When it comes to first-time buyers, I really believe caution is the watchword when making a mortgage recommendation. It’s quite a bold leap into the unknown to leave the parental home or the current rental property and to purchase that dream dwelling place. It’s likely to involve a gifted deposit or some ‘Help to Buy’ style scheme, so a commitment to a third party, be it real or perceived, is always in the mind of the purchaser.
In addition, managing expectation is an important responsibility for the mortgage adviser. Although currently renting a one bed flat, the average first-time buyer seems to think that their first purchase should be, at the very least, a three bed-semi. Once sad reality has dawned and been accepted, then it’s on to the nitty gritty of accessing budget.
Being the first owned property, monthly costs going forward must be assumed rather than confirmed. With this in mind, and being aware that many first-time buyers are stretching themselves to the limit to achieve their first home, it’s really best to recommend a fixed rate mortgage. Why, I hear you asking, when a discounted variable rate may start off the cheaper option? Well, a fixed rate will give that ability to budget realistically, rather than facing the possibility of rate increases shortly after moving in, which could blow a spending plan out of the water.
Committing to a fixed monthly mortgage payment for the next two to five years allows our first-time buyer to set a monthly budget, then adapt to spending the excess money available rather than budgeting on a discounted mortgage then deciding what they have to sacrifice when rates start to increase. After all, knowing your mortgage payments are £600 each month for the next 60 months is easier than budgeting £520 per month than trying to find an extra £50 per month every time the rates increase by 0.25%.
This ability to budget around the biggest monthly commitment, whilst adapting to the additional costs of running your own home is, to me, more important than getting the so-called cheapest monthly payment for your first-time buyers then leaving them to cope with the inevitable rate increases. At least they can watch the news each month and just worry about impending global annihilation by North Korea rather than if the Bank of England credit committee will decide to increase the base rate.
Of course, if the client favours a discounted product and is fully conversant with the risks involved, then our job is to recommend the most suitable product for their needs. After all, what we specialise in is advice and recommendations based on the client’s needs, wants and desires, not despite the client’s needs, wants and desires. We can only advise, not lay down the law…
Give Ian a call... he'll offer you some great advice 01375 311012