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What is the process when getting a first-time mortgage?

Firstly, when you’re looking to get your first mortgage you should work out how much money you have for a deposit and then seeing how much you could borrow. Typically, when applying for a mortgage the process will involve an affordability review and credit check. The mortgage provider will need to look at your annual salary and other incomes, as well as outgoings such as household bills and any debts from loans or credit cards. 

They will need to determine whether you are a reliable borrower by checking your credit history and if you have ever missed any payments in the past. If you choose a variable rate mortgage or a fixed-rate mortgage of less than five years, the lender can ‘stress test’ how able you are to repay your mortgage in the future. In essence they are figuring out if you could keep up your payments if anything changed such as a rise in interest rates. Once they have gathered all this information, they will decide how much you can have as a first-time buyer’s loan. 

When you know how much you can borrow you can get an idea of the type of first home you can afford.

How we can help

Being a first-time buyer can be a very daunting prospect. There is a vast array of mortgages available from a wide range of sources leaving you with a high-stress, confusing decision.

We will take care of everything for you and make the process of buying your first home as easy as possible. As well we aim to make the process as stress-free for you as we can.

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So ... how can we help?

Buying a financial product such as a mortgage can be the biggest decision made in our lives. It is for this reason that impartial advice is critical from qualified advisors.

Why use us?

From the information you provide to us, our experts will search the market and find the most suitable products for you. If you are happy with the product on offer, we will handle all the necessary paperwork for you, including any relevant applications, to ensure that everything runs smoothly for you.

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One of our Advisors will then find out what you’re looking to do, discuss your options and answer any questions you may have.

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Your Advisor will find the best option for you and help arrange things. You then sit back and relax while we do the rest.

First-time buyer’s deposit

Generally, for first time buyer mortgages the buyer is expected to provide a deposit of at least 10% of a property’s purchase price. Lenders need to have a deposit to secure the mortgage and as assurance that you can afford the financial commitment.

In some cases, you can have only a 5% deposit and get a 95% mortgage, but the risks are greater when borrowing such a large amount. The more savings you have for a mortgage deposit the more equity you will have in your first home. This will put you in a stronger position to get more competitive mortgage rates which could mean lower monthly payments.

What type of first-time mortgages are available?

When looking for your first-time home buyer mortgage you may not be fully aware of what options are open to you. The right type of mortgage for you will depend on your personal circumstances, but to help you find the one that works best we have put together a list of the different types of mortgage.

  • Standard variable rate mortgages (SVRs) – these are set at the lenders basic rate of interest. The lender can choose how much interest they charge and SVRs don’t come with any discounts or reduced interest rates.
  • Tracker mortgages – these have variable interest rates that follow an external rate, usually this is the Bank of England’s base rate. Tracker mortgages don’t match the rates that they follow but will be set at a certain percentage above or below.
  • Fixed-rate mortgages – the interest rate on your mortgage will be fixed for an agreed period of time. This can be anywhere between 2 and 15 years but typically it will be 2-5 years. With a fixed-rate mortgage you will be able to effectively budget for a set time, it offers you stability in your payments. It is important to remember with fixed-rate mortgages that when the term ends you will be moved onto the bank’s standard variable rate mortgage, which usually has a higher interest rate than other products. At this point it could be a good time to remortgage and switch your mortgage to a better deal.
  • Capped mortgages – these are linked to the lenders SVRs but with a capped mortgage the rate won’t go above a certain level. On the other hand, a capped mortgage can be a type of loan where the interest rate won’t fall below a set limit. However, these are much less common than other deals on the market.
  • Discount rate mortgage – these are similar to tracker mortgages; they track a lenders SVR by a set amount. An example of this is if the SVR is 4% and there is a discount of 1% you will be charged an interest rate of 3%. These rates can change though and even though your level of discount won’t change, the rate of interest may.
    (The above is an educational example only and does not reflect the true rate you might get if you applied for a discount rate mortgage.)
  • Offset mortgages – these are available for people whose savings account and mortgage are with the same provider. Through this you can use your savings to offset the interest being charged on your mortgage, so you won’t pay interest on your mortgage to the same value as your savings. The more savings you offset the more interest you will save, meaning your mortgage payments will cost less. Offset mortgages can help you pay off your mortgage sooner as it allows you to make regular or lump sum payments.

How much can you borrow?

There are several factors that can influence how much you can borrow as a first-time buyer. The mortgage provider will calculate how much you can afford to pay back each month by looking at:

  • How much deposit you are putting up
  • Your outgoings each month
  • Your salary and additional income
  • Your credit history and rating

At this point the cost of the home you are interested in isn’t considered. Mortgage providers will use the above information to work out a realistic amount you can afford and provide you with a mortgage limit based on that. From this you will have a solid guide when looking at properties for your first home.

