First time buyer
First Time Buyer Mortgage
We understand that buying your first home is a huge decision and it can be overwhelming. That’s why our first time buyer mortgage guide is here to help make the process easier. We want you to get the knowledge you need to make an informed decision, so we urge you to read through the entire guide in full before making any decisions. If you have any questions or need additional help, please don’t hesitate to contact us. We’re here to help!
Buying your first home is both an exciting and daunting experience. It’s a major life milestone, but it can also be difficult to understand all the complexities of taking out a first-time buyer mortgage. That’s why our first-time buyer mortgage guide exists. We break down the process in simple terms, answer common questions, and provide you with all the information you need to make a confident decision. Read on if you’re ready to take the first step on your homeownership journey. We’ll walk you through every step of the first-time buyer mortgage process. If you ever need additional help along the way, don’t hesitate to contact us.
Who is a First Time Buyer?
If you’ve never owned a property before, then congratulations! You are considered a first-time buyer. That’s right – this includes single people and couples who have yet to purchase a home.
First-time buyers can take advantage of mortgage terms that those not considered first-time buyers don’t qualify for.
Schemes like Shared Ownership and other lender-based schemes are also designed to help buyers get onto the property ladder.
To make the most of this opportunity and begin your homeownership journey, it’s essential to research all possible options before making any decisions.
What is a First Time Buyer Mortgage?
Some but not all lenders offer a first-time buyer mortgage designed specifically for first-time buyers. This type of loan may have lower interest rates, fewer upfront costs, or more flexible terms than other types of mortgages.
Even if a lender does not have a special first-time buyer mortgage, they will happily lend to any first-time buyer who meets their criteria requirements.
If you are struggling to raise a deposit, or do not have sufficient income, there are some specific schemes that allow a family member to assist.
The Benefits of First Time Buyer Mortgage
Benefits for the first-time home buyer:
1. Low deposit (down payment) requirements:
A deposit, known as a ‘down payment’, is required when you purchase a property. First-time buyers often don’t have the savings needed to make a sizeable deposit. Some lenders offer a lower deposit minimum. You may be able to access 95% loan to value products. This means you will need to find just 5% of the purchase price of your own money. This can make homeownership more affordable and accessible for first-time buyers, but remember you will still need money for costs.
2. Preferred Buyer:
As a first-time homebuyer, you have the upper hand over other buyers. Why? Because there’s no chain involved in your case! A mortgage chain is where you but a property, that owner buys another property, that owner buys another property and so on. As everyone must complete at the same time, the longer the chain, the more complex it is for everyone to line up all their mortgages and legal work at the same time. The fact that you will be the first in a chain, this makes your offer attractive than those from homeowners looking to sell their existing property. Being a first-time buyer is in both your favour and the seller’s favour, especially if they are after a speedy sale!
3. Innovative mortgage options:
Lenders are always considerin ways to help first-time buyers. Some of the innovative mortgages can offer options such as gifted deposits from family or friends, gifted equity as a deposit and guarantors for income shortfalls. Lenders commonly offer joint Borrower Sole Proprietor (JBSP) mortgages. JBSP mortgages allow family or friends to assist you with deposits or monthly payments without being named on the property. This means the first-time buyer keeps their right to first-time buyer stamp duty incentives, and the family member assisting does not suffer any tax complications.
4. Government assistance:
The Government has always sought ways to help first-time buyers on the property ladder. Although one of the most popular schemes, ‘Help to Buy’, has now been withdrawn there are still some options. These include schemes for council and housing associations via ‘right to buy’. It also includes schemes like ‘shared ownership’ and ‘help to build’
First Time Buyer Deposit
Typically, a minimum of 5% of the cost of the property you want to buy will be needed for a deposit. For example, if you want to buy a home costing £150,000, you will need a deposit of at least £7,500 (5%).
The larger the deposit, e.g., greater than 5% opens the access to a wider range of mortgage lenders available on the market who could potentially offer a lower interest rate.
If you’re struggling to save a deposit, there are some options available to you:
Family gifted deposits for instance are where your parents can “gift” you the deposit to buy.
There are lenders that allow friends or family to “invest” in your property, up to 6 people can help boost your deposit or salary to purchase a higher value property and make it more affordable.
Average First Time Buyer Age
The average age of a first-time buyer in the UK is increasing. It has steadily increased over the past few years as first-time buyers face an increasingly competitive and expensive housing market.
