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The high cost of university education leaves most graduates with considerable debts. Few of them can lay down a substantial deposit towards the cost of a home to secure a traditional first time buyer mortgage. Several lenders are exploiting the market and offering mortgage products with favourable terms to attract new graduates.
Lenders are of the opinion that new graduates have a good income potential in spite of their current hardships. They offer mortgage products to these individuals expecting them to able to repay the loans in the future. In addition, the lenders hope to draw on the graduate market by selling supplementary products like credit cards and savings schemes.
An individual applying for a graduate mortgage for buying a home requires a full degree from a university granted within the past seven years. The loan products are available to graduates up to the age of 35. If you are seeking a joint mortgage with a co-borrower who is not a graduate, this can affect your eligibility. However, you can shop around for a lender who is ready to offer a package depending upon your particular situation. A second time purchaser would not qualify for a graduate mortgage.
Graduate mortgage products have several special aspects. These include low interest rates for the initial years of the mortgage term, 100% loan to value ratio and sometimes even 2% extra to include furnishing costs. Lenders estimate the size of the mortgage based on future prospects of salary. Furthermore, parents and relatives may act as guarantors, if a graduate intends to borrow more than the amount justified by the present salary.
Most lenders offer graduate mortgages with interest only payment options. This is very beneficial to new graduates, particularly in the initial years of the mortgage period, as lower monthly repayments are highly affordable. Most persons expect to do well financially in a few years and hope to pay off the principal at the end of the term.
Lenders offer discounted rates in the first few years of the term and impose a penalty, if the borrower redeems the mortgage within those years. If the homeowner takes out a refinance from the same lender, there is no penalty. Lenders make available tracker mortgages with discounted rates, as well. The rates of a tracker loan follow the base rate set by the Bank of England.