Our first time buyer guide will help you find the right mortgage for you.
Affordability – How much can you afford to spend on a house?
Deposit – What size deposit do you need to buy your first home?
Extra costs – What are the extra costs involved in buying a house?
First time buyer mortgage – What different types of mortgages are available to first time buyers?
Help to buy mortgage – Can you take advantage of the government's Help to Buy scheme before April 2021?
Beware of stretching your finances to the limit so you can buy a nicer house. No matter how nice your home, you’re unlikely to enjoy it if you are struggling to cover the bills each month.
When it comes to calculating how much you can afford, look at your expenses first and foremost, including everything from credit cards and loans to any other financial commitments.
Then add in monthly costs such as council tax, gas and electricity bills, and home insurance, as well as food and travel expenses.
What’s left over is the amount you can comfortably afford to pay towards a mortgage each month – although it’s also a good idea to budget for unexpected changes such as a rise in interest rates or being made redundant.
Once you know what you can afford on a monthly basis, the next step is to work out how much you can put down as a deposit.
Your deposit and your income will be the main factors in determining the size of mortgage loan you can get. The larger your deposit, the less you will need to borrow and the lower your interest and monthly repayments will be.
Many lenders now require a 20% deposit, meaning you will need £50,000 to buy a home worth £250,000. However, you may be able to get a mortgage with a smaller deposit if you have a relative who is prepared to act as a guarantor or you use a government-backed first time buyer scheme.
Buying a house also involves other costs. To take out a mortgage, for example, there is usually:
a mortgage booking fee that may come to £250
an arrangement fee, typically of around £1,000
a valuation fee of about £500
a mortgage account fee of around £200
legal costs and survey charges that could add up to £1,000 or more
If you are buying before 1 April 2021, you can take advantage of the government’s stamp duty holiday, under which houses worth up to £500,000 don’t require a stamp duty payment.
Outside of this holiday, you’ll also have to factor in stamp duty on any property worth more than £300,000 if you’re a first time buyer, or £125,000 if you’re an existing homeowner.
While it can be tempting to put the rest of your savings into the property, it is also a good idea to set aside a fixed amount of your deposit for contingencies.
For instance, if your boiler breaks within the first few weeks of moving in you will need some money set aside to repair it.
First time buyer mortgages come in a range of types, including guarantor mortgages with which a family member promises to pay the repayments if you cannot, and family offset mortgages that involve a relative investing their savings in a linked account.
Otherwise, first time buyers have the same choice as anyone looking for a mortgage, which means they can choose between fixed rate and variable rate deals.
With a fixed rate mortgage, your interest rate is fixed at a certain level for a set period of time, usually anywhere between two and 10 years – after which it will usually revert to the lender’s Standard Variable Rate (SVR).
Fixed rates offer the peace of mind of knowing how much you will have to pay each month, but they do also tie you in to a certain degree. Most fixed rate mortgages have early redemption charges, meaning you will have to pay if you want to switch to a lower-rate deal, or if you want to pay off your mortgage within the term.
Tracker rates offer you an interest rate that changes in accordance with the Bank of England’s base rate. If the base rate goes up or down, so does your mortgage rate. There are some deals that allow you to cap how much they can increase by though.
Variable mortgage rates are discounted rates that are usually based on the lender’s SVR. They can be competitive, but they can also go up and down at the lender’s discretion.
The government-backed Help to Buy: Equity Loan mortgage scheme, which will run in its current format until 31 March 2021, aims to help those with low deposits get on the housing ladder by buying new-build homes.
If, for example, you only have a 5% deposit, you can borrow 20% (or 40% in London) of the cost of your home from the government, then take out a mortgage for the remainder of the property price.