First-time buyer mortgage guide

We’ve compiled a huge guide explaining everything you’ll need to know about getting a mortgage as a first-time buyer.

If you’ve saved enough for a mortgage deposit, you may be wondering what the next step is. It’s important to mention that there are specific mortgages made just for first-time buyers. That being said, you can apply for any mortgage type you wish, as long as you meet certain criteria.

Important: This page is for residential mortgages. If you’re a first-time buyer that wants a buy to let mortgage, please click on the link below.

Learn more: Buy to let mortgages for first-time buyers explained

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How do first-time buyer mortgages work?

Buying your first home can be a very exciting time but it can also leave many of us feeling a little lost. This is understandable as there’s a lot to prepare for. Furthermore, buying a home will be the biggest purchase of our lives, so it’s worth spending some time learning how it all works.

  • Save for a deposit
  • Speak to an advisor to check if you qualify
  • Establish a budget with your advisor
  • Get a decision in a principle

It’s important to first establish a budget with an advisor and check to see if you qualify for a mortgage. You’ll then receive a decision in principle outlining the amount you’re able to borrow. With this document, you can then begin your property search with confidence.

You’ll also have a budget to work towards which is important. Once you find a property, your lender will carry out a mortgage survey before formally offering you a mortgage. Then it’s simply left to your solicitor who will make sure all the legal parts of your purchase are carried out.

First-time buyer’s mortgage deposit

To get a mortgage as a first-time buyer, you will need a deposit. 100% mortgages are practically extinct unless you’re using a guarantor or a concessionary purchase. Some lenders will take a 5% deposit, but this is likely to fall under a government mortgage scheme.

Lenders will generally offer preferential rates to those with higher deposits. The very best rates appear with 25% deposits or more, which of course means your mortgage payments will be a lot lower than if you had a 5% deposit.

It really is worth saving as much as you can for a deposit, as it has huge advantages. If you do have a small deposit, read our article on mortgages with low deposits here.

first time buyer mortgage survey

How to apply for a first-time buyer mortgage

Once you’re able to apply for a first-time buyer mortgage, it’s time to get started. Speak to a mortgage advisor who can help you further.

Experienced mortgage advisors are worth their weight in gold and can save you a lot of money along the way. Some advisors may also have access to exclusive deals that high street banks simply can’t offer.

Get an agreement in principle (AIP)

We’d highly recommend getting an AIP (Agreement in Principle) when you’re starting your home-buying journey.

An agreement in principle is not a formal mortgage offer. An AIP outlines what a lender is likely to lend you, based on the information you’ve provided. To get a DIP, you’ll undergo a credit check and they’re usually valid for 90 days.

Before you start viewing properties, it’s advised to get an AIP. This is because a lot of estate agents will ask for this when you’re submitting an offer. Estate agents are more likely to accept offers from buyers that have an agreement in principle from a mortgage lender.

Please refrain from getting multiple AIPs as this can have a negative impact on your credit score.

Learn more about how to get an agreement in principle here.

What is a mortgage survey?

Once you’ve had an offer accepted on a property, inform your mortgage broker who will then formally apply for a mortgage you’re happy with. A mortgage survey will then be carried out by a surveyor who is appointed by your lender.

The reason your lender will arrange a survey is that they want to ensure that they’re lending the right amount on a suitable property.

You’re also able to instruct your own independent surveyor if you feel like you need more security in knowing that you’re not purchasing a property with hidden faults.

When will I get my mortgage offer?

Once your lender is satisfied with the survey and your personal financial assessment, they will provide you with a formal mortgage offer. The next stage is to instruct your solicitors to legally represent you in the purchase.

Should I get a mortgage as a first-time buyer?

Getting on the property ladder is highly recommended. Whether getting a mortgage as a first-time buyer is viable will entirely depend on the individual. We’d highly recommend you seek expert financial advice before applying for a mortgage.

Advantages of buying your first home

There are many advantages to buying your own property. A few major advantages are:

  • Own your own house – Having your own place to call home is something the majority of the population aspires to do. Say goodbye to relying on a landlord and be the boss of your own house.
  • Investment – Each mortgage payment is paying towards owning the house outright and instead isn’t going towards rent. Once the mortgage is paid off you’ll own the house outright and the chances are you’ll have some equity saved up in the property.
  • Freedom – You can design your home to be just the way you want it to be.
  • Credit rating – Your credit rating will get better as each year goes by as mortgage payments are made on time. This is because consistent payments show lenders and financial institutions that you’re financially in control.

Disadvantages of being a homeowner

There aren’t really any disadvantages to getting on the housing ladder, but there are certainly a few things to consider before making the leap.

  • Deposit – You will need a deposit in order to purchase a property. Usually higher deposits enable better mortgage rates and sometimes this can be difficult for first-time buyers. It’s a lot of money all in one go and needs careful consideration.
  • Risk – There are risks involved in owning your own home. If your home falls in value, this could put you in negative equity, where your house is worth less than the outstanding mortgage. If you miss your mortgage payments, you could be repossessed and lose your home as a result.

first time buyer statistics

Mortgage rates for first-time buyers

Mortgages are generally either one of two kinds. A fixed-rate mortgage or a tracker (variable) rate mortgage. Once your initial term is over, mortgages usually revert to a variable rate.

