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Mortgages for first-time buyers

First time buyer mortgage guide

Looking for a first time home buyer mortgage but don’t know where to start?

Our first time buyer guide will help you choose between a first time buyer mortgage, help to buy mortgage, and other first buyer schemes.

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First time buyer mortgages

First time home buyer mortgage? What you need to plan

With house prices having consistently risen faster than wages in recent years it is difficult for first time buyers to get onto the property ladder, but it’s not impossible.

To make things easier the Help to Buy scheme, that commenced in 2013, helps make buying a home within the reach of many. Following a few basic rules can help make it easier to buy your first home.

The first question many ask is ‘how big is my deposit’, but it shouldn’t be. The most important question is how much can you afford to pay on a monthly basis. This will determine how much you should, not could, borrow.

Only what you can afford

Beware, of exaggerating how much you can afford so you can buy 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 this figure look at your expenses first and foremost, including everything from credit cards and loans to any other financial dependents or maintenance payments you must make.

Then there’s your monthly costs like council tax, gas and electricity bills, phone, internet and home insurance, alongside your food and travel expenses.

You also need to account for unexpected changes such as a rise in interest rates, illness, or your partner being made redundant. A good idea is to fill in a budget planner.

How much money do you need?

Once you know what you can afford on a monthly basis you may think you are ready to speak to a first time home buyer mortgage provider, but there are a few more sums you should do first.

Your deposit, along with your income, will be the main factor in determining the size of mortgage loan you can afford, and should be the first item on your list.

The absolute minimum deposit you will need is 5% of the property of the home, particularly under a government-backed Help to Buy mortgage (see ‘Help to Buy mortgage’ below), but the larger your deposit, the less you will need to borrow and the lower your interest and monthly repayments will be.

For example, if you have £30,000 saved as a deposit you could get a property worth up to £600,000 in theory at a 95% loan-to-value ratio, but that means borrowing £570,000 with a higher interest rate – a very expensive proposition over the lifetime of your property.

Rather, if you used your £30,000 to borrow at a 85% loan-to-value ratio you could borrow £200,000 and enjoy a better rate and smaller monthly repayments.

Read more on the amount you could borrow with a mortgage.

Extra costs

Also prepare for the other costs; there’s a mortgage booking fee which may come to £250, then there’s an arrangement fee, typically around £1,000, a valuation fee of around £500, an account fee of £200, legal costs of say £500, search fee of £250, survey fees of between £250 and £600, moving costs of up to £500.

First time buyer mortgage

That’s before you take into account any stamp duty which applies to properties worth over £125,000. In total that means setting aside at least £3,500 of your deposit to pay for the other moving costs.

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 mortgage

Now that you know how to financially prepare as a first time buyer you are ready to look at the mortgages available to you.

There is no such thing as a specific first buyer scheme, if you are a first time buyer and you have sufficient income and deposit you should be able to get a mortgage. That doesn’t mean that there aren’t specific things first time buyers should watch out for though.

Interest rates come in two standard forms – fixed and variable or tracker.

Fixed rate

Fixed rate means that your mortgage will be fixed at a specific interest rate for a certain period of time, usually anywhere between two and ten years. Watch out though, once that period ends your mortgage will revert to a higher rate.

While fixed rates offer peace of mind, they do also tie you in to a certain degree. Most fixed rate mortgages have early redemption charges for instance, penalising you for paying back too much of the mortgage loan to reduce your payments.

Tracker rates

Tracker rates typically offer you a starting interest rate that changes in accordance with the Bank of England’s base rate. If the base rate goes up, so does your mortgage. There are some options that allow you to cap how much they can increase by though.

Variable rates

Variable rates are often the cheapest option but also the highest risk as they can vary at the lenders discretion.

Help to Buy mortgage

The government-backed Help to Buy mortgage scheme is a way to help those with low deposits get on the housing ladder.

The first phase, launched in April 2013, saw the government offering people buying new build homes a 20% loan (40% in London from April 2016) on top of their own 5% deposit.

The second phase launched in November 2013 is a way for the government to back low loan-to-value borrowers, so those with deposits as low as 5%.

However, instead of offering the loan themselves the government simply guarantees 15% of the loan amount offered by your mortgage provider, making them more likely to lend.

Compare first time buyer mortgages

Compare a huge range of first time buyer mortgages on our comparison tables

First time buyer mortgages

Read more…