First Time Buyer Mortgages
This guide outlines all the information you will ever need to get your first mortgage plus our first mortgage comparison takes the hard work out of searching for the best deals.
First Time Mortgage Facts at a Glance
- Some schemes exist to help certain first time buyers.
- For best rates, a good credit rating is important.
- Deposit required is usually 5% and upwards.
- 100% mortgages do exist but terms can be onerous.
- Consider fixed rate mortgage for a stable payment.
- Amount you can borrow depends on income, credit rating and deposit amount.
- A guarantor (eg parent) can assist getting your mortgage.
Compare the Best First Time Buyer Mortgages
Buying your first house is a big deal! use this guide on first timer mortgages to provide yourself with all the right information on them and see our top picks at the moment.
First time buyer mortgage overview
Buying your first home
Buying your first home is one of the most exciting – and most daunting – experiences you are likely to face. Help is available through products like Help-to-Buy ISAs, equity loans and shared ownership mortgages though, so you aren’t without options to make things go as smoothly as possible.
Housing schemes for first-time buyers
Despite high property values, recent years have seen a steady rise in the number of people purchasing a first home. Government schemes and a drop in the market following the 2008 financial crisis have made it more feasible for people to buy property instead of renting, and special deals for first-time buyers make leaving the rental market even more attainable.
What about using the Help to Buy (HTB) scheme?
This scheme offers an equity loan backed by the government, which means banks are carrying less risk in lending you money, because the government is, in effect, a co-signer for the loan.Loan amounts tend to be lower than non-HTB loans, but for many people, this scheme will mean the difference between being able to buy a home, and only being able to dream about it.
How much can I borrow for a first mortgage?
Banks will consider your income, and the affordability of paying back the loan, as a way to determine how much you can borrow. In the past, the guideline was three times your annual income, but this number can be adjusted upward or downward based on factors such as your monthly expenses as compared to your monthly income. On average, loan amounts have increased over the past few years. Credit rating can also influence the amount on offer.
Saving a deposit for a first time buyer mortgage
Though some lenders will offer a 100% mortgage for a property (meaning you don’t have to put anything down as a deposit), most require anywhere from 5% to 25% or more. The more money you can put down as a deposit, the better the rate you will usually get, and the more money you will be able to secure in total to buy a property.
The good news for first-time buyers is that deposit requirements are lower for them than for people buying a home for the second or third time; the bottom rung of the property ladder has the lowest requirement for deposits.
The facts on a first time buyer mortgage
How to fix your first mortgage rate
Variable mortgage rates usually start lower than fixed ones, but can, as the name suggests, fluctuate quite a bit. If the rate decreases, you’ll gain an even better deal. If the rate increases, however, the total amount you’ll pay for your mortgage can rise substantially, as can your monthly payments. This has proven disastrous for some borrowers, even resulting in foreclosure of the property and loss of the money invested.
Fixed rates, though sometimes higher in the beginning, eliminate this danger and also allow for secure budgeting. Weight the balance between that surety, and the chances of missing out on a better deal. Those factors will help you decide whether to lock into a fixed mortgage, and if you do, for how long to set the terms.
Getting a variable mortgage for your first mortgage deal
As mentioned above, variable rate mortgages have interest rates that shift at the lender’s discretion. The bank can theoretically change the interest rate without your permission. In practice, banks change interest rates in response to the Bank of England base rate. You will likely be charged around 3% more than the base rate at any given time, depending on the deal you get and factors like your credit rating and the amount of your deposit. If the base rate rises by 0.2%, then the rate you pay will likely rise by the same amount, and similarly for a decrease in the base rate.
How much will my first house cost?
This varies, but most first-time buyers pay between £100,000 and £200,000. Average cost in a location is a big factor in this (London versus central Wales, for example), as is the income level of the buyer.
What fees are there for a first time buyer mortgage?
There are several other expenses to factor in, not just the ticket price for the home. Most lenders charge arrangement of £1000 or more and/or a booking fee which can also be several hundred pounds. You’ll have to pay for conveyancing and a survey of the property, furnishing your new home (buying or moving items), utility hook-ups, and other incidental costs. Properties over £125,000 also incur a stamp duty fee.
What’s the best first time buyer mortgage type?
Trying to determine the ‘best’ mortgage depends a lot on the preferences and resources of the buyer. If you are struggling to save money for a deposit, a 95% LTV (loan to value) mortgage might be best for you, as you would only need to put 5% down. If you have some savings, a larger deposit might gain you a better interest rate, start you out with more equity value in your home, and would therefore suit you better.
Flexibility is also a factor to consider – such as the option to make extra payments on the principle, thereby lowering term-long interest fees.