Don’t forget to factor in how an increase in interest rates could affect your ability to pay your mortgage. This loan will be a large amount and a big commitment so you should be careful not to overstretch yourself. It can be tempting if you have fallen in love with a house but try to stay realistic and level-headed. You should only borrow an amount that you can afford to pay back as well as having some extra money aside for savings or any unexpected expenses.

first time buyer mortgages

When should you apply for a first-time mortgage?

You should look at getting an ‘agreement in principle’ from one or two lenders before you start house hunting. Even though this isn’t a guaranteed mortgage offer it will provide you with a clear idea of what you could buy in your price range. Also, it will prevent the previously mentioned situation from happening where you start looking at and falling in love with houses you cannot afford. It is likely that estate agents will ask you to get an agreement in principle before you can make any offers.

An agreement in principle will only need a soft credit check so your credit score won’t be affected by it. Another good thing about it is there’s no commitment required so you don’t have to take the mortgage if you change your mind. You will have a considerable amount of time to decide as an agreement in principle is usually valid for up to 90 days.

 

Are there any schemes to help with first-time buyer mortgages?

The government offers multiple schemes to help first-time buyers get on the property ladder.

  • Help to buy: Equity Loan – the government will lend you up to 20% of the cost of a newly built property. Through this scheme you need to raise a 5% cash deposit, so you have a 75% repayment mortgage. You won’t be charged interest on the governments 20% loan for the first 5 years that you own your home.
  • Lifetime ISA – if aged between 18 and 40 the government can add 25% to your savings until you’re 50. Note, charges could be applicable if you withdrew your money early from a lifetime ISA or used it for a different purpose.
  • Right to buy – this gives tenants who rent from the council or local housing association the opportunity to buy their home.
  • Starter home scheme – available to people under 40, the scheme aims to offer first-time buyers one of around 200,000 new homes priced at 20% less than market value.
    Shared ownership – lets you co-own a property with a landlord.

 

10 tips for a first-time buyer

We have put together our 10 top tips to help you with making the right decision.

  1. Ensure that you are realistic when working out exactly how much you can afford to spend on your new house. You should ensure the intended mortgage is affordable and it is wise to seek a Decision in Principle certificate. This way you know how much you can offer once you have found a suitable property. Even a newly built house will require some sort of furnishings, whereas older properties may require extensive work. This can be jobs such as re-flooring, tiling, or renewing the wiring. Make sure that you factor in all these likely expenses. This in addition to the purchase price and other fees such as conveyancing and stamp duty.
  2. Remember to budget for expenses such as council tax, gas and electricity bills, boiler servicing, and other home repairs. Especially if you have been used to living at home with your parents.
  3. When you are a first-time buyer, there may be a number of details in the houses you are looking at, which you may not pick up. Always take an experienced home buyer, such as one of your parents, or a home-owning friend, when looking at property. If this is difficult to arrange, then make sure you at least get some assistance once you have selected a property you like and are arranging a second viewing.
  4. Make sure you know what the likely council tax charge will be in your new property. The selling agent should be able to tell you what tax band the house you are interested in buying is in. As well as this how the charges are levied by your local authority.
  5. Even if you do not have children, remember that property in the catchment area of good local schools will always be much easier to sell on. However, this may also be reflected in a higher purchase price.
  6. Always consider how your transport arrangements will change in your new house. If you have a car, your insurance premium may increase dramatically if you move from a town with relatively low crime into a city centre with higher crime rates. It will also rise if you move from your parents’ house with a locked garage to a smaller terraced house with on-street parking.
  7. Consider the availability of public transport services. Ensure you find out local bus routes, the frequency of train services from your nearest station. As well as this if you are moving a long distance, the range of flights available from your local airport. Even if you drive everywhere, this information will be useful for anyone coming to visit you who does not drive.
  8. If you are a heavy internet user, check to see that broadband or other high-speed internet is available in the street you are moving into. The selling agent should be able to tell you this.
  9. Write down a list of local amenities which are important to you. This may include shops, restaurants, pubs, sports centres, parks, and cinemas. If you enjoy activities such as walking, or cycling, the neighbourhood you plan to move in to may be very different from the one you currently live in. The area you are looking to move to may not have the same access to parks and other recreational facilities. Before making any final decision about where to move to, take a stroll or bike ride around the local area. It may help to note down where the key facilities are.
  10. Try, where possible, to find somewhere to live that is close to your main place of work. Commuting can be one of the biggest household expenses. If the property is more expensive nearer to your place of work, make sure you weigh up this additional expense. Then compare to the costs and time of commuting. You may wish to ask colleagues in your workplace to see if there are possibilities to lift share with anyone from the area.

As a mortgage is secured against your home or property, it may be repossessed if you do not keep up the mortgage repayments.

This article is for information only and should not be seen as advice or a recommendation to take action.

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