Many first-time buyers are unable to purchase a home until they reach their thirties due to high levels of student debt, high property prices and tight mortgage lending criteria around affordability. In addition, first-time buyers may need to save for a longer period to build up enough of a deposit to qualify for a mortgage.
First Time Buyer Mortgage Scheme
There are a range of schemes available to help first-time buyers to get onto the housing ladder. The schemes can assist with either a shortfall of deposit, a shortfall of income for affordability, or both.
Shared Ownership:
Also known as “Part-buy, part-rent” this is where you purchase a share of the value of the property you are interested in. The property is usually purchased from a local authority or housing provider. If buying a new build, you will be expected to purchase between 10% and 75% of the property’s value and rent the remainder.
After six months of ownership, you can increase your share of the property through a process called ‘staircasing’. You can buy in increments of 1% as affordability allows. The cost of additional shares is subject to market value at the time you buy.
Loan to Value:
When talking about mortgages, you might hear people mentioning ‘Loan to Value’ (LTV). This is simply the amount you have borrowed to buy your home (the loan) compared with the mortgage lender valuation of the property.
For example, if you buy a home for £200,000, put down £20,000 (10%) as a deposit and have a mortgage of £180,000 – your LTV is 90%. This is because the amount you’ve borrowed (£180,000) is 90% of the home’s value (£200,000).
The lower the LTV, the lower your interest rate is likely to be. This is because the lender takes less risk when you are using more of your own money.
The lowest rates are often offered by high-street lenders, particularly when you have a larger deposit. When you have a smaller deposit, or you wish to use one of the schemes, the interest rate charged will be a bit higher. An independent Mortgage Broker will help you search a wide range of high street lenders and specialist lenders to ensure you get best possible mortgage solution for your needs.
Mortgage Advice..
Thinking of getting a mortgage? Our experienced team of skilled mortgage advisers are here to offer the essential guidance you require. Relying on our comprehensive understanding of the mortgage market, we’ll ensure you secure the perfect mortgage to suit your specific situation.
Interest only Mortgage First Time Buyer
Mortgage lenders often consider first-time buyers with some credit issues to be at a higher risk. However, it is still possible to get a mortgage, but the lender may require the borrower to have a higher deposit or pay a higher interest rate than borrowers with good credit.
Credit issues include missed payments on a credit card, defaults or County Court Judgements. The more historic the issue, the less likely it is to affect the mortgage. For example, a credit issue over 6 years old will normally be ignored. For a credit issue over 3 years old, very competitive rates are available. For more recent credit issues, it is still possible to arrange a mortgage, but a higher rate will be charged and a higher deposit will be needed.
Mortgage for Adverse Credit for a First Time Buyer
An interest-only mortgage is a type of loan that allows buyers to pay only the interest on their mortgage each month rather than paying off the principal balance. This type of loan can benefit first-time buyers because it can help them keep their monthly payments lower and make home ownership more affordable in the short term.
However, first-time buyers should be aware that with an interest-only loan, they will still need to repay the mortgage in full at the end of the term and will require a realistic strategy on how they plan to do this.
In reality, interest-only mortgages are a product that is usually only offered to borrowers with very high incomes or deposits.
One alternative is to take the longest mortgage term available. Many lenders offer mortgage terms for up to 40 years. If you repay the capital over a longer term, although you will pay more interest in the long run, your monthly payments will be lower and perhaps more affordable.
First Time Buyer Mortgage Advisor
Finding a first time buyer mortgage advisor can be a great way to get help navigating the home-buying process. A first time buyer mortgage advisor is an experienced professional who can help first time buyers understand their options and find the right first time buyer mortgage that meets their needs.
They will provide advice on the types of first time buyer mortgages available, help first time buyers compare different lenders and products, and will often be able to offer advice on how to improve credit scores or save for a larger deposit. A first time buyer mortgage advisor can also aid in the home buying process, from helping first time buyers submit their applications to assisting them in understanding the legal documents associated with first time buyer mortgages.
A first time buyer mortgage advisor can be an invaluable resource to first time buyers throughout their journey toward property ownership. By working with a first time buyer mortgage advisor, first time buyers can gain knowledge and confidence in the home buying process and increase their chances of finding a first time buyer mortgage that meets their needs.
Using a Mortgage Broker is particularly useful if:
You only have a small deposit.
You are self-employed or have adverse credit.
