For young adults, venturing into the world of homeownership is an exciting yet complex journey. Regardless of your financial situation, managing to get a mortgage at a young age is a milestone achievement. While it can sometimes seem impossible, it needn’t be should you do the research and have the appropriate support in place.
This guide contains our top tips to help you boost your chances of having a mortgage approved and getting the best deal in the process.
What is a mortgage?
Before we talk more about securing a mortgage, it’s important to explain what it actually means. Essentially, it’s a special type of secured loan that is used to buy property, whether this is for a flat, house, or plot of land.
As a borrower, you agree to pay back the full sum of the loan alongside interest over the course of a set number of years. Failure to pay can lead to repossession, which is why it’s important to have all your finances up to date and be honest with your lender about what you can comfortably afford.
Saving for your deposit
It’s very rare for lenders to cover the entire cost of the property. They’ll usually expect you to put down a deposit of around 10% of the mortgage but you can put down more up-front if you wish. This is actually encouraged as it means you’ll be borrowing less and your interest payments will be lower. It also makes you appear less risky to lenders and more likely to be approved for the loan.
Lenders tend to ask for a higher deposit of 15-30% for newer properties because they reap so many benefits. For instance, new-build properties employ environmentally-friendly building techniques and contain energy-efficient appliances. As a result, you’ll save on your energy bills in the long run.
Build up your credit score
One of the biggest issues for young people when trying to get a mortgage is their credit score. Since you must be 18 to have credit cards and loans, you won’t have had ample opportunities to build credit and appear to be a responsible borrower.
If you’re very keen on buying a house at a young age, try and build this credit as soon as possible. Firstly, ensure you are on the electoral register, as this allows lenders to confirm your details. Next, make sure that you have direct debits in your name that you’re able to pay off each month, such as a phone contract.
You should also take out a credit card and make regular purchases, paying off the balance in full each month. Doing all of these can leave a positive credit footprint that lenders will favour.
It’s important to understand the market and what government schemes are available to help young people attain a mortgage. Shared ownership is particularly useful for helping get you on the property ladder from a young age, removing the need for a huge mortgage or deposit.
With this, you buy a proportion of the property, which is usually between 25-75%, and pay rent on the remainder. Over time, you have the option to increase your share through a process called ‘staircasing’.
Furthermore, the Lifetime ISA offered by the government can help young people aged 18-39 save for a deposit on their first home. With this, you can save up to £4,000 and the government will add a 25% bonus to your savings, with a maximum of £1,000.