Mortgages for first-time buyers

Buying your first home can be very exciting, but it can also leave many of us feeling a little lost. This is understandable, as there’s a lot to prepare for. Buying a home is a huge financial commitment, so it’s worth learning how the mortgage process works.

If you’ve saved enough for a mortgage deposit, you may wonder what the next step is. It’s important to understand that there are specific mortgages for first-time buyers, including government schemes to help you onto the property ladder.

Important: If you’re a first-time buyer who wants a buy-to-let mortgage, please read this article: Buy to let mortgages for first-time buyers explained.

How do first-time buyer mortgages work?

Check the amount you’re able to borrow

Once you’ve saved a mortgage deposit, you can check the amount you can borrow. This is a great place to start, as you’ll have a budget in mind and an idea of the type of property you can buy.

It’s always best to consult a mortgage advisor to get an accurate idea of your affordability. You can also try our mortgage calculator here.

Get an agreement in principle (AIP)

We recommend getting an agreement in principle before viewing properties. Estate agents will ask for this when you’re submitting an offer. Estate agents are more likely to accept offers from buyers who have an agreement in principle with a mortgage lender.

It’s important to note that this isn’t a formal mortgage offer. The agreement is valid for 90 days and outlines what a lender will likely lend based on the information you provided. You’ll undergo a credit check, so refrain from doing this with multiple lenders, as doing so can harm your credit score.

Make a formal mortgage application

Once you’ve found your home and have an offer accepted, it’s time to make a formal mortgage application.

Your lender will assess your financial situation, such as your income and outgoings and conduct a comprehensive credit check. If there are any issues, your lender will inform you, but your advisor should pick up any discrepancies before an application is made. This is to avoid applications being declined.

Lenders typically take 1-4 weeks to accept an application once it’s been formally submitted. This is known as a formal mortgage offer.

Do I qualify as a first-time buyer?

You’ll qualify as a first-time buyer if you’ve:

  • Never owned a residential property in the UK or abroad.
  • Previously owned or do own a commercial property with no living accommodation.

You’re not a first-time buyer if:

  • You’re making a joint mortgage application with someone who has or does own a home
  • You’ve inherited a property
  • Someone else has purchased a property for you, such as a parent

How much deposit will I need for my first mortgage?

To get a mortgage as a first-time buyer, you will need a deposit of at least 10%. 100% mortgages are practically extinct unless you use a guarantor or a concessionary purchase. Some lenders will take a 5% deposit, likely 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, so your mortgage payments will be cheaper than if you had a 5% deposit.

Saving as much as you can for a deposit has huge advantages. If you have a small deposit, read our article on mortgages with low deposits here.

How much can I borrow for a first-time buyer mortgage?

Lenders consider many factors when assessing how much they’ll lend for a mortgage. Furthermore, each lender has different criteria, so having a mortgage advisor who can target the exact lender tailored to your needs can be very helpful.

Gross annual salary assessment

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 check

Lenders tend to focus more on affordability by checking your income and outgoings. They use this approach because someone may have an annual salary of £50,000, but outgoings of £40,000, or someone else may earn £30,000 but 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 consider when deciding your maximum borrowing potential.

In comparison, JBSP mortgages can be ideal when you need to borrow more. This is because lenders will assess more applicants, such as your parents, without giving them ownership.

Credit check

Lenders will conduct a credit check when you apply for a mortgage, as it shows whether 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 some specialist lenders may still lend if you have bad credit. Credit checks usually cover the past six years, but lenders can detect historic issues if you’ve had serious credit problems.

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

How to apply for a first-time buyer mortgage

Once you can 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. Some advisors may also have access to exclusive deals that high-street banks simply can’t offer.

Once you’ve found your property and submitted a mortgage offer, your lender will conduct a mortgage survey before making a formal mortgage offer.

Will I need a mortgage survey?

Once your offer is accepted, inform your mortgage broker to formally apply for a mortgage you’re happy with. Your lender will then appoint a surveyor to carry out a mortgage survey.

Your lender will arrange a survey to ensure they’re lending the right amount on a suitable property. You can instruct an independent surveyor if you need more assurance 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 financial assessment, they will provide you with a formal mortgage offer. The next stage is instructing your solicitors to carry out conveyancing to ensure you meet legal requirements.

