particular circumstances such as divorce for example. Most mortgage deals have early repayment charges if the mortgage is redeemed before the end of the deal. Depending on the penalty amount payable, it is usually best to wait until the end of the deal period in order to re-mortgage as it may cost more in the long run. If you can’t wait until then it is important to consider alternatives such as a Further Advance with your existing lender.

As well as saving you 1000’s in interest, there are other benefits to re-mortgaging. If there is enough equity in the property, it is possible to raise additional money for home improvements. If personal circumstances change there may also be a need to re-mortgage to change the type of mortgage as the existing deal may not suit your current needs. For example, an increase in income may mean that a more flexible mortgage is required in order to overpay regularly or there may be a need for payment holidays. People who have had problems with credit in the past and currently have a mortgage with a higher rate of interest may now be able to access more competitive mortgage deals.

When re-mortgaging it is important to look at all factors to ensure that it is the best option for you. For example, take into account of any other charges you will pay for leaving your existing lender such as a “mortgage exit fee” or “final repayment fee” which lenders justify as an “admin fee”. Be aware of other factors such as the amount of fees you will pay for joining the new lender such as an “arrangement fee”, “valuation fee” and “booking fee”. You need to ask yourself “what is most important to me is it to have the lowest monthly repayment or the lowest cost over a certain period?” If it is the lowest total cost over a certain period, say two years, you need to be aware of all costs, not just the initial interest rate.

It can be a confusing time when re-mortgaging as there are many different factors which can influence your choice of lender and mortgage deal depending on your circumstances. We can help to guide you to find the perfect solution for you. If you wish to speak about this or any other mortgage matters face to face please contact me on the above number. I will be discussing this subject in more detail in my newsletter next month so please sign up to receive my monthly news letter.

Your home may be at risk if you do not keep up repayments on your mortgage.