First time buyer mortgages
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Mortgages for first time buyers
First Time Home Buyer Guide
If you’re buying for the first time, the main things you’ll want to know are:
Can I Get a Mortgage?
Good question. One that can’t really be answered in a paragraph of an article.
If you’ve not missed any payments on anything and your income is high enough then you should qualify with most lenders, but each application is judged on individual merit. It can come down to employment status, affordability, age, credit score, property type, and a whole host of different things. Credit scoring systems these days are so complex, it’s impossible to work out exactly what score they’ll give.
The good news is, that as every lender is different, and if you’ve been declined once it doesn’t mean you cant get a mortgage with another lender. Some lenders are surprisingly flexible, some don’t even credit score. They are all constantly changing their scoring systems, at times raising the bar making it harder to qualify, other times lowering it making it easier – usually depending on how much money they have to lend at the time. If you’re struggling, I’d suggest you get in touch and an advisor can see if there’s anything that can be done based on the latest market criteria.
For more info on mortgage criteria and bad credit applications, visit the bad credit mortgages page.
How much can I borrow?
This really depends on the income and commitments you’ll have when you’ve got the new mortgage. General rule of thumb is about 4x your salary, but can be up to 5x depending on credit profile. ‘Salary’ is a fluid concept in and of itself however, as every lender takes different incomes into account. Some take state benefits, overtime, shift allowance, bonuses, holiday pay, dividends, investment income, retirement income, overseas income… and others don’t. Some take 3x joint salaries, some can stretch to 5x in the right circumstances.
Again, your best bet is to make an enquiry so an advisor can calculate your borrowing limits. For more info have a read of our mortgage advice pages.
How much deposit will I need?
A common issue for first time buyers is a lack of a decent sized deposit. At the moment, the minimum is 5% across the board, but these are scarce and have very strict criteria to meet if you are to obtain one, not to mention coming with a much higher rate than 10 or 15% deposit deals.
With the introduction of the new Help to Buy 2 scheme however, buying any property with just 5% deposit is now much easier.
Specialist lenders can often help you if you have a minimal amount to put down as deposit, and with the right advice you can save hundreds on your mortgage by getting the rate right. Using a whole of market, independent mortgage broker, can help ensure you get the best deal available.
NOTE: 100% mortgages don’t really exist anymore, however through some specialist lenders it is possible to borrow the 5% deposit required on an unsecured loan, provided it is affordable to do so. If you are looking to buy and have no deposit, but think you have the income to sustain a loan and a mortgage, please get in touch.
What will my mortgage repayments be?
This will be determined by the amount you borrow, the rate, any fees added onto the product, and the term. Historically, mortgages were lent over 25 years to start with, nowadays things are much more flexible, and you can set the term to whatever suits you.
For instance if borrowing £100,000 costs £1,000 over 15 years, and you have a budget for £600, then extending the term to 30 years may help.
To find out what rate you’re likely to be on, play around with the online mortgage search engine and mortgage calculator to get a better idea, or give us a call and have an advisor calculate this to the penny.
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The 3 most important things to remember
- Don’t be pushed around – With the market as it is, and houses not selling anywhere near as much as they used to, estate agents and house vendors are all the more eager to sell at the moment. You shouldn’t let anything or anyone make you feel like there is any pressure to make this important decision straight away. Being prepared and acquiring knowledge will help put you in the best position when the right house comes along and getting the right mortgage adviser will ensure that things move quickly once your offer on the house has been accepted.
- First time buyers are a commodity – As you’ll have no house to sell you are already in the ‘one up’ position. Speed is a big attraction for someone struggling to sell their house so remember this and use it to your advantage as a bargaining tool when submitting your offer – You have a deposit, no house to sell, and are ready to go!
- What to look for in a mortgage broker…The whole market – The right broker will be a whole of market, independent financial advisor. This means they have access to all lenders and almost all products on the market, and aren’t tied to any one institution.No up front fees – You’ll also want to make sure there are no initial charges. Many independent mortgage brokers charge for their time. Find one that only take a fee once you’ve been accepted and the mortgage has been finalised. We call this a ‘success fee’.Affordability – When giving first time buyer mortgage advice, your advisor will likely talk to you about your personal financial circumstances and will put forward a recommendation based on what you think you can afford, helping you to think about budgeting correctly. They’ll also know which lenders offer the highest level of borrowing on a mortgage, so if affordability is holding you back or you’re looking for more than you think you can get, get in touch and an advisor can help. [/toggle]
What are exclusive first time buyer mortgage deals like?
These mortgages are designed to offer some help with the cost of getting your first mortgage. They tend to have either a slightly lower rate or are cheaper on fee’s, for mortgages with smaller deposits (10-20%). Don’t let anybody fool you though, these aren’t always world beating deals and often make little impact when you’re searching through the whole market. Remember, first time buyers are usually also free to go for any other mortgage on the market.
What is a guarantor?