What are fixed-rate mortgages?

Fixed-rate mortgages are where your mortgage rate is fixed, meaning your monthly mortgage payments will also be fixed. Rates might only be fixed for a certain period of time. For instance, you may have a 2% rate that’s fixed for five years.

This means for five years you will pay a fixed rate of 2%, regardless of whether the Bank of England base rate goes up or down. Once the five-year term is over, your rate will either change or remain the same, depending on your mortgage arrangement.

Fixed-rate mortgages offer more certainty, as you’ll know exactly what you’ll be paying throughout the duration of your mortgage term and won’t be affected by any changes made by the Bank of England.

It’s important to remember that some lenders may apply an early repayment charge (ERC) if you wish to change your deal whilst you’re still in your fixed term.

What are tracker-rate mortgages?

Tracker-rate mortgages are where mortgage rates follow the Bank of England base rate. This means your rate could either increase or decrease, depending on what the Bank of England interest rate does.

Lenders each have their own standard variable rates (SVR), which your tracker may follow instead of the Bank of England base rate. These tend to be risky, as each rate differs depending on the lender and could change at any time.

ask a mortgage broker

What are interest only and repayment mortgages?

If you’re a first-time buyer, chances are you’ll only be able to get a repayment mortgage. Interest-only mortgages for residential purchases are very scarce and are more or less extinct.

Repayment mortgages

A capital repayment mortgage is where you’re paying both the interest of the mortgage in addition to the mortgage balance itself. Once your mortgage term expires and you’ve made every single payment, congratulations, you own your house completely outright!

Interest-only mortgages

Interest-only mortgages are very popular with buy to let landlords, as only the interest is paid back. No payments are actually made towards the repayment of the property, so at the end of the term, the house isn’t owned outright by the landlord.

Towards the end of the term, landlords will usually sell the property to pay back the capital outstanding on the loan.

First-time buyer government schemes

The government has been encouraging first-time buyers to get on the property ladder especially in recent times. Because of this, there are mortgage schemes available to help first-time buyers.

Help to Buy: Equity Loan

By using the Help to Buy scheme, first-time buyers only need a 5% deposit to buy a property (new build unless shared ownership). So if the house is worth £200,000, you’ll only need a £10,000 deposit.

Learn more: What is the Help to Buy: Equity Loan?

Right to Buy

Right to Buy schemes are aimed at tenants that have been renting a council house for a number of years. Such properties are usually offered for sale with a discount, which can in turn be used for the deposit of the house.

For instance, if the house is worth £100,000, the council may offer you a discount of £15,000, enabling you to purchase it at £85,000. Not only that, but it can allow you to take a 100% mortgage for the full amount.

Yes, that’s right, buy the property with no deposit! Do bear in mind that the council will tie you into a 5-year contract that stops you from selling or borrowing against the equity.

Read more: How to get a Right to Buy mortgage

Shared ownership

Shared ownership is popular with first time buyers in situations where you might have a small deposit and don’t fit the criteria for other schemes.

Shared ownership is where you buy a share in a property and pay rent on the remainder to either a housing association or developer.

If the house you buy is 50% shared ownership, you will own a 50% mortgage and pay the remaining 50% in rent to the other shareholder. The remaining shareholder would usually be a housing association. This doesn’t mean you’d be sharing the house, just the ownership cost.

Learn more: What is a shared ownership mortgage?

Mortgages for professional and skilled workers

There are schemes to help government workers such as teachers, armed forces, doctors and other professionals.

Lenders recognise professionals in certain industries are low risk and therefore offer tailored mortgages.

Read more: How to get a mortgage as a working professional

Buying a property with someone else

It’s common for first-time buyers to get a joint mortgage. This could be for a number of reasons, such as raising a higher deposit and sharing the cost of the mortgage.

It’s possible to also get a single person mortgage which is also common for first-time buyers. Let’s see how the different structures work.

Guarantor mortgages

A guarantor mortgage is where a parent or family member provides a guarantee to the lender. This is not to be confused with a gifted deposit.

Guarantors agree to be liable for any unpaid mortgage amount. Since the amount could be as much as the total mortgage, guarantors should always seek independent legal and financial advice before entering into an agreement.

Read more: How to get a mortgage with a guarantor

Tenants in common

Tenants in common is a term referred to where you own your property with at least one other person. This is similar to a shareholding in a property, so the shares are not always evenly split (although they often are).

The main point of having this structure is that if you die, your share doesn’t automatically go to the other owners of the property and you can leave your share to someone else in your will.

Joint tenants

Joint tenants are where you would own the property with at least one other person. Rather than owning shares in the property, you would all equally own the property and in the event of death, the share would be left to the remaining owners.

You’re also unable to pass your share on in your will to someone who isn’t already a joint tenant.

Read more about joint mortgages here.

first time buyer facts

How much can a first time buyer borrow?

There are many factors that lenders take into consideration when assessing how much they’ll lend to a first-time buyer. Furthermore, each lender has different criteria, this is why having a mortgage advisor who can target the exact lender tailored to what you need can be so helpful.

