Mortgages For First-Time Buyers – All You Need to Know

Important to know

A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

Your Mortgage Expert advisers are here to guide you through every step of getting your first mortgage. 

Please remember that a mortgage is a loan secured against your home. Your home may be repossessed if you do not maintain repayments on your mortgage or any other load secured against it. And it is always a good idea to speak with an experienced mortgage broker who can talk you through the process, and understand the options and what they will mean for you.  

A first-time buyer for HMRC

A first-time buyer benefits from preferential stamp duty on the purchase of a property. In order to be considered a first time buyer, and receive the stamp duty discount, you will need to be someone who has never owned a property, both domestically and internationally.  

Mortgage lenders also have their own different definitions of first-time buyers; they have their own definition to establish if you are eligible for their first-time buyer’s  product range. However, do not confuse this with the definition used by HMRC for the purpose of stamp duty. 

What lender considers a first-time buyer may defer from others. 

For Nationwide, a first-time buyer is someone who hasn’t had a mortgage in the last three years, both domestically and internationally. Meanwhile, for Kensington, a first-time buyer is defined as somebody who hasn’t had a mortgage or owned an asset free of any loans within the past 12 months. If you have owned a home before but want to explore your options as if you’re starting from scratch again, speak with a broker – there are many good deals out there lenders offer exclusively to those buying their homes for the very first time.  

Different types of mortgages available to first-time buyers 

If you’re a first-time buyer, some lenders might offer you special deals, like cashback or fee-free mortgages. If you’re buying a home to live in, then the main types of mortgages are: 

  • fixed rate 
  • tracker 
  • discounted variable rate 

Fixed-rate mortgage 

A mortgage with a fixed interest rate secures your monthly payments for the entire duration of the loan, which can be anywhere from 2 to 15 years 

You are often allowed to overpay by 10% annually without penalty, but if you pay more than that or paid off the full amount early, then an Early Repayment Charge will apply and could be expensive. 

Variable rate mortgage 

There are two types of variable rate mortgages: tracker mortgages and discounted variable rate mortgages. As their name suggests, the interest rates associated with these kinds of mortgages can change over time, which in turn affects your monthly repayments. More often than not, the rate is higher than the Bank of England’s current interest rate. 

Tracker mortgage 

The current account interest rates follow the Bank of England’s lead and are often a set percentage above it. 

Discounted variable rate 

With a discounted variable rate mortgage, you’re given a lower interest rate for an introductory period of time (usually 2-5 years). After that, the interest reverts back to the lender’s standard variable rate. They typically have the lowest monthly repayments but beware–your monthly amount could rise or fall at any moment. For more information on this type of mortgage, check out our guide below. 

How first-time buyers can get a mortgage 

Step 1. Work out how much you can borrow (i.e. your mortgage affordability) 

Use our first-time buyer mortgage calculator to calculate how much you could borrow. All you need is your salary and deposit information. 

Other costs, such as legal fees, stamp duty, moving expenses and mortgage broker fees should be added in too. Although a Mortgage calculator will give you a general idea of the price range, for a more accurate figure speak with a broker. 

Step 2: Get a Mortgage Decision in Principle (also called Agreement in Principle, or Mortgage in Principle) 

A Mortgage in Principle is basically a statement from a lender or mortgage broker that says you may be able to borrow a certain amount of money. 

Since it’s essentially telling estate agents that you’re a serious buyer, it’s not uncommon for them to ask to see one when you make an offer on a property. Oftentimes, the agent will want to show the seller your letter of proof so they are more likely to accept your offer 

It is a good idea to get the help of mortgage broker to get a decision in principle, so that you can be guided through the options and make an informed confident decision. 

Step 3. Start looking for a property 

After you research online to find a list of homes in your price range, reach out to the estate agent responsible for those properties and arrange viewings. Once you’ve found a home that suits both your needs and budget, make an offer. 

Step 4. Contact your mortgage broker or lender to discuss your options. 

After a seller has accepted your offer, it is then you should speak to either a mortgage broker or lender in order to find the best possible deal. Mortgage brokers have access to significantly more deals than lenders do. For example, Your Mortgage Experts works with 90+ lenders and thousands of deals. If you go directly to a lender, they’ll only offer their own mortgages which might not be the most ideal option for you. 

Step 5: Search for an available solicitor. 

