By Melinda Varley

The costs associated with buying a first home have risen by 94% in the past six years, with increases in house prices and charges hitting mostly first-time buyers hard.

While first-time buyers in 2000 needed an average of £4,698 to cover stamp duty, solicitors’ bills and mortgage fees, in 2006 the average became £9,113 making it even harder to raise a deposit on your first home.

A deposit is the amount of money that you will be required to put forward to the purchase of a property, with the balance made up from mortgage finance.

The size of your deposit may affect the interest rate you pay for some mortgage packages – such as, the more you put down as a deposit, the lower the rate of interest.

A typical deposit would be 5-10% of the total price of the property. Therefore, if you were required to provide a 10% deposit and the purchase price was £100,000 you would need to put down a £10,000 deposit.

Consider that most lenders will also look at your disposable income when lending you money and will take into account your existing loans. It is also possible that with house prices being so high, you may need some help with getting together a deposit.

You may find a few lenders who will look at ‘lending you a deposit’ as part of the overall mortgage package. However, a major disadvantage of this could be if the value of your property falls, you may find yourself in negative equity. This means that you could end up owing more than you borrowed.

If this is your situation, it is important that you take the correct advice. It is imperative that you do not over commit yourself to a mortgage. If you do, your home could be at risk if you cannot keep up repayments and you could end up in court fighting to keep it.

You could instead decide to take out a personal loan to use as a deposit. A personal loan is one of the least complicated financial products available but like anything, you will need to be sure of the terms before signing an agreement.

There are two types of personal loans offered by lenders such as banks and building societies: secured loans and unsecured loans.

A secured loan is one where the property will be used as security on the loan. If you aren’t able to pay off the loan according to the terms agreed with the lender, then your property may be at risk of repossession. As a first-time buyer this would probably not be a relevant loan for you unless a member of your family were to take out a secured loan to help you.

An unsecured loan can vary in both size and the terms of the monthly repayments, depending on the purpose of the loan. It is a debt that is not secured against an asset or equity.

With any loan, it is important that you use the Annual Percentage Rate (APR) to compare the true cost of borrowing, as this will factor in fees that might not be included in the ‘headline’ rate.

A company may quote ‘typical rates’, which means that the terms apply to any applicant, but the exact rate offered to you will depend on your personal circumstances.

If you have a poor credit history you may find it difficult to obtain a loan and if you are offered one, the interest rates may be higher than usual.

There may be many routes available for you even if you find yourself without a deposit and more and more lenders are launching mortgages specifically designed to help out first-time buyers. The possibilities are:

· Graduate mortgages
· Professional mortgages
· Guarantor mortgages
· Joint mortgages with your parents
· High loan-to-value mortgages
· Mortgages for friends buying together
· 100% loan-to value (LTV) mortgages
· Mortgages over 100% loan to value (LTV)
· Offset mortgages with your parents
· Shared ownership and equity mortgages

If you are seriously considering buying your first home it is important to research all your options and to really shop around for the best deal tailored to you and your circumstances.

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