Getting a mortgage when you are single

Buying a first home is a major commitment, and it can be a great deal easier if you have two incomes to build a deposit and deal with the mortgage repayments.

But it is possible to buy a home single handed.

Building up a deposit

All homebuyers need to put down a deposit to secure a mortgage. With just a single income, you may not be offered as much as a couple. A larger deposit can help you meet all the lending criteria and mean that you need to borrow less.

In the current mortgage market, you’ll need at least 5% of a property’s value to get a mortgage, and to get access to the best rates it can help if you can put down considerably more. 15% or even 20% could help you get lower rates.

You’ll need to pay Stamp Duty Land Tax (SDLT) on any property costing over £125,000, legal fees and Land Registry fees. However, if you are first time buyers of a residential property you can claim relief on purchases:

  • made on or after 22 November 2017
  • where the purchase price is no more than £500,000

You will pay:

  • 0% on the first £300,000
  • 5% on the remainder up to £500,000

If the purchase price is more than £500,000 you cannot claim the relief and you must pay the standard rates on the total purchase price.

This can make it sound almost impossible to build up the kind of sum you need especially as a single person, but help is at hand.

Get help from the government

The government can help you build up the cash you need. It used to be that people would save with a building society who would eventually reward their loyalty by providing a mortgage. These days, interest rates are low, and cash savings are a very inefficient way to build up a cash lump sum. But there are solutions to help grow your savings. An ISA can provide tax free savings, a Stocks and Shares ISA might provide prospects for capital growth – and a Help to Buy ISA – or a Lifetime ISA (Lisa) could provide interest and get the government adding 25% to your savings to help build your deposit faster.

You can put in up to £4,000 each year into a Lifetime ISA, until you’re 50. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.

However, the Lifetime ISA counts as part of your overall annual £20,000 ISA allowance. That means if you subscribe £4,000 to the Lifetime ISA, you can only put £16,000 towards other ISAs.

To open and continue to pay into a Lifetime ISA, you must be a UK resident. You will be ruled out if you have ever owned a property before, even that’s a part share of an inherited property inside or outside the UK. You also cannot use the deposit for an investment property. If you withdraw funds from your Lifetime ISA  before you are 60 years old there will be a 25% Government withdrawal charge applied (unless you are Buying your first home or terminally ill with less than 12 months to live).

When you turn 50, you will not be able to pay into your Lifetime ISA or earn the 25% bonus. Your account will stay open and your savings will still earn interest or investment returns.

Help to Buy ISAs are a type of ISA designed to help first-time buyers save up a deposit for their home. The government will add 25% to your savings, up to a maximum of £3,000 on savings of £12,000.

Your first payment to your ISA can be up to £1,200 and then you can pay up to £200 each month. When you buy your property, your solicitor or conveyancer will apply for the extra 25% bonus.

Unlike the Lifetime ISA the Help to Buy ISA is available as just cash and not as a Stocks and Share saving.

Manage your spending

You will probably want to economise to build up your savings faster. But there is another reason to avoid commitments like loans or HP payments.

This is because under FCA affordability rules. a lender will look at your monthly income and your outgoings to ensure you have enough to live on after you have dealt with the mortgage repayments

You may need to rein in the expenses for a few months before you make your application – but remember, a lender is more likely to lend if you have a history of repaying loans.

Get professional advice

But single or not, the most important thing to remember when you are thinking about mortgages is to speak to a mortgage broker.

Expert advice can help you pay less for your mortgages.

If you’re buying a home with one income, you’ll need insurance in case something happened to you or your job.

As well as finding you a mortgage, at Continuum we can help with income protection, life insurance and even the buildings and contents insurance you may need.

Please give us a call today and speak to one of our professional team.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.

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

Equity Investments do not include the same security of capital which is afforded with a deposit account

By incurring a Lifetime ISA Government withdrawal charge you may get back less than you paid in.

By saving in a Lifetime ISA instead of a qualifying pension scheme you could lose contributions by your employer, if any.

Saving in a Lifetime ISA mayaffect your entitlement to current and future means tested benefits.

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Book an initial consultation with one of our independent financial advisers or call us on 0345 643 0770 if you would like to discuss further.

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