A conveyancing solicitor is a qualified lawyer who can deal with the legal aspects of buying your home. A conveyancer is a specialist in property law but cannot deal with complex legal issues. If you do not know one, ask around. Most people who own a home will have used one at some point. Your mortgage broker or estate agent may suggest one, but you are not obliged to use their recommendation. 

Step 6. Get pre-qualified for a mortgage 

In order to open an account, your broker will need the following documents from you: 

  • A form of identification 
  • Proof of your current address 
  • Evidence of income 
  • The deposit amount 

The bank statements will also be needed. 

After your broker submits your application, the lender will conduct a credit check before looking at any of your documentation.  

Step 7. Obtain a valuation 

The bank will value the property to check its value in case they have to sell it if you stop making mortgage payments 

They also need to make sure that your new home meets certain requirements set out by your mortgage agreement. 

If you want a more comprehensive survey, like a homebuyer’s report or full structural survey, talk to your broker about it. 

Step 8. Get the mortgage offer 

A mortgage offer is a document from the lender that says they will give you money to buy your chosen property. 

Step 9. Work with the solicitor through all the steps to become the new legal owner of the property 

Your solicitor and the seller’s solicitor will work together to exchange contracts and arrange a date for you to get the keys to your new home. This is called completion, and it is when the money is transferred. Once you know the date, you can make arrangements to help with your move. 

Step 10. Completion day – the big day! 

On completion day you will collect the keys from your estate agent. The home is yours! Start unpacking.  

 Mortgage Calculator for first-time buyers 

Use our mortgage affordability calculator to get an estimate of how much you can borrow and what your monthly repayments could be. 

If you do not keep up with your mortgage repayments, your home could be seized. Speak to a mortgage broker or lender to get a more precise remortgage savings figure. 

Deposits for first-time buyers 

A deposit is the cash that you will need to put down yourself when you purchase your home. 

It signifies that you are already a committed owner of your desired property, and that you do not just rely on borrowed money (the mortgage) to purchase the property.  

The larger the deposit, the less borrowing from a mortgage lender will be required. In addition, having a bigger deposit allows for more leeway in choosing appealing mortgage deals. For example, mortgage rates at the 95% LTV level are the most expensive, and to benefit for cheaper rates you would need at least 10% deposit. 

How much deposit do first-time buyers need? 

First time buyer can typically purchase a property with as little as 5% deposit, depending on the mortgage lender and also depending on the mortgage products on offer at the time of a mortgage application. For the better interest rates you will however want to have at least 10% deposit. 

Mortgage lenders will give you better rates if you put down a larger deposit because they will consider you to be a lower risk to them, as if you are unable to make monthly repayments, it becomes easier for the lender to sell your house and recoup their loss if you have put down a larger sum initially. 

If you can put down a bigger deposit, your mortgage will be significantly cheaper. 

If you put down a small deposit, such as 5%, you’ll need to take out what’s known as a high loan-to-value (LTV) mortgage. The LTV is the percentage of the total property value that you pay for with your mortgage. For example, if you have a deposit of £40,000 and are buying a home for £400,000, your deposit is 10% and your LTV is 90%. High Loan-to-Value mortgages are considered those at 90% and above. Though many people do take out mortgages with high LTVs because they only have small deposits available., they are more expensive than other options in the market. 

If you want to lower your monthly payments, it might be better to save for a bigger deposit or buy a cheaper home. This way, you won’t have as lofty of mortgage payments each month.  

Stamp duty is an added expense for first-time buyers. 

The amount of stamp duty you pay on your home, aka a land tax, is dependent upon two factors: how much your home costs and where it is located. More often than not, this fee is the second biggest cost associated with buying a house, right after your mortgage. 

Stamp Duty for England and Northern Ireland 

You pay stamp duty on residential properties that cost more than £425,000 when there is no stamp duty holiday. 

If you’re a first-time buyer and the purchase price is £500,000 or less, you’ll pay: 

  • nothing on the first £425,000 
  • 5% on the rest up to £500,000, thus you pay £3750. 

 Ask your mortgager broker to help you calculate the stamp duty if the value of your property is greater than £425,000.  

How to pay stamp duty 

Your solicitor or conveyancer will generally handle stamp duty for you. They’ll ask you for the money, then pay it to HMRC when your sale is completed. Completion is when you receive the keys to your new home. 

Parents can help in many ways. 

