First Time Buyer
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First Time Buyer Mortgage
Lilly is here to explain how the mortgage process works for First Time Buyers.
What are the typical requirements to apply for a mortgage as a First Time Buyer?
To apply for a mortgage as a First Time Buyer, you must not own a property anywhere in the world, you must currently be in receipt of an income and you will need a deposit – and that’s it.
What is the maximum amount that can be borrowed for a mortgage as a First Time Buyer?
The maximum amount you can borrow will be dependent on your income and affordability. Assuming affordability is not a problem, the maximum you could borrow is 5.5 times your annual income – or combined annual income if you are buying jointly [correct at time of recording in December 2024].
If you earn £50,000 per year, then, you may be able to borrow £275,000. However, it’s more common for lenders to limit borrowing to 4.5 times your annual income. That then allows you to borrow about £225,000 with the majority of lenders.
What’s the minimum deposit required for a First Time Buyer?
The minimum deposit is 5% of the value of the property. However, there are a couple of lenders and schemes now where you may only need £5,000 – or even no deposit at all, subject to meeting their criteria [correct at time of recording in December 2024].
What types of interest rates are available on a mortgage for a First Time Buyer?
The most common are fixed rate mortgages, where the rate stays the same for the chosen product period. That’s usually two, three, five or 10 years. Then, you’ve got variable rate mortgages which can fluctuate, so you don’t necessarily have that set monthly payment.
What are the pros and cons of fixed versus variable interest rate mortgages for First Time Buyers?
With fixed rate mortgages, you know exactly what you’re paying each month. For First Time Buyers, that allows you to budget on a monthly basis. You’re also protected if market interest rates increase during that fixed period.
On the other hand, if market interest rates do drop, you won’t benefit because you’ve chosen to fix your interest rate. These products also usually come with early repayment penalties during the fixed term, so it can be quite costly if you need to come off the mortgage early to sell the property.
With regards to variable rate mortgages, an advantage is that if market rates reduce, you’d benefit straight away, and they also don’t usually come with early repayment penalties. They are therefore a bit more flexible.
On the downside, you have no certainty about what your monthly payments will be, and if market interest rates increase, your rate and monthly payment will increase too.
What government schemes are available to help First Time Buyers?
The first thing is stamp duty. As a First Time Buyer you get a reduction or even an exemption on stamp duty.
To help you save for a deposit there’s the lifetime ISA, which is basically a tax free savings account to support you in buying your first home or saving for retirement. You can save up to £4,000 a year and the government adds a 25% bonus worth up to £1,000 annually. Those funds can then be used to buy a home worth up to £450,000.
There’s also the shared ownership scheme, which allows you to buy a share of a property, usually 25% to 75%, and pay rent on the rest. Typically that requires a smaller deposit, due to you purchasing a share.
With the First Home scheme, certain new build homes are offered at a discounted price for First Time Buyers, where you can save 30% to 50% off the market price. That scheme prioritises key workers and local residents. Finally, there is Right to Buy, which allows eligible council tenants to buy their homes at a discount.
I mentioned earlier that there are some mortgage schemes allowing you to only put down £5,000 as a deposit – or nothing at all, subject to you proving a track record of you paying rent. These are really good schemes to help you get on the property ladder sooner, if you’re not quite able to save up your deposit [all information is correct at the time of recording in December 2024].
What documents do I need to get pre approved for a mortgage as a First Time Buyer?
To get a mortgage agreed in principle, you don’t need to provide any documents. We’ll complete an Agreement in Principle with a lender who runs a soft search on your credit file, based upon the information we have told them. It is important for this information to be correct, to ensure you’re confident with the Agreement in Principle.
It’s just a soft credit search – that’s pretty much it. All of the information we provide them is from our conversation with you, so no documents are needed.
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We will save you time by researching the market, checking that you meet the lenders criteria to find the best mortgage for your circumstance.
What are the steps to follow when applying for a mortgage then as a First Time Buyer?
Your first point of call is to speak to your mortgage advisor. We’ll carry out a review of your financial situation to research your mortgage options and get you an Agreement in Principle. The aim is to empower you with the knowledge and confidence to start your property search knowing exactly what’s possible. You can hit Rightmove knowing what’s realistic for you.
Once you have found a property and had an offer accepted, it’s time to get your mortgage application submitted and your solicitors instructed. The lender will perform a hard credit check and request documents like ID, payslips, bank statements and your proof of deposit. They’ll also do a valuation on the property.
This will be reviewed in detail by the lender’s underwriters, and once they’re satisfied, they will issue a formal mortgage offer to you and your solicitors. You then check through all the details to make sure it’s correct. Once your solicitor receives that, they’ll do the same and review the contracts, request property searches and liaise with the seller’s solicitor.
The aim is to get you and the chain to a point where everyone’s happy to exchange contracts and set completion. Exchange is where you’re legally committed to the purchase, and on completion you get the keys to your new home. Around 10 to 14 days after that you’ll get a letter from your mortgage lender to confirm the first mortgage payment date.
What are the most common mistakes to avoid when applying for a mortgage as a First Time Buyer?
A common mistake is just going for the cheapest rate. I know that doesn’t quite make sense, but when you’re looking at mortgage sourcing systems online, often the cheapest rate will be shown – but that’s not necessarily the cheapest rate overall, nor is it necessarily right for your circumstance.
