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First-time buyer mortgages

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A young woman who has just moved into her new home

What is a first-time buyer mortgage?

A first-time buyer mortgage is not a specific product, although some lenders do have specific mortgages tailored for first-time buyers. Generally a first-time buyer has access to the same mortgage deals as any other buyer, and you’re classed as a first-time buyer if you have never owned a home before. 

You won’t be classed as a first-time buyer if you have owned or part owned a home anywhere in the world, even if you inherited it, or it was bought for you. You also won’t be considered a first-time buyer if you’re buying jointly with someone else who has previously owned a property. 

According to recent mortgage statistics for 2022, more than 20% of gross mortgage advances were given to first-time buyers. As a first-time buyer, it’s important to decide which type of mortgage is best for your circumstances, whether this is a fixed-rate mortgages,variable-rate deal or perhaps even an offset mortgage will depend on your financial stability and what your preferences are. 

Spend some time looking at the different types of deal available, and seek out some professional advice from a qualified mortgage broker.

How to get a first-time buyer mortgage

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First-time buyer's deposit

When you’re looking to get on the property ladder, an important first step is to save up your deposit. Typically, you’ll need at least 5% of the total value of the home you want to buy. Which means that if you’re looking at a property worth £150,000, you’ll need at least £7,500 up front.

While deals often start at 5%, the higher the percentage of the home value you can provide as a deposit, the better the mortgage offers available to you. The very best first time buyer mortgages are available to people who’ve saved 40% of the purchase price.

The table opposite shows how much money you need to save for different deposit amounts for a property costing £200,000.

It can be difficult to save for a deposit for your first home in the current financial climate, especially if you already have rent to pay. Analysing your income and outgoings to identify areas where you could cut back. 

It’s also important to make sure your savings are working hard for you - compare savings accounts to find the best rate and set up a monthly direct debit to add cash to your savings account. You could also look at the government subsidised Lifetime ISA (LISA) if you’re under 40, as this helps you build your savings more quickly.

Property priceDeposit percentageYou need to save...
£200,0005%£10,000
£200,00010%£20,000
£200,00015%£30,000
£200,00020%£40,000
£200,00025%£50,000
£200,00030%£60,000
£200,00035%£70,000
£200,00040%£80,000

How much can I borrow as a first-time buyer?

The amount you can borrow has more to do with your affordability than your status as a homeowner, so first-time buyers can borrow a similar amount to any other buyers, so long as they meet the criteria. 

Most banks and building societies will base your loan on a multiple of your annual income, typically between four to four-and-a-half times what you earn each year. So, if you earn £20,000 a year, the maximum you could borrow would usually be between £80-90,000.

It’s important to realise that affordability is not the same as income, however, so lenders will factor in your affordability as they will weigh your income against any debts and regular expenses you have. If your credit rating is on the low side, you may also be offered a lower multiple of your income.

It’s therefore always a good idea to be familiar with your credit score, and look to maximise this in the run-up to applying for a mortgage. Make sure you are spending and saving sensibly and take some steps to boost your credit score.

Lenders will generally offer the loan at a maximum LTV based on your circumstances. LTV (loan to value) refers to the percentage of the property price you borrow. So, a 90% LTV mortgage on a property costing £200,000 is £180,000 – the remaining £20,000 is your deposit.

As mortgages with a lower LTV typically come with a lower interest rate, having a large deposit will put you in a good place in terms of the maximum loan you can borrow, and affordability of your monthly repayments.

What other costs are there to consider as a first-time buyer?

There are a range of fees involved with buying a home, such as:

  • Mortgage arrangement fees - sometimes referred to as a product fee

  • Legal costs - including conveyancing and land search fees

  • Property survey - This is for the lender to ensure your chosen property is worth the value that you have offered.