A first-timebuyer’s biggest expense is the down payment and it can be difficult to afford, so some turn to their parents for help.  Parents can help in many ways when buying a house. grandparents or other family members with money set aside specifically for you. You may want to consult with a mortgage broker about what will work best if your parents are helping you buy a house. 

A deposit as a gift 

Gifted deposits are given frequently by families and friends to help you out. Your lender would require a ‘gift letter’ from the gift-giver in order to know that the money is indeed a gift and not something else. Lenders sometimes also ask for bank statements from your family member or friend to verify they have the funds available. 

Borrowing a deposit 

In simple terms, borrowing  deposit is not generally a good idea, as it will reduce the amount that you can borrow with your mortgage. 

When taking out a loan, it’s always good to have a solid plan in place for repaying the debt. This is doubly true when borrowing from friends or family members, as you don’t want there to be any surprises down the line that could damage your relationship. If you’re planning on taking out a loan from a relative for your deposit, keep in mind that this could affect how much money you’ll be able to borrow overall.  

Guarantor Mortgage 

A guarantor mortgage involves your parent or family member repaying the loan if you’re unable to make payments. 

In order for the lender to consider approving a guarantor mortgage, they will expect your guarantor to own their home outright, or o at least 30% of it. Additionally, your guarantor should have a high income that can cover: 

  •   Your repayments 
  •   Their repayments 
  •   How much they spend regularly 

Furthermore, they must also have a good credit score as this is indicative of their ability to manage finances well. 

100% mortgage 

If you do not have saved up for a deposit, you may be able to qualify for a 100% mortgage with the help of your parents. Product offering are limited and may not always be available. Check with your mortgage broker. 

Joint borrower sole proprietor 

By putting a family member on your mortgage, you may be able to borrow a larger sum. 

A family member will help with your payments for this type of mortgage, but they do not own any part of your home. If you live in England, Northern Ireland or Scotland, owning all your home could help you get a first-time buyer discount on stamp duty. 

A joint borrower-sole proprietor mortgage is not available from all mortgage lenders. Check with your mortgage broker. 

Mortgage for parents/family members buying concessions 

A family member can sell you their home below the market value if they choose. However, a lender would need to be certain that you’ll reside there as your main home before closing on the deal. 

If you’re a first-time buyer, compare our mortgage deals to find the best one for you. 

We offer a free eligibility check for first-time buyers so that you can quickly and easily compare thousands of deals from more than 90 lenders. Remember: if you fail to keep up with mortgage repayments, your home may be repossessed. 

What to consider when taking up a mortgage as a first-time buyer 

There are numerous factors to consider when taking out a mortgage, and first-time buyers should be aware of all of them. Just the interest rate is not enough. Be sure to factor in: 

  • Monthly payment 
  • Interest rate 
  • Any fees 
  • Remaining balance 

A quick tip: You pay less interest on a mortgage the quicker you pay it off, so take that into account as well! 

How to find the best mortgage deal 

There are thousands of mortgage deals offered by lenders in the UK. 

Each mortgage has conditions that you’ll need to meet. 

You can use an online mortgage comparison tool to get a sense for the level of mortgage monthly payments. However, please remember that you may not qualify for all deals advertised. 

If you need help finding what most cost effective deals are available to you based on your circumstances, speak to a mortgage broker who has access to many different deals from various lenders–some of which only offer their mortgages through brokers. 

At Your Mortgage Experts, we have relationships with 90 different lenders and access to thousands of mortgage deals. A broker will take into account your personal circumstances and the various conditions set by lenders before making a recommendation on what could be the best deal for you along with an explanation of why they think so. 

Tips to prevent costly errors 

If you’re concerned about making a costly error when taking out such a large loan, you’re not alone. With so many mortgages available, it’s tough to decide which one is best for you. Fortunately, there are people who can help. Mortgage brokers will work with you to find a mortgage that fits both your needs and your budget.  

If you are thinking about getting a first-time buyer mortgage advisor for your purchase, Your Mortgage Experts can help you. 

Give us a call today or send us a question and one of our friendly advisers will be happy to help you. 

Call us on: 020 8154 1111 

Or drop us a line:  

Your Mortgage Experts, London W9 2HQ. 

Luca Bertolino

Mortgage Expert

Your Mortgage Experts is led by Luca Bertolino with 20 years experience in financial services and in the property market. Through Luca’s wealth of knowledge and expertise, Your Mortgage Experts have become a trusted adviser that clients have come to rely upon for all their mortgage and protection needs.

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