First-Time Buyer And Second-Time Buyer Mortgage
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First-Time Buyer And Second-Time Buyer Mortgage
Will we be treated as first-time buyers or second-time buyers when applying together?
If one of you has owned a home before, you’d be treated as second-time buyers by lenders. From a mortgage perspective, this doesn’t make a lot of difference to the options available.
Do we still qualify for any first-time buyer benefits like stamp duty relief or schemes?
No, not if you’re buying together. The stamp duty exemption for the first-time buyer would effectively be lost. If it’s affordable for the first-time buyer to buy in their own name, it’s worth exploring this so you don’t lose the exemption. We can do that for you – looking at scenarios with and without the partner.
Also, other government-backed schemes designed for first-time buyers won’t be available, unfortunately.
How is our stamp duty calculated when there’s one first-time buyer and one second-time buyer?
The first-time buyer exemption is lost, sadly, so you’d pay the standard residential stamp duty land tax on the property’s purchase price. The thresholds and percentages change with government policy.
As part of our service, we advise buyers of the costs – not just stamp duty, but all the costs involved when buying and selling property. It’s worth reaching out to find out the details, as the thresholds and percentages do change.
How will an existing mortgage or past property ownership affect our borrowing potential?
It’s unlikely to impact it at all, to be honest. It may even help to have a history of paying a mortgage.
Subject to affordability, some lenders will offer you a mortgage of up to 5.5 times your joint incomes, and some even six times. Typically speaking, to secure better products in the market, you’d need to borrow 5.5 times or less.
Will affordability be based on both the incomes equally? How do lenders view our other commitments?
Yes, lenders will use both your incomes equally. They might lend up to 5.5 times your joint income. The regulations mean that every lender must use an affordability calculator to assess how much you’re borrowing.
Commitments like credit cards, car finance agreements, loans and childcare costs will all form part of that affordability assessment. To borrow up to 5.5 times your income, you would usually need to earn over £40,000 in total.
Don’t rely on information from affordability calculations, many of which are available online. You need to understand how lenders treat your income, as well as their criteria, to input the data correctly.
Knowledge is key when assessing your borrowing power. To find out how much you can borrow and what the monthly payment will be, talk to us. That information can then kickstart a property search.
Are there lenders that specialise in mixed first-time and second- time buyer applications?
No, there aren’t. This is a situation that any lender can accept.
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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.
Should we apply for a mortgage jointly or should the first-time buyer apply alone?
There’s no answer to fit everyone here. It will depend on your circumstances and also your long-term objectives. If you can borrow enough to purchase on just the first-time buyer’s income, it’d be worth considering.
The main reason is that stamp duty exemption, which would otherwise be lost. Explore both options with an advisor – the most sensible option will be probably quite obvious following advice and research.
Should we choose joint tenants or tenants in common? What’s the difference?
If you’d like the property to automatically pass from one to the other upon death, joint tenancy works best. You each have equal rights to the whole property.
With tenants in common, you’d each own an individual share, and these don’t have to be of equal amounts. It might be 60-40 or 70-30. This might suit you if you want to leave your share upon death to your children, for example.
This is legal territory rather than mortgage advice. A good solicitor will help you decide whether to purchase as joint tenants or tenants in common.
How does the size or source of our deposit affect our application when one of us is a first-time buyer?
The fact that one of you is a first-time buyer doesn’t have any impact. A deposit from savings, equity or a gift will all be acceptable to lenders, whether you’re a first-time buyer or a second-time buyer.
Mortgage products become available with as little as a 1% deposit, although most do require at least 5%. In all honesty, it doesn’t make a lot of difference.
Are there alternative ways to structure the purchase to reduce costs?
The main cost saving is the first-time buyer stamp duty exemption. Options that could be explored are buying just in the first-time buyer’s name, or alternatively doing a Joint Borrower Sole Proprietor mortgage.
A Joint Borrower Sole Proprietor mortgage allows you to use both incomes towards borrowing capacity, but the property is purchased in the first-time buyer’s name only. That potentially allows you to use the first-time buyer stamp duty exemption. It should certainly be explored as part of the conversation around buying a home.
How can a mortgage broker help here?
A good mortgage broker will make these decisions quite simple. We will explore your circumstances and then research all the options. We present these to you to help you decide what to do – and there’s no fee at this point.
It all starts with an initial chat about your objectives and plans. Our advisors are ready to help should you want any information.
Key Takeaways:
- If one person has owned a home before, lenders will treat you as second-time buyers, which doesn’t significantly alter mortgage options.
- First-time buyer benefits like stamp duty relief or government-backed schemes are lost if buying jointly with a second-time buyer, unless the first-time buyer purchases in their own name.
- Lenders will use both incomes equally for affordability assessments, considering commitments like credit cards, car finance, loans, and childcare costs.
- There are no specialised lenders for mixed first-time and second-time buyer applications; any lender can accept this situation.
- Alternative ways to structure the purchase to reduce costs include buying in the first-time buyer’s name or a Joint Borrower Sole Proprietor mortgage, which allows both incomes to be used for borrowing while retaining stamp duty exemption.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
For specialist tax advice, please refer to an accountant or tax specialist.
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What you need to know…
You can get an indication of how much you can borrow by using our handy “how much can I borrow” calculator. The actual amount you can borrow will depend on your credit commitments, your regular monthly outgoings and how each lender assesses your income.
It may be possible to borrow more than our calculator shows you, 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 according to the chosen mortgage term, choice of product, level of deposit and repayment type. You can get an indication of the monthly payments by using our calculator below, but it is best to chat with a personal 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.