There are other things to consider, like your future plans and how long you’re going to be in the property. Choosing the wrong way can be a costly mistake.
Another error is not getting a Decision in Principle in advance of your property search. It’s always good to know what your mortgage options are first, so you know what is achievable. It saves you time and the heartache of getting it wrong. Get that ironed out before looking at property.
Don’t go straight to your bank for your mortgage. They may not be lending you the most money. A mortgage advisor can use their knowledge and skills to find your maximum mortgage, from a vast list of lenders.
Finally, avoid applying for any credit before your mortgage has completed. Getting credit or making any significant purchases could reduce your credit score and increase your debt to income ratio, which can impact the lender’s decision.
A small reduction in your credit score could be the difference between being approved for a mortgage and being declined. Lenders can also rescind their mortgage offer. So until you have the keys to your new property firmly in your hands, don’t open any new credit accounts. Just let the mortgage run its course.
Can I qualify for a mortgage as a First Time Buyer with bad credit?
Yes, you can still qualify for a mortgage if you have bad credit. You will need to pass credit scoring or a credit search with the lender that is most suitable to you, but the requirements are different for each lender and some will be better than others.
For adverse credit, they all have their own scorecards, so if you have not passed a credit search with one lender, there could still be an option for you with a different one. It’s common for people to give up after being declined, but if one lender isn’t looking at your circumstances favourably, another may still accept you.
What happens if I miss a mortgage payment as a First Time Buyer?
If you miss a mortgage payment, your lender will record it and contact you to understand the situation. Your credit score will be negatively impacted and it may impact your ability to get a mortgage in the future. But if it’s a one off, as you continue to make future mortgage payments on time your credit score will recover.
However, if you do not keep up with your mortgage payments, the lender may enter more serious proceedings, like repossessing the property.
Can I get a Buy to Let mortgage as a First Time Buyer?
You can get a Buy to Let mortgage as a First Time Buyer. You would be considered a First Time Buyer and first time landlord. As you don’t own your main residence, fewer lenders will consider offering you a Buy to Let mortgage.
You would typically need a minimum deposit of 20% to 25% of the value of the property – so a fair bit more than what’s expected from a residential point of view. If you have that level of deposit, there are definitely going to be options for you.
How can a mortgage broker help me with my First Time Buyer mortgage application?
A mortgage broker can help you find the most suitable lender for your circumstances and objectives. We give you advice to help you make an informed decision on what’s right for you.
A great mortgage broker gives you the confidence for the journey and increases your chances of success in achieving your goal. We also support you throughout the process to ensure your mortgage offer is issued promptly and without unnecessary delay.
Our support doesn’t end once the mortgage has been offered. We have invested in technology that notifies us each time interest rates reduce, so you can benefit from new lower interest rates until you complete. We also offer you support throughout the journey, with the solicitors, and right up until you have keys to your new home. That support is second to none.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.
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What you need to know…
The actual amount you can borrow will depend on your credit commitments, your regular monthly outgoings and how each lender assesses your income.
Lender’s affordability checks can differ meaning that the amount you can borrow may change from lender to lender. That’s where the expertise of our personal advisers comes in and where our independent status benefits you.
The minimum deposit required is 5% of the property purchase price. Most lenders will allow the deposit to come from a gift and some lenders will even consider this being raised via a personal loan. There are government incentives to help boost your savings if you are a first time buyer. Depending on your circumstance you may either need to have a larger deposit or will perhaps want to put a larger deposit down, due to preferable interest rates.
Because we are independent mortgage brokers we will be able to secure you the best deal for your circumstance.
An Agreement in Principle, also known as a ‘Decision in Principle’ will be provided after affordability and credit checks have been approved. An Agreement in Principle is extremely useful to increase your confidence when viewing and offering on properties. Estate Agents will typically want to see an Agreement in Principle before presenting your offer to the seller. Our personal advisers can help you with this.
It’s a requirement of your mortgage to have buildings insurance. This covers the bricks and mortar of the property.
It’s also a good idea to take advice from your personal adviser on protecting you and your loved ones if something bad happens. For example: Life Cover, Critical Illness Cover and Income Protection.
Being accepted for a mortgage does depend on your circumstances. We are experts with all types of mortgages…. We specialise in obtaining mortgages for the self-employed, contractors, construction industry scheme (CIS) workers and those with historic adverse credit (as well as employed people of course). In all these situations we can frequently secure high street deals. Being independent and experts is a real benefit in these circumstances.
Your monthly payments will vary depending to your chosen mortgage term, choice of mortgage product, how much deposit you have and repayment type. It is best to chat with a personal independent adviser to find out exactly what interest rate and term you can secure to give an accurate monthly payment.
Most of the first time buyers we have helped secure a mortgage are paying less on their mortgage than they used to pay on rent. This does, however, depend on circumstances. The mortgage term chosen is a major factor which can be dictated by your age and intended retirement age. Of course, it is also worth noting you are paying back the mortgage and once it is repaid you won’t have any rent to pay.
There are costs associated with purchasing your first home. You will need to pay legal fees and other potential costs include a survey fee, stamp duty (which is a property land tax) and administration fees. There are First Time Buyer government incentives on savings and stamp duty that can help you with raising the monies for a deposit, costs and reducing stamp duty. Our personal advisers can give guidance within a free consultation.