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 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 be wondering what the next step is. It’s important to understand that there are specific mortgages for first-time buyers. Furthermore, there are government schemes to help first-time buyers onto the property ladder.

Important: If you’re a first-time buyer that 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’ll be in a good position to check the amount you’ll be able to 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 may be able to buy.

It’s always best to consult a mortgage advisor to get an accurate idea of the amount you’ll be able to borrow. You can also try our mortgage calculator here.

Get an agreement in principle (AIP)

We’d highly recommend getting an agreement in principle before viewing properties. 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 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 outlines what a lender is likely to lend you, based on the information you’ve provided. You’ll undergo a credit check and the agreement in principle is usually valid for 90 days. Refrain from doing this will multiple lenders as doing so can have a negative impact on your credit score.

Make a formal mortgage application

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

Your lender will dive deeper into your financial situation, such as your income and expenditure along with 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 around 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’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.

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

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 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 now focus more on affordability. Lenders assess affordability depending on your income and expenditure. The reason lenders use this approach is that 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.

Credit check

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. 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’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.

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

Will I need 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.

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

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.

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 5% rate that’s fixed for five years.

This means for five years you will pay a fixed rate of 5%, 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.

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 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.

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

• Discount rate mortgages – The rate you have is discounted at a set 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 – Similar to a tracker mortgage but with a maximum cap. This means that your mortgage rate can only rise to a certain limit, even if mortgage rates increase beyond that amount.
• Offset mortgages – For borrowers that have a mortgage and a savings account with the same lender. This allows you to offset your savings against your mortgage to reduce the amount of 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, 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.

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 who 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

Can first-time buyers get a joint mortgage?

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 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 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 checklist

When you apply for a mortgage, there are certain things to check beforehand. This is especially true for 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 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 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.

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 £425,000 but will need to pay the standard 5% on anything over £425,000.

As an example, if the property is worth £500,000, first-time buyers will be exempt from the first £425,000 but will need to 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. 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.

Will I need a mortgage advisor?

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.