Own Your Home: The Complete Guide to Homeownership Schemes for Second-time Buyers in the UK
Second-time buying insights
Buying a house is an eventful time. You have a long list of to-dos to be ticked off, including getting a mortgage.
Many existing homeowners will choose to become second-time buyers eventually. Be rest assured that the second time around may not be as stressful, especially if you’re well-informed on the homeownership mortgage schemes available to you as a second-time buyer.
Are you a second-time buyer?
Second-time buyers are those who are selling their first property with the intent of buying another.
There are varying reasons why you might choose to do so. Maybe you need more space for a growing family, or are moving to a different location.
What’s different the second time around?
Thankfully, the process of getting a mortgage for a new house the second time around feels a little less stressful, simply because you know what to expect. There are, of course, some differences between first and second-time buying, but mostly it’s business as usual.
The deposit needed for a second purchase will typically have the same kind of requirements, with most lenders asking for at least 10% of the purchase price. However, there are other mortgage options available to you, depending on your circumstances. It may be easier to get a new mortgage if you already have a history of making regular mortgage payments..
Are you ready to make the purchase?
First-time buyers tend to have a lengthier process of landing a mortgage because it’s their first time, so they’re not familiar with the process. Second-time buyers will usually know the ins and outs already, and will be ready to face the same challenges once again. That’s why it’s important for you to assess whether you’re 100% ready to make the purchase before signing on the dotted line. Ensuring you are financially secure enough to apply for a second mortgage is vital.
Home ownership schemes available
Second-time buyers who feel financially secure enough to apply for another mortgage have various options available to them. The option you choose and the type of mortgage you decide to go with will depend on your individual circumstances and needs.
Most lenders will still require a deposit of at least 10% of the value of the property you hope to buy.
The amount you borrow is set by the ratio of how much you pay as a deposit.
For example, if you put a £25,000 deposit down on a home that is £250,000, your LTV ratio is 90%. The mortgage loan will then be £225,000.
The more money you put down on your deposit, the lower the LTV ratio. Note that mortgage lenders offer loans with varying LTV, so the lower your LTV, the better your chances are of your application being accepted. And don’t forget that as a second-time buyer, you can use the equity in your current home in addition to any new deposit money you’ve saved up.
There are LTV calculators available online, but the formula is simple enough that you can work it out on your phone:
LTV = (loan amount ÷ property value) x 100
2021 Mortgage Guarantee Scheme
According to the Financial Conduct Authority, Q4 of 2020 saw a 13-year low in LTV rates of 90% or above. The decrease was most likely due to the uncertainty surrounding the COVID-19 pandemic.
Consequently, we have seen the UK government implement a range of schemes to encourage mortgage lenders to offer better LTV ratios, particularly 95% LTV . With government plans like the 2021 Help To Buy scheme available, it’s easy to assume that applying for a mortgage as an existing homeowner may be more difficult than it is for first-time buyers. First-time buyers are essentially getting first reserves on 95% LTV loans that help them to get their first steps onto the property ladder. However, homeowners who already have a firm foot on the ladder need a helping hand too.
Thankfully, there are additional schemes that are not exclusive to first-time buyers. The 2021 Mortgage Guarantee Scheme will run from 19th April 2021 until the 31st December 2022 and aims to open up 95% LTV mortgages to not just first-time buyers, but existing homeowners and homemovers too. The goal is to help any eligible home-buyers who can afford monthly mortgage repayments but are failing to save for a large deposit, including second-time buyers looking to purchase another home.
As a result, looking for mortgage lenders outside of the scheme may be your best bet.
Porting your current mortgage
Porting your mortgage is the process of transferring your existing mortgage onto a new property. It’s named ‘porting’ because such mortgage transfers are considered ‘portable’, allowing you to reapply for your current deal with your current mortgage lender.
Although this appears to be convenient there are some drawbacks you need to consider, mostly because it’s not 100% certain that porting is available for your current financial circumstances.
Your mortgage lender will assess the criteria of your current plan and make the decision based on your changing circumstances.
You should be able to port your current mortgage, if you meet the lender’s criteria including checks on the new property, the price you’re paying for it, and whether you pass affordability tests. However, there’s no guarantee they’ll allow it.
Porting a mortgage for a higher-priced property
If you are second-time buyers moving to a higher-priced property, you will likely face costly fees, increased interest rates, or early repayment charges which can be as much as 5% or more of the remaining debt you owe. These charges will only exist if you can’t port your mortgage. If you can port your mortgage and borrow a bit more (with the new borrowing on a new deal) then there won’t be these fees.