*Some lenders offer mortgages for first-time buyers that have incentives, such as free surveys, and or legal fees. Always ensure you look at the full picture, however, as those offers with freebies may have a higher arrangement fee!*

  • Home insurance - Whilst contents insurance is not required, it is recommended. On the other hand, most lenders will insist that you have buildings insurance as a part of the mortgage terms and conditions

  • Stamp duty - Most first-time buyers in England and Northern Ireland are eligible for a stamp duty discount. You won’t pay any on your first home, so long as it costs below £425,000. Between £425,001 and £625,000 you will only pay 5% on the element of the purchase price above £425,000. Above £625,000 you will no longer be eligible for a discount

    • In Scotland, stamp duty is called Land and Building Transaction Tax (LBTT). First-time buyers get a discount on LBTT, meaning that they won’t pay LBTT on the first £175,000 of the property cost. You can find out more on the gov.scot website

    • Welsh first-time buyers do not benefit from a Land Transaction Tax exemption, so all property buyers will have to pay LTT on properties above £225,000. You can figure out how much you’ll pay on the gov.wales website

Which type of first-time buyer mortgage is best for me?

Fixed-rate mortgage

With this type of mortgage, the interest rate is locked in for a specific period. Typically, the rate will be higher than variable rates offer as their initial rate, but the advantage is that you’re protected from external factors, such as rising interest rates – although you won’t benefit if rates fall. 

Another plus point for fixed-rate mortgages is that you always know what your monthly payment will be. Once the deal ends, you’ll be moved onto the lender’s standard variable rate (SVR) unless you choose to remortgage. The SVR is usually higher than any other mortgage interest rate, as it’s their default rate of interest.

Standard variable-rate mortgage

The standard variable rate (SVR) is a mortgage rate set at the lender’s discretion, which means it can go up or down at any time, based on a variety of external factors. Once your initial fixed or variable- rate deal has finished, you will be moved on to your lender's SVR automatically.  

They’re often the most expensive rates available, so it’s probably worth switching to a new fix or variable deal when your current offer ends. However, SVRs don’t have any penalties for people who want to move mortgages or overpay.

Tracker rate mortgage

Tracker mortgages follow an external financial indicator, most often the Bank of England (BoE) base rate. They’re usually set at a certain percentage above that rate, so every time the indicator rises or falls, the interest you pay changes too. 

They tend to start out cheaper than fixed deals, but if rates rise, they can get expensive. If rates fall, your interest should fall too, so you’ll pay less each month.

Discount-rate mortgage

Discount rate mortgages are set at a certain percentage below your lender’s SVR for the duration of the deal. Your mortgage interest and repayments will therefore change when the SVR does. Other factors that may affect your interest rate include a rise in the lender’s cost of borrowing, regulation and internal targets. As they are not directly linked to any one external factor, they are a little harder to predict than trackers. 

What are caps and collars?

Some variable-rate mortgages (trackers and discounts) come with caps (or ceilings), which means that the amount you pay each month will never rise above a certain level. Collars (or floors) are far more common, and this is where the provider sets a minimum amount that your interest rate cannot fall below. It’s in your interest to be aware of, and if possible, avoid collars, as this will minimise the savings you can make with a variable rate.

Offset mortgage

Offset mortgages use your savings to reduce the amount of interest you pay each month. If you have substantial savings, they are kept in linked account(s), and lenders deduct the value of them from the total you owe before charging interest. Some providers allow family offset mortgages, where a family member can use their savings to reduce the amount of interest you pay.

Government schemes available to first-time buyers

There are a range of schemes available to help first-time buyers get onto the property ladder. Most are designed to help those struggling to get a large deposit together, or to meet the affordability criteria of mortgage lenders. 

These can be particularly helpful for those first-time buyers without access to the help needed from family or friends to make use of guarantor and family-assist style mortgages. You may be able to look at the following options:

Shared ownership

A shared-ownership mortgage lets you buy between 10% and 75% of a property and pay an affordable rent on the remaining share.

It means you can get on the property ladder with a smaller deposit and more affordable repayments.

You can gradually increase your ownership to 100% through a process known as “staircasing”.