You are struggling with affordability.
You would like the most competitive deal.
Other needs, such as complex property.
First Time Buyer Mortgage Advice
Check Your Credit Score:
One of the first steps to take when considering taking out a first-time buyer mortgage is to check your credit score and full credit report. It’s important to know where you stand regarding your creditworthiness, as lenders will use this information to determine whether they’re willing to approve your loan. A mortgage adviser can help you understand your credit report if needed.
Do your research:
It’s essential to shop around for first-time buyer mortgage options and compare different lenders to find the ideal terms and rates for your needs. Don’t just settle for the first offer you come across. Make sure to take the time to research first-time buyer mortgages to ensure you’re getting the right deal.
Set a budget:
Before looking for first-time buyer mortgages, first-time buyers should make sure they know their budget and how much they can realistically afford to pay in monthly mortgage payments. This will help narrow down first-time buyer mortgage options and help first-time buyers avoid taking on more debt than they can handle.
Get pre-approved:
Once first-time buyers have an idea of their budget and what type of first-time buyer mortgage they’re looking for, it can be beneficial to get pre-approved by a lender. Getting pre-approved ensures first-time buyers that their first-time buyer mortgage will be approved (if their credit score and other financials meet the lender’s requirements).
Work with a mortgage advisor:
A first-time buyer mortgage advisor can offer valuable advice throughout the home buying process, from helping first-time buyers compare different first-time buyer mortgages to providing advice on how to improve credit scores. A first-time buyer mortgage advisor can be an invaluable resource to first-time buyers throughout their journey toward homeownership.
These tips can help first-time buyers navigate the home-buying process and find the right mortgage. With a little bit of research, preparation, and the help of a first-time buyer mortgage advisor, first-time buyers can find the perfect first-time buyer mortgage for their needs.
Make Sure You Can Afford Your Monthly Repayments
Mortgage affordability calculators are everywhere these days; Why not try Synergy financial calculator and see how much you can borrow? Lenders have different affordability calculations they use and change regularly. Some will be okay with a missed utility bill payment two years ago, while others will disregard your application based on this. Some will take CCJs into account but wish to know the amount, what for, and why. Using a qualified independent mortgage broker will save you time and stress.
Rule of thumb – employed clients with 12 months’ work history and clean credit reports can expect to achieve 4.5 times their salary. The most important thing though is to find out how much it will cost each month and be comfortable that you can afford it.
Considering a budget before looking for a property is a good idea. Consider how much you can afford to pay every month, remembering you must still cover everyday costs such as gas, electricity, and food.
Budget for The Other Costs of Buying a Home
Apart from your monthly mortgage payments, there are other associated costs when buying a home, either upfront or ongoing.
- Solicitor or Conveyancing Fees.
- Search and Land Registry Fees.
- Mortgage Arrangement and Valuation Fees.
- Removal and Moving Costs.
- Buildings Insurance.
- Initial Furnishing and Decorating Costs.
- Stamp Duty (Land and Buildings. Transaction Tax in Scotland, or Land Transaction Tax in Wales).
Final Thought
First time buyers should research the market and lenders, determine how much they can afford, investigate different mortgage options, understand associated fees, and get pre-approved before house-hunting to secure a first time mortgage. With these steps taken, first time buyers can confidently begin their journey to homeownership.
FAQs: First Time Buyer Mortgage
Most frequent questions and answers about first time buyer mortgage
To be eligible for a first time buyer mortgage, you must generally not have ever owned property before. Some lenders may class you as a first-time buyer if you have not owned a property for many years.
Your mortgage affordability depends on your income, credit score, and other financial factors. A good starting point is to calculate how much you can afford monthly for a mortgage payment by subtracting your expenses from your income. Speak with a mortgage advisor to find out what type of loan you qualify for and get an estimate of how much you can borrow.
The best way to get a mortgage as a first time buyer is to research different mortgage options, compare lenders, and get pre-approved. Be sure to also work with a mortgage advisor who can help you find the suitable terms for your needs.
Yes, a first-time buyer can get an interest-only mortgage. However, they will need to meet certain criteria to qualify for one. A longer-term repayment mortgage may be more suitable.
Yes, first-time buyers can obtain a self-build mortgage to finance the construction of their own home. Some lenders have specific products designed for this purpose and may offer incentives such as cashback or discounts on legal fees. There is also a Government scheme called ‘help to build.
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