For those in their early 20s, getting their first mortgage is increasingly difficult as house prices continue to rise faster than incomes. Nevertheless their are options for enabling a larger mortgage.
Things worth considering include:
- Borrow a deposit from parents (if this is possible) – a large deposit increases the chance of getting a good mortgage.
- Guarantor Mortgage. This is where you don’t actually borrow money from relatives, but they act as a guarantor for your mortgage debt. This makes banks more willing to lend money.
- Graduate Mortgages. Banks are often willing to lend graduates a higher mortgage to income multiple. This is on the premise that you graduates tend to have increased earning power in the future. It may be possible to borrow upto 5 times income.
- Interest Only Mortgage. Interest only mortgage reduces the monthly payments for a mortgage because you only pay interest back and no capital. However, in the future, you will be able to concentrate on paying the capital back as well.
- Longer Mortgage Term. Don’t worry about getting a standard 25 year mortgage term. If you get a 40 or 50 year mortgage you will increase your overall mortgage interest payments, however, you will make your mortgage repayments more affordable in the short term. See why I increased my mortgage term from 30 to 47 years.
- Joint Mortgages. Joint or shared mortgages are a way for first time buyers to share the cost of buying a house. If you don’t like the idea of sharing a house with a stranger, discuss with your friends whether they might be interested in such a scheme.
- Government Mortgages. There are Government schemes to help young people get on the property ladder. The government or housing agency, buy a certain percentage of the house on your behalf. You then pay the mortgage plus over time you buy back the rest of the share in the house. These mortgage schemes are often targeted at people working in the public sector.
- Self Certification Mortgage. A mortgage designed for the self employed, but also useful for those whose income is expected to rise in the near future. Basically, a bank will make less checks when offering a self certification mortgage. But, be careful about borrowing more than you can afford to repay. Always bear in mind interest rates can rise. see: Self certification mortgages