First homes scheme

The first homes scheme is attached to specific new-build homes, which it allows first-time buyers and key workers to purchase for 30-50% less than their market value

You must be at least 18-years-old, able to get a mortgage for at least half the price of the home and be buying the home as part of a household where the total annual income is no greater than £80,000 (or £90,000 in London)

Each council may have additional eligibility conditions, and key workers or those with work or family connections to the area are likely to be prioritised.

Right to Buy/Right to Acquire

The right to buy and right to acquire schemes are intended for local authority (council) and housing association tenants respectively. They allow people in this type of rented accommodation the opportunity to buy their home at a discount on the market value.

Typically you will need to have lived in a council or housing association owned property for a minimum of three years in total, although not consecutively. The discount available will related to the length of time you've been a tenant.

How to apply for a mortgage as a first-time buyer

When to apply

The best time to apply for a mortgage is when you’ve got yourself into a stable financial position, have a strong credit file and have saved a decent amount of deposit. Before you go to application stage, however, you’ll need to find a house you love, make an offer, and have that offer accepted.

Before you begin your search for the ideal home, it’s highly recommended to obtain an agreement (or decision) in principle. This document, also sometimes known as a mortgage in principle, details how much the lender will be likely to lend you. 

It also means that your offers will be taken more seriously. In fact, many estate agents won’t even allow prospective buyers to view properties unless they have a decision in principle in place. 

Once your offer on a property is accepted, you'll need to submit your formal mortgage application. This can be daunting, especially as it's your first time buying a property, so to speed up the process and reduce the hassle, it's worth using a mortgage broker who can submit the application on your behalf.

What documents do I need?

The lender will want to see evidence of the property you're buying, your income and that your identity. It's worth preparing the following documents in advance of meeting your broker: 

  • Proof of identity - such as a passport or driving licence

  • Proof of current address - utility bills or bank statements can be used for this

  • Proof of income - This is typically three to six months of payslips if you’re employed and 12-36 months of accounts and tax calculations if you’re self-employed

  • Three to six months of bank statements - the lender will use these to check on your spending habits to make sure you will be comfortable managing repayments

Kirsty Lacey, Mortgage Expert at Mojo Mortgages, said: “With deals changing quickly, you have to make sure you get your mortgage broker the information they need as soon as possible. So, make sure you have your documents ready as soon as you can to avoid missing out on that rate. Even waiting a day or two to send the information over can mean you’ll lose out.”

What else to consider when getting a mortgage for my first home

  • Current financial status in the UK

Due to increases in the Bank of England’s base rate, mortgage interest rates have been rising recently and deals are changing quickly. This means the options available to you when you first get an agreement in principle could be quite different by the time you actually submit your application. If you find a preferential rate, lock it in as soon as possible.

Staying up to date with the UK economy in general is a good idea as a homeowner, particularly if you opted for a variable rate mortgage. As we saw with the pandemic, it’s not always possible to predict what could affect your financial security. 

  • Property location

It’s important to understand that very few first-time buyers are able to get exactly what they want in their first home. There are likely to be compromises to make and this is usually either in the location of the property (for example, choosing a more affordable area or moving away from loved ones) or in the property itself (for example, going for a smaller garden, or 1 less bedroom than you hoped for). 

When considering location, remember to think about the things that will affect your future life in the property the most, whether that’s proximity to transport, distance from family members or being nearby excellent schools. 

  • Your budget

It’s important to be fully aware of and budget for the full costs of home ownership, rather than just your mortgage repayments. It’s also worth noting that your initial repayment could be slightly higher due to interest charged from the date that you moved in, if applicable. 

Home insurance, average utility bills and council tax can all be researched prior to selecting a home, to help you not to take on more than you can manage.

Claire Flynn - Senior Mortgages Editor at Uswitch
quotation mark

Buying your first home is exciting but it can also be stressful, particularly when it comes to the legal and mortgage paperwork. Make sure to speak to an expert mortgage broker so they can help you through the process. ”

Claire Flynn

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