Gross annual salary

Traditionally, lenders calculate the amount first-time buyers can borrow by multiplying an applicant’s gross annual salary.

Lenders do this by lending around three to five times the borrower’s gross annual salary. This is only used as part of a lender’s qualifying criteria as they’ll also assess your debt and expenses.

Affordability

Lenders tend to now focus more on affordability. Lenders assess affordability depending on your income and expenditure. The reason lenders use this approach is because someone may have an annual salary of £50,000 but have outgoings of £40,000. Someone else may earn £30,000 but have outgoings of £10,000 a year.

This is why gross annual salary isn’t the only factor for assessing a mortgage. Applicants may have car finance and other loans they’re paying off, which most lenders will take into consideration when deciding your maximum borrowing potential. In comparison, mortgages such as JBSP mortgages can be ideal for when you need to borrow more. This is because lenders will assess more applicants, such as your parents without giving them ownership.

Learn more: How much can I borrow for a mortgage?

Credit score

Lenders will carry out a credit check when you apply for a mortgage. This is because your credit report shows if you’ve been responsible for credit in the past.

A strong credit score can give lenders confidence, as it’s evident you’re in control of your finances. A bad credit score will do the opposite, but there are specialist lenders that may still lend if you have bad credit.

Learn more: Can I get a mortgage with bad credit?

First-time buyer checklist

When you apply for a mortgage, there are certain things to check beforehand. This is especially true as a first-time buyer.

Check your credit file

The three main credit experts are Experian, Equifax and Call Credit. You can visit any site for your own individual credit report (fees may apply). This will give you an idea of whether your credit score needs improvement or not. You can also check for any errors or mistakes before applying for a mortgage.

A great credit score will always be at your advantage. Here are a few ways to improve your credit score. You can find a more detailed and in-depth guide here – how to improve my credit score.

Are you on the electoral roll?

Make sure you’re registered to vote. Being on the electoral roll helps to prove your residence which in turn strengthens your credit rating. Check to see if you’re registered on the electoral roll here.

Tidy your accounts

Make sure your bank accounts are tidy. You should have no credit cards that are unused or accounts that are completely inactive. Also, be sure to have your active accounts all relating to one address.

Make payments on time

By actively making payments on time, your credit rating improves. This is because it shows that you’re financially responsible. If you are struggling to make payments such as bills, contact the relevant companies to make payment arrangements (if possible).

Become a saver

Saving your money is very important if you aim to be financially responsible. Sometimes life can take an unexpected turn and having money aside for a rainy day is a smart move to make. This can help to ensure that your payments are made on time, despite what life throws at you.
ask a mortgage broker

How much does a first-time buyer mortgage cost?

It’s important to understand that there will be fees related to buying a property. So you’ll need more than just your deposit.

The last thing you’ll want is to put all your eggs in one basket, only to realise there are additional fees for which you don’t have funds.

Mortgage fees

Some lenders will have mortgage fees in addition to the actual mortgage itself. This could be in the form of an arrangement fee or a booking fee. Other lenders may charge for additional services such as the mortgage survey. Some mortgage brokers will also charge a fee for their service.

Legal fees

When buying a property, it’s not just a mortgage you’ll need. Anyone purchasing a property will always need a solicitor or conveyancer to handle the transfer of the deeds from the vendor (property seller) to the buyer, along with carrying out due diligence on your purchase.

The solicitor you use is entirely up to you. Solicitors do vary in terms of how much they charge for their services. For this reason, it’s advised to get at least three quotes before choosing.

Midterm mortgage fees

You may also incur fees during your mortgage. For instance, if you make mortgage payments late, there may be late charges. Even if you change your mortgage term or make overpayments each month, most lenders charge additional fees for making amendments midterm. Make sure you’re aware of any fees at the start of your mortgage.

Stamp duty

First-time buyers no longer need to pay stamp duty on property prices up to £300,000 but will need to pay the standard 5% on anything over £300,000.

As an example, if the property is worth £400,000, first-time buyers will be exempt from the first £300,000 but will need to pay 5% on the remaining £100,000. This would equate to £5000 stamp duty.

Update: The stamp duty holiday will run until the end of June 2021 where all first-time buyers will be exempt. This means that first-time buyers are exempt on the first £500,000 on property purchases in England and Northern Ireland.

Insurance costs

You’ll be required to take out buildings insurance which is the bare minimum your lender will make mandatory. There are other insurances that are optional such as contents insurance, which would cover your personal belongings from theft or damage (depending on the insurance policy).

Then of course there are other insurances such as life cover, critical illness cover, income protection and sickness & accident cover. Insurances such as these are highly recommended as life can be unexpected at times and can really help you should you face difficult times.

Home moving costs

There’s then the cost of furnishing your home once you’ve moved in! Outgoings at this point can quickly add up, so be sure to plan and budget your move with additional fees and costs in mind.

How an expert mortgage advisor can help

Mortgage advisors help many first-time buyers in getting their very first mortgage. Furthermore, an advisor can clarify anything you’re uncertain of and ensure you get the perfect mortgage suited to exactly what you need.

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