Email to a friend

First time buyers - Beware of 'freebies'

Mortgage lenders are prepared to lend first time buyers much higher amounts and offer lots of headline grabbing ‘freebies’  - free valuations, free legal fees, cashback, free insurance…

But beware – some nice ‘freebies’ doesn’t necessarily make it a good deal.

Article continues below

Mortgage lenders are clever; they price their mortgages to recoup the cost of giving away something for free upfront. This is known as a ‘sales promotion’ and is used to entice you to take out the mortgage and encourage you not shop around. But, shopping around is good! You need to look at the true cost of the mortgage with the ‘freebies’ and compare it against other mortgages on the market to make sure you don’t end up paying more for your first mortgage in the long run.

So, do your homework first – check the small print and compare the application fee and interest rates against other mortgages. Other little nasties to check for include:

• Very low interest rates - if you see a mortgage rate of 2% or 3%, be a bit cautious. To get this, you may have to pay a higher than normal standard variable rate of interest for a number of years afterwards, which could cost you thousands of pounds more in interest in the long run.
• Extended tie-in - if you wanted to change your mortgage to a better deal in a few years time, you could face penalty fees running in to thousands of pounds if you try to get out of your mortgage deal early.
• High lending charges - You need to check whether the mortgage provider charges a ‘higher lending fee’, which they may charge for mortgages that exceed a certain level of loan to value (“LTV”). For example, if you put down a 5% deposit on your home, the LTV is 95%.

Moneyfacts.co.uk can help you compare all types of mortgages to find the best deal for you through our mortgage best buys and mortgage search tool.

Lastly, a word to the wise. Everyone wants to get on the property ladder and it’s easy to get tempted in by mortgage lenders offering to lend you five times your salary. But, it’s essential that you also think about how much you can really afford rather than how much you need to borrow. Remember, you also need to take into consideration all of the extras such as utility bills, council tax, the TV licence and insurance, as well as general living expenses. Our mortgage calculator and budget planner can help you work out how much your mortgage will cost and what you can afford.