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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.

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.

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

Saving up for your deposit as a first-time buyer can be tricky. Here are some tips to help you:

  • Set up a Lifetime ISA – you'll get a 25% bonus on savings so long as you use the money for your first home or retirement.

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

  • Review your spending – take a look at all your outgoings and see if there's anywhere you could cut back, in order to save a little extra.

If your family or friends are able to help you financially, they could also gift you some cash to use towards your deposit to help you get on the ladder a bit faster, or borrow a bit less.

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?

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 earn £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 price is £425,000 or less, you pay no Stamp Duty Land Tax (SDLT).

If the house costs between £425,001 and £625,000, you pay SDLT at 5% on the amount over £425,000. If the house costs more than £625,000, you don’t benefit from the discount and pay SDLT at the usual thresholds. You can find out more about these on the gov.uk website.

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 gov.scot 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 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 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 the lender’s standard variable-rate unless you choose to remortgage. This rate is typically higher than any of the deals a lender offers, 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 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.

Tracker rate mortgage

Tracker mortgages follow an external financial indicator, usually 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

These mortgages are set 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 may affect your interest rate include a BoE base rate change, a rise in the lender’s cost of borrowing, regulation and internal targets, however, 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 will 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, which are designed to help those struggling to get a large deposit together, or meet the affordability criteria of mortgage lenders. 

These can be particularly helpful for those without access to help from family or friends to help them 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  home 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 be and 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 as 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, helps you find a home within your budget, as it 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 take the hassle out, 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

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.”

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, so 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, closer to a family member or with excellent schools. 

  • Your budget

It’s important to be fully aware of and budget 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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