Questions every first-time buyer should ask
Consumer Credit Counselling Service (CCCS) chairman Malcolm Hurlston says homes should be sold with a health warning, adding those with homes were most likely to get into debt.
Speaking to members of the credit industry, Hurlston said first-time mortgages should be sold after study and an exam. He said that the people most likely to get into debt in the UK were those on low incomes who wrongly embarked on home ownership, and that some form of tuition should be considered before some people were allowed mortgages.
Pre-buying education is given to some buyers in the US who get free or low-cost advice on buying a home, renting, default, repossession and credit issues.
Although Hurlston’s plans are unlikely to be adopted in the UK in the foreseeable future, it’s a good idea to ask yourself a few questions before borrowing money whether it be a mortgage, loan or credit card.
So what five questions should you ask yourself before borrowing:
1. What’s the interest rate?
Before any kind of borrowing it’s important to shop around to make sure you’re getting the cheapest credit available.
2. Can I afford the repayments?
Borrowers should also consider whether they could still afford their repayments in certain circumstances. For example, if you had a tracker mortgage and interest rates rose.
3. What would happen if I lost my job?
There are various types of protection or insurance policies such as accident, sickness and unemployment cover that can protect you in certain situations.
4. What would happen if I fell behind on my payments?
If you fall behind on mortgage repayments then you risk losing your home. If you take out a secured or homeowner loan you also run the risk of your home being repossessed.
5. Do I really need to borrow money?
In most cases you’ll need a mortgage to buy a home but other types of borrowing aren’t always necessary. If you’re thinking about taking out a credit card or loan to buy something non-essential, consider saving up the money instead.
With a tracker mortgage, the interest you pay is an agreed percentage above the Bank of England’s base rate. As the base rate rises and falls, your tracker will track these changes, and so rise and fall accordingly. If your tracker mortgage is Bank of England base rate +1% and the base rate is 5.75%, you will be paying 6.75%. Tracker rates are lower than lender’s standard variable rate (SVR) and as they are simple products for lenders to design, they usually come with lower fees than other mortgage schemes.
A homeowner’s worst nightmare; repossession is an action of last resort by mortgage lenders to recover money from borrowers that have failed to keep up with repayments on their mortgage or other loan secured on their home (see secured loan). Repossession is a legal procedure that has to go through several processes before the homeowner is evicted and the property reposed. These are: if a borrower keeps defaulting; the lender applies for a solicitor’s notice; the lender instigates possession proceedings through the court; at the court hearing a possession order is granted and sometimes a possession warrant; a bailiff is appointed and an eviction notice issued at which point the homeowner has two to three weeks to vacate the property.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.