First-time lucky as new doors open for buyers

Few things beat the feeling of walking into your new home for the first time after you have taken possession of the keys. Relief is likely to be among your main emotions as buying a house is one of the most stressful experiences in life.

Few things beat the feeling of walking into your new home for the first time after you have taken possession of the keys. Relief is likely to be among your main emotions as buying a house is one of the most stressful experiences in life.

But as long as you take a few factors into account, you can make the whole process run much more smoothly. Many first-time buyers have been holding off purchasing a home, deterred by the crazy property prices of recent months. So the good news is that, while prices aren't actually falling, they are slowing down, particularly in the South.

Still, buying your own home is a scary prospect; it is likely to be the most expensive purchase you ever make, so you have to get it right. Unlike renting, you can't change your mind and move out six months later if you don't like the neighbours or you can't really afford it.

"Now is a good time to buy, particularly for first-timers," says Mark Harris, director of Savills Private Finance. "The costs haven't necessarily risen and the availability of mortgages and choice for first-time buyers is greater than ever."

Before you start shopping for curtains and furniture, work out how much debt you can afford to take on. Historically, buyers could borrow three or 3.25 times their income, but some lenders are more flexible now, lending up to five times your salary in some cases. Of course, you will not necessarily want to borrow as much as this. Try not to overstretch yourself as you will probably be paying it back for the next 25 years, and you want to live comfortably as well.

Even if you haven't got a deposit, this may not be a problem: some lenders are ready to lend up to 100 per cent of the value of the property. While a smaller deposit used to mean a higher mortgage rate, this is no longer always the case. As more choice comes on the market, you can pick up a good rate even with only a tiny deposit.

Home loans come in two forms: repayment and interest-only. A repayment mortgage is very straightforward: you pay back a bit of the loan each month, plus interest. At the end of the loan period you owe nothing and the house is yours.

With an interest-only mortgage, monthly payments are slightly lower because you just pay the interest on the loan, and at the end of the loan period you still owe the full sum. But when you take out an interest-only mortgage, you also start paying into an investment policy or endowment. This is used to pay back the capital and you keep any money left over.

But there is no guarantee that the investment will cover the loan, which is why a number of people are facing a potential shortfall in their endowment policies, causing interest-only mortgages to slump in popularity.

There are many tempting offers for the first-time buyer, including discounted, fixed or capped interest rates over a certain period. Some of these carry heavy penalties for early redemption, though such mortgages are dwindling in number. It is worth checking the small print so you know what you are letting yourself in for.

Discount and fixed rates revert to the lenders' standard variable rate (SVR) after a fixed period. This is always higher so it is worth finding another deal as soon as you are in this position. Halifax, the UK's biggest mortgage lender, has an SVR of 7.74 per cent; most discount and fixed rates will be quite a bit cheaper.

When choosing which type of loan you need, much will depend on your own situation. If you could cope with a rise in your mortgage rate for a few months, some discount deals are very attractive. Bristol & West offers a 2.55 per cent discount until May 2002. This gives a payable rate of 5.19 per cent with no redemption penalties, so once the discount period is up, you can switch lender again.

However, if your income is such that you can't cope with interest-rate fluctuations, you might be better off picking a fixed rate. Portman Building Society has a two-year fix of 5.75 per cent with no penalties, so you can switch at any time if more competitive deals come on the market.

With so many mortgages around, consulting an independent financial adviser is often worth while; they will be aware of what is on the market and should be able to find you the most suitable deal.

* Contacts: Bristol & West, 0845 300 8000; Portman, 01202 563502; Savills, 0870 900 7762.