What are the different types of first-time buyer mortgages?

Mortgages are generally of two kinds: fixed rate or tracker (variable) rate. Once your initial term is over, they usually revert to a variable rate.

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. For instance, you may have a 5% rate fixed for five years.

This means you will pay a fixed rate of 5% for five years, regardless of whether the Bank of England base rate goes up or down. Once the five-year term ends, your rate will 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 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.

Tracker mortgages

Tracker mortgages are variable mortgage rates that follow the Bank of England base rate. This means your rate could either increase or decrease, depending on what the Bank of England’s base rate does.

Lenders each have a standard variable rate (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 can change over time.

There are other variations of standard variable rate mortgages, which include:

  • Discount rate mortgages are discounted at a percentage off the Bank of England’s base rate. For instance, if the rate is 5% and you have a discount of 1%, your interest rate will be 4%.
  • Capped mortgages are similar to tracker mortgages but with a maximum cap. This means that your mortgage rate can only rise to a certain limit.
  • Offset mortgages are borrowers with a mortgage and savings account with the same lender. This allows you to offset your savings against your mortgage to reduce the interest you’d pay.

Read more: What is an offset mortgage?

What are interest-only and repayment mortgages?

If you’re a first-time buyer, you’ll likely only be able to get a repayment mortgage. Interest-only mortgages for residential purchases are limited, as fewer lenders offer them.

Repayment mortgages

A capital repayment mortgage involves paying both the interest and the balance. Once your mortgage term expires and you’ve made every payment, you’ll own your house 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 made towards the repayment of the property, so at the end of the term, the landlord doesn’t own the house outright.

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

What mortgage schemes can first-time buyers use?

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.

  • Right to buy
  • Shared ownership
  • Mortgages for skilled workers and professionals
  • Mortgage guarantee scheme

Right to buy

Right-to-buy schemes are aimed at tenants renting a council house. Such properties are usually offered for sale with a discount, which can be used as a deposit. 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. It can also allow you to take a 100% mortgage for the full amount.

Yes, that’s right, buy the property with no deposit! However, 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 with smaller deposits who don’t meet the criteria for other schemes. The scheme allows you to 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 rent on the remaining 50%. The remaining shareholder would usually be a housing association.

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 personnel, doctors, and other professionals. Lenders recognise that applicants working in certain industries are low-risk and offer mortgage incentives.

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

Can first-time buyers get a joint mortgage?

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

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

Guarantor mortgages

A guarantor mortgage is when a parent or family member guarantees the loan. 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 that refers to owning 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 property owners 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. With this arrangement, you can’t leave your share to someone who isn’t already a joint tenant.

Read more about joint mortgages here.

First-time buyer checklist

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 errors on your credit file.

A great credit score will always be to 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 prove your residence, strengthening your credit rating. You can 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 unused credit cards or accounts that are completely inactive. Also, be sure to have your active accounts registered 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 struggle to make payments on time, 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 saving money for a rainy day is wise. This can help to ensure that your payments are made on time, despite what life throws at you.

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.

Anyone purchasing a property will always need a solicitor or conveyancer to transfer the deeds from the vendor (property seller) to the buyer and carry out due diligence on the 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, getting at least three quotes is advised before choosing.

Midterm mortgage fees

You may also incur fees during your mortgage. For instance, there may be charges if you make mortgage payments late. Even if you change your mortgage term or make overpayments each month, most lenders charge additional fees for making amendments midterm.

Stamp duty

First-time buyers no longer need to pay stamp duty on property prices up to £425,000 but will need to pay the standard 5% on anything over £425,000.

For example, if the property is worth £500,000, first-time buyers will be exempt from the first £425,000 but must pay 5% on the remaining £75,000. This would equate to £3750 stamp duty.

Insurance costs

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

Other insurances include life cover, critical illness cover, income protection, and sickness and accident cover. These are highly recommended as life can be unexpected 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.

Will I need a mortgage advisor?

Mortgage advisors help many first-time buyers get their first mortgage. Furthermore, an advisor can clarify anything you’re uncertain of and guide you through the process.