Porting a mortgage for a cheaper property
On the other hand, porting your mortgage is suitable for second-time buyers downsizing to a cheaper property or a property of the same price. This means that lenders do not need to loan you any more money. However, if you want to lower your mortgage borrowing for your next move, early repayment charges could apply.
However, even if your mortgage is portable and you do not need to borrow any more money, it’s still worth looking around to find the best mortgage rates. For example, the equity on your home may have increased since landing your current mortgage deal, which means there may be better rates elsewhere outside of what you currently pay.
How to make a successful second-buy
With August 2021’s average UK house price sitting at £264,000, the cost of your move is still a substantial price to pay. Fortunately, there are things you can do to ensure your mortgage deal is fair and secure.
Calculate your entire costings
As we’ve noted, applying for your mortgage the second time around includes paying additional fees on top of your standard mortgage charges. These include, but are not limited to:
- Arrangement fees
- Booking fees (the charge of booking your loan whilst the payment is authorised)
- Early repayment fees
- Exit fees
- Legal fees (such as solicitor payments and stamp duty)
- Valuation fees
Please also note the fees you pay will also depend on your individual circumstances and the mortgage type you opt for.
Get help from an advisor
Another fee that might be worth paying is an advice fee. This is a charge you might pay if you seek help from a mortgage advisor or financial advisor.
A financial advisor can help you find the best mortgage deal, and may even help increase your chances of having your application approved. They will also assist you in including the additional fees when you calculate your entire costs.
Think about your future needs and desires
There are many different reasons why existing homeowners become second-time buyers, and the final decision you make will depend on your own personal circumstances. People move for a variety of reasons, whether it’s to be closer to family, for work, or take that next step on the property ladder.
People in the UK will move every 23 years on average. This varies in relation to location. For example, people move most in Wandsworth, Basingstoke and Deane, Norwich, Rushmoor, Lambeth, Corby, Swindon, Aylesbury Vale, South Norfolk, and Bracknell Forest.
There are endless political, economic, and social factors that influence and motivate populations of homemovers around the country, so it’s important to always think ahead to your own needs and desires based on both your current and future circumstances. Find a great mortgage deal on a new property that accommodates your long-term life goals.
Take your time
UK government research found that a fifth of buyers would have liked another viewing before contracts had been signed and the final go-ahead had been approved. So it’s important you take your time when researching your mortgage options and viewing the homes that are available.
Before you look for another deal you will need to check the terms of settling your current mortgage with your lender.
How to prepare your property to sell it quickly and easily
Homemovers have to tackle the difficulties of not only purchasing a new property, but selling their existing one too. And two of the biggest problems that homemovers face are uncertainty and the likelihood of a sale failure.
Selling your home quickly is clearly a difficult feat that isn’t always guaranteed, even if you do eventually find a suitable buyer. Thankfully there are things you can do to maximise your chances of finding a buyer as easily as possible, simply by preparing your home from the inside out.
Declutter your space
Decluttering your home is vital for making sure it looks its absolute best. It’s all about inviting potential buyers into your home and allowing them to imagine it as their own. Rooms and spaces should be presented as light, airy, and showing their true purpose. Make sure they’re clean, tidy, and aren’t filled with excess clutter that could distract viewers.
Have a spruce-up
House preparation is a valuable step in the process of moving home. Even the best-kept properties show signs of having been lived in, so it’s worth fixing wear and tear before viewings start. This could be as simple as adding a fresh coat of paint, or as complex as carrying out major refurbishments.
Remember that while bigger projects like kitchen renovations are expensive, with an average cost of £8,000, they can make a huge difference in the value of your property.
If you do have any major concerns or issues with your property, including structural issues, find a surveyor to assess its current condition. Bigger problems need to be addressed with more than just cosmetic adjustments.
First impressions matter
It’s also important that you don’t neglect the exterior of your property. Even the guidance on the UK Government site suggests that enhancing your curb appeal is one of the most important things you can do to improve your chances of selling your property. As they say, “When potential buyers arrive at your property, what will they think? Does the property need a lick of paint, or the front garden need tidying up?”
Ensure the outside of your property is well presented by mowing the lawn, pulling out weeds, cleaning windows, and repairing any broken gates or fences.
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UK Government home-buying guidance