How much can I borrow for my first time buyer mortgage?
What will be the total cost of my first time buyer mortgage once the interested is factored in?
Frequently asked questions about a first time buyer mortgage
Can I take a loan out to pay my deposit for a first time buyer mortgage?
In theory, yes, but lenders are less likely to approve the mortgage loan if you are also carrying a debt for the deposit. The Help-to-Buy scheme is useful in this situation, as it can lend up to 20% of the cost of a new build home and there won’t be any loan fees on that sum for the first five years of owning the property.
How long can I borrow the mortgage over?
The most common answer to this question is 25 years. Lenders often offer mortgages as long as 35 or 40 years too, but keep in mind that total interest paid will be quite a bit higher in those cases, unless you are able to make extra payments on the principle of the mortgage, from time to time, thereby reducing the overall cost.
How much will the repayments be on my first time mortgage?
This is determined using the amount you borrow, the interest rates charged, and the length of time of the mortgage. There are several online mortgage calculators that can help you get an idea of what you are likely to pay.
How will money lenders assess if I am suitable for a first time mortgage?
Strict regulatory obligations restrict lenders from lending money to those who cannot reasonably be expected to pay it back. This means lenders are obligated to make sure borrowers can handle repayment under the normal, sometimes-fluctuating circumstances of life. Lenders will check your income, your expenses, credit history and amount of debt currently carried. They will even check how much unsecured credit you have at your disposal, even if you aren’t using any of it. For example, if you have credits cards that would allow you to borrow £20,000, that is considered a potential debt, even if the current balance is at zero. It is best to limit unsecured credit if you are trying to secure a mortgage.
How can I prepare to get a first mortgage?
Make sure you pay your debts and bills on time. Use a credit card, but pay it off regularly and on time. Register to vote (even if you don’t vote), as this is seen as a sign of stability and investment in your community. Keep an eye on your credit and make sure there is no fraudulent activity being done in your name. If there is, take the legal steps to stop it and have it removed from your record.
When should I apply for a first time mortgage?
Apply before you begin looking for property. When you have an idea of about how much you have available, you can limit your search to those properties that are realistic for you. There is no point in looking at properties way above your budget, and then trying to be satisfied with something less.
Knowing beforehand can also help you refine your online searches, resulting in more appropriate results and filtering out the properties that are too expensive, or too far below the level you’re looking for.
What do I need to apply for a first time mortgage?
You will need identification (driving license or passport is usually best), an electoral role or a utility bill (in your name) that proves your address, and pay slips from at least the last few months, to prove you level of income. A letter from an employer stating your annual income is also useful to prove financial means. If you are self-employed, lenders will look more carefully at your income and it may be more difficult to secure a mortgage. In such cases, bring your last 3 years of tax return documentation (an SA302 for each year), bank statements from the same period, and if possible, a referral from your accountant.
How long will it take to get a first time mortgage?
This varies according to several factors, so it is a good idea to start this process when you are not in a hurry. Allow a month or more, and be prepared for it to drag out if it is a busy time of year, if you have to wait for additional documentation, etc.
The process goes like this:
Agreement in Principle
The lender will indicate, based on your information and situation, the amount they are likely able to lend to you. You can use this to refine your search for a property, and to assure the seller that you are ready and able to buy. The lender will continue to check your credit and other information after this point.
Selecting a Solicitor or Conveyancer
Provide the name and contact details of your solicitor or conveyancer to the bank. If you don’t have one, the lender may be able to recommend one, or you can search your local area and determine which one you would like to use.
The Full Application
Once you have found the property you want to buy, and the lender has contact with your solicitor, you can fill out the official application for the loan.
The lender will officially check your credit and any personal references requested.
Valuation of the Property
The lender will have an agent value the property to ensure that the cost is appropriate to the value. This is a basic survey, but if it values the property below what you have offered or agreed to pay for it, the lender may reduce the size of the loan available, or may refuse the mortgage for purchase of that property altogether.
The Mortgage Offer
If the lender is confident that the valuation is appropriate to the loan amount, and that the credit and reference checks on the borrower are complete and positive, they will send an official offer to you, usually through your designated solicitor. You read, sign and return the document and there is then a formal agreement between you and the lender.
Exchange and Completion
A date will be set for contracts to be exchanged between the buyer and seller, you will pay your (non-refundable) percentage of the purchase price, and make the commitment to pay the rest upon completion of the contracts. When the contracts are complete and the bank verifies them, money will be given or guaranteed to seller and the property is yours.
Buying a home for the first time can be daunting, but with a little research and careful planning, it can also be one of the most satisfying and positive experiences of your life.
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