Last reviewed on 5th August 2023 by Martin Alexander (Mortgage Advisor)
Graduating is often the start of new beginnings and may include buying your first home. Although mortgages for graduates do exist, it’s far from simple to gain approval. Post-graduation may leave you without adequate funds for a deposit and the task of repaying your student loan. With the right approach, getting a mortgage as a graduate doesn’t need to be difficult.
Most lenders understand the position applicants will be in shortly after graduating. Furthermore, mortgages for graduates often have particular benefits tailored to help you kick-start your new chapter as a homeowner.
This guide will explain everything you need to know as a graduate searching for a mortgage. With explanations of various schemes to help you get a mortgage, along with how to structure your application. You can also make an enquiry with an advisor if you’re unclear about what to do next.
Mortgage schemes for graduates
There are mortgage schemes available that graduates can benefit from. Government schemes are designed to help first-time buyers on the housing ladder and are a perfect fit for graduates. This is because schemes often allow smaller deposits and can cater to those with smaller incomes or who have become recently employed.
The following two schemes are particularly useful if you’ve just graduated:
- Help to Buy: Equity Loan
- Shared ownership
Help to Buy equity loans for graduates
Help to Buy equity loans can be ideal for when you’ve just graduated. The government will lend you up to 20% of the cost of your home. There are certain caveats, as your home must be a new build. You’ll also need to save up a 5% deposit.
With the scheme, your 5% deposit in addition to the government’s equity loan of 20%, will require you to get a mortgage of just 75%. An equity loan is also interest-free for the first five years of taking the mortgage.
If you live in London, you may qualify for an equity loan of up to 40%, rather than 20%.
Learn more: Help to Buy equity loans explained.
Shared ownership mortgages for graduates
Shared ownership can be a great way to buy your first home as a graduate. As the name suggests, you’ll only own a share of your home, which is usually between 25% and 75%. You’ll then pay rent on the remainder to a housing association.
You’re able to increase the share in your home as you save more money. You can even increase your overall share to gain full ownership once your finances allow you to do so.
Shared ownership is particularly useful when you’ve just started a new job and don’t earn a large enough income to purchase full ownership of a home. Your share in your home can then grow alongside your income and savings. It’s understandable that after graduation, you may have to start at an entry-level income.
Income and affordability assessments for shared ownership are often easier to pass when compared to getting a mortgage for the full value of a property. This is because your income and affordability requirements will be a lot less due to the fact that you’re only buying a share of your home. As a graduate with a small budget, this can be an ideal solution to buying your first home.
Read more: What is a shared ownership mortgage?
Graduating in a professional field
Graduating in a certain profession can make it easier to get a mortgage when compared to borrowers in other fields. For instance, if you’ve graduated in law or medicine or a similarly skilled profession, you may find it easier to get a mortgage.
This is because if you’ve recently become qualified in a professional field, the chances of finding employment are often very high. Furthermore, lenders often assume you’ll stay in your profession for a number of years, so repaying a mortgage will rarely be an issue. This is because graduating in a field such as law or medicine typically takes a number of years so it’s unlikely you’d want to work elsewhere.
That’s why lenders will perhaps see you as a low-risk applicant and may approve you in cases where they otherwise wouldn’t. Some lenders may even offer you preferential rates.
Credit checks for graduates
While income and affordability checks are part of your mortgage assessment, lenders will also carry out a credit check. This can often be challenging as you perhaps won’t have any additional credit apart from your student loan. While student loans shouldn’t impact your credit score, the lack of credit can.
Having no credit is similar to having a bad credit score. If lenders aren’t able to assess your financial conduct, they may struggle to assess your application and can decline you as a result. On the other hand, if you’ve taken credit you should have a credit score of some sort.
Rather than taking a chance, it’s best to check your credit report before applying for a mortgage. Mortgages for graduates are often more difficult when compared to mortgages for more established borrowers.
Checking your credit file before a lender does, can give you an insight into potential problems you may face during your assessment.
Mortgage lenders for graduates
Getting your first mortgage doesn’t need to be daunting. For experienced brokers, we’ve helped many graduates secure mortgages and can also guide you through the process. Having an experienced broker on your side can make all the difference in getting your first mortgage approved.
With numerous schemes available, it’s crucial to choose the most suitable method for your situation. Choosing a suitable mortgage lender is just as important.
A mortgage is typically the biggest financial leap you’ll take so getting a professional opinion makes sense. Furthermore, getting the right mortgage can save you thousands of pounds over your mortgage term. In comparison, getting an inadequate mortgage could result in you losing a lot of money. This can happen if you approach a lender that isn’t suitable.
Even experienced property buyers often utilise the expertise of advisors, so for first-time buyers, it’s an absolute must. Many first-time borrowers believe that by going to their bank they’ll receive preferential treatment, but this is rarely the case.
An advisor will compare the entire market, comparing hundreds of lenders and thousands of deals to ensure you’re on the best deal possible. In comparison, your bank will only ever show you their own deals. As a result, it’s impossible to know whether you’re getting a good deal or not. You can make an enquiry and our advisors will guide you on your best route to a mortgage.
About the author
Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.