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First-time buyer mortgages

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What is a first-time buyer mortgage?

A first-time buyer mortgage is a loan for people who have never bought a home before. You need to use the property as your main residence, and you won’t be allowed to rent it out.

Typically, first-time buyers are expected to have a deposit worth at least 5% of the property's value, though you might be able to get a 100% mortgage with a guarantor. Although generally, the larger your deposit, the better rates and deals available to you.

There are lots of different kinds of first-time buyer mortgages available, including variable- and fixed-rate mortgages. You can even get offset mortgages. Some first-time buyer mortgages come with extra incentives, such as free legal fees.

While some lenders do have specific first-time buyer mortgages available, it's worth noting that many mortgage deals are available to all types of buyers, whether or not they've owned a home before.

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.

While deals often start at 5%, the higher your deposit as a percentage of the home value, the better the mortgage offers available to you.

The very best interest rates are available to people who’ve saved 40% of the purchase price.

Saving money can be difficult without a budget. Analyse your income and outgoings and identify areas where you could cut back.

Even small changes, such as making packed lunches for work, can make a big difference over time.

Make sure your savings are working hard for you too – compare savings accounts to find the best rate and set up a monthly direct debit to add cash to your savings account.

Property priceDeposit percentageYou need to save...

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

Once you’ve got your deposit sorted, you’ll need to find out how much you can borrow from a mortgage lender. 

Most banks and building societies will lend a maximum amount based on a multiple of your salary, typically between four to four-and-a-half times your income. So, if you earned £20,000 a year, the ceiling would usually be between £80,000 to £90,000.

However, you won’t necessarily be offered the maximum amount because mortgage lenders also have to factor in affordability. To do this, they’ll carry out several checks, including looking at your current income, debts, expenses, and credit rating to determine how much you can repay each month. 

In the run-up to applying for a mortgage, make sure you are spending and saving sensibly and take steps to boost your credit score.

The lender will use all the information you provide to decide on the maximum loan to value (LTV) you will be offered. LTV refers to the proportion 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.

Mortgages with a lower LTV usually come with a lower interest rate, so your monthly repayments will be more affordable, and you will save money in the long run over the full term of the mortgage.

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

As well as making sure you can afford the monthly repayments, there are other important costs to consider.

These include property surveys, mortgage arrangement fees, conveyancer fees, legal costs, stamp duty and home insurance.

As a first-time buyer in England and Northern Ireland, you’re eligible for a stamp duty discount. If the property is worth £300,000, you pay no Stamp Duty Land Tax (SDLT).

If the house costs between £300,001 and £500,000, you pay SDLT at 5% on the amount over £300,000, a reduction of £5,000 on normal levels.

If the house costs more than £500,000, you don’t benefit from the discount.

In Scotland, SDLT is called Land and Building Transaction Tax (LBTT). First-time buyers also get a discount on LBTT, with the zero tax threshold increased from £145,000 to £175,000 for those buying their first home, saving you a maximum of £600. You can find out more on the website.

Welsh first-time buyers do not benefit from a Land Transaction Tax exemption. All the thresholds and how much you’ll pay can be found on the 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 the variable options available at the start of the deal. 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 your lender's standard variable rate (SVR) unless you choose to remortgage.

Tracker mortgage

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

They tend to start 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

These mortgages are pegged at a certain percentage below your lender’s SVR for the duration of the deal. Your mortgage interest and repayments will change when the SVR does.

Factors that might mean a bank or building society alters your interest rate include a BoE base rate change, a rise in the lender’s cost of borrowing, regulation and internal targets.

Offset mortgage

These mortgages let you use savings to reduce the amount of interest you pay each month. The savings, which usually need to be kept in a linked account, are deducted from the value of the capital you owe when your interest is calculated, meaning bills are lower.

Some providers allow family offset mortgages, where a family member can use their savings to reduce the amount of interest you pay.

Other mortgage types

Capped mortgage

Some variable-rate mortgages come with caps, which means that the amount you pay each month will never rise above a certain level. For instance, if you had a tracker mortgage following the base rate, you’d have a guarantee that even if the Bank of England put rates up rapidly, you wouldn’t have to pay more than the agreed maximum amount.

These mortgages are rare. More common are mortgage collars or floors, where the provider sets a minimum amount below which your interest cannot fall.

Standard variable-rate mortgage

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

Typically, they’re the most expensive rates available, so often, it’s 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.

Government schemes available to first-time buyers

Lifetime ISA

The Lifetime ISA is a savings account designed to help you buy your first home. You can open one if you’re aged between 18 to 40 and keep saving in one until age 50.

You get a government bonus of 25% on your yearly savings up to £4000, meaning you could get a free additional £1,000 each year.

You must use the money for a first home or pension income after 60. If you use the money for something else, you'll have to pay a 25% withdrawal charge.

Help to Buy

A Help to Buy equity loan is a government scheme that helps you get on the property ladder in England and Wales with just a 5% deposit. Once you have the deposit, the government lends you 5%-20% (up to 40% in London) of the property price interest-free for five years.

The Help to Buy scheme is closing in March 2023. In England, applications must be submitted by 31 October 2022 to be eligible. In Wales, they must be submitted by 22 December 2022.

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”.

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

When to apply

Your mortgage application will only be submitted once you've made an offer on a property, which has been accepted.

However, before you start seriously considering offering on a property, you should get an agreement in principle (also known as a mortgage in principle).

This is a document that outlines how much a lender is likely to let you borrow and shows estate agents that you're serious about buying.

Once you have this, you'll have a better idea of budget and can offer on properties. Then once your offer 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 take the hassle out, it's worth using a mortgage broker who can submit the application on your behalf.

What documents I need

When you apply for a mortgage, the lender will want to see evidence of your income, affordability, and that you are who you say you are.

As this is the case, you'll need to send certain documents when you apply, such as:

  • ID - your passport, for example

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

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

  • Six months of payslips - this is to prove your income. If you’re self-employed, your accounts and tax returns can be provided instead.

It's worth preparing these document in advance of meeting your broker, so that you're ready to submit your application as soon as possible.

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.”

How long it takes

The actual application itself shouldn't take too long.

If you're submitting your application through a mortgage broker, they can advise you on specific timings and what information they need from you.

Sending or uploading documents ahead of time can help to speed up the process.

The time it takes from application to acceptance varies, but it can take up to six weeks.

What to be aware of

If you're planning to apply for a mortgage soon, it's worth being aware of interest rate changes. Due to increases in the Bank of England 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.

This means it's worth moving quickly once you're ready to submit your mortgage application. Do as much preparation in advance of your meeting with a mortgage broker so you can apply and lock in a rate as soon as possible.

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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