A guarantor is another person (usually family member) that joins you on the application, on the basis that if you don’t pay the mortgage, they have to. They are usually not on the deeds to the property and have no ownership of it, but they will have your mortgage registered to them as a commitment. It is usually assumed the applicant pays the mortgage on their own and the guarantor is there ‘just incase’.
Again, different lenders have different criteria – some ask for either full or partial affordability to be taken into account with a guarantor – some want them to afford the whole loan along with current commitments, others just to afford the shortfall. – Some have limitations on the length of time a guarantor can be on a mortgage, some don’t. If you’re concerned about being able to afford the mortgage on your own, or have questions about guarantors on your mortgage application, its important to speak to an expert.
What government schemes are available?
Several government schemes have been put in place to help first-time buyers and certain key government workers obtain mortgages. These include:
Help to buy – buying new or existing properties with just 5% deposit.
Key government worker mortgages – for instance; teacher mortgages, mortgages for soldiers, mortgages for doctors and other professionals. Get in touch for exclusive deals.
Shared ownership/equity – see definitions below.
Right to buy – This is where your local authority or housing association grants you the ability to purchase your rented council house if you’ve lived there for a number of years and satisfied a number of other specific criteria. They usually offer a larger discount from the market value, which can be used as a deposit. For instance, you have lived in your rented council flat for 6 years, and have been granted the right to buy. The council have valued it at £65,000 and offer you a discount of £20,000. You actually purchase for £45,000 but are able to take a 100% mortgage for the full amount, with no need for deposit. The council usually tie you in to a contract for 5 years, in which time you cant sell or borrow against the equity for purposes other than home improvement.
What is shared ownership?
Shared ownership mortgages are where you buy a home for say 75% of its value, and pay a developer or housing association rent on the other 25%. You’d need a mortgage on you’re share, so if the house was worth £100,000, and you bought 75% of it, you’d own £75,000. For this you’d need a mortgage of maximum 95% (£71,250) and put down a minimum 5% deposit (£3,750).
What is shared equity?
Similar to shared ownership, shared equity mortgages are where a buyer owns a percentage of the property, and then instead of paying rent, takes out a low/0% rate equity loan with the developer (usually), which is repaid slowly over the term.
I have Bad credit, can I still get a mortgage?
It can be very challenging for people with bad credit to secure a mortgage. Often, you’ll have gone to and been declined by high street banks, and will need specialist advice. Mortgage brokers and IFA’s have the experience and the expertise to help you out in a situation like this. See our page on bad credit mortgages. You may also like to visit our online mortgage search engine. Again, it allows you to ‘be the broker’ and see the deals available to you. If this brings about zero results get in touch. If you have any questions or queries, drop us an enquiry or give us a call.
What is the full house buying process?
1) Get your mortgage agreed ‘in principle’ (30 minutes) – This means that a lender has assessed your personal details – things like occupation, credit history, income and your other financial responsibilities, amongst others – and is happy to lend you ‘x’ amount, subject to the valuation on the property being ok, and the info given being correct and supported by the proof they require (pay slips etc). It is called a decision in principle/agreement in principle/mortgage promise. You will also have an idea at this stage of your product, rate, fees, and monthly repayments (via the Key facts illustration (KFI)).
2) Find a property (as long as it takes you!) – Then its down to you to find a house and put an offer to purchase in.
3) Instruct the Valuer (2-3 working days) – When you’ve had an offer accepted, the lender will need to instruct a valuation of the property to check its worth what you’re paying for it. They can also, at your request, perform home-buyers reports and full structural surveys (additional cost), and this is your decision based on whether you think the property requires more in depth analysis. See section below about valuations.
4) Formal mortgage offer (1 working day) – Once the lender is happy with the valuation and all your documents, they will formally offer the mortgage and send copies of the paperwork out to you and to the solicitor to get ready for completion. The mortgage at this point is sorted. Most lenders and brokers will be able to issue an offer within 10 days (max) of your valuation request (depending on time taken to get the val booked in), but usually much quicker than this. It can be offered at any point after receiving a successful valuation and all documents.
5) Instruct a solicitor (3-4 weeks) – This can be done at any point once an offer has been accepted, and if time is of the essence then some purchasers like to get the solicitors moving straight away. However, it is advisable to wait until the valuation has been done, because spending money on legal work when you don’t know the house you’re buying is suitable, is a costly mistake if something on the valuation puts you off. Solicitors can be found locally or online, usually online are cheaper. They will then instruct searches on the property such as local authority searches (to make sure they aren’t going to build a motorway through the back garden anytime soon!), mining area searches, chancel searches to see if the house is part of a parish area, and others…
6) Exchange contracts – Once all searches have been done, and both the buyer and seller’s solicitors have drawn up the appropriate contracts, you are ready to exchange the contracts and set a date for completion (sometimes this happens on the same day).
7) Complete the purchase – and move in! – The whole process on average takes 6-8 weeks, sometimes longer sometimes much quicker. You can also request accelerated processing from the lender and solicitor, if the purchase is a repossession property and needs to complete in a very short timescale.
Do I need to instruct a survey or a valuation?
You won’t need to do any independent valuations, whatever lender you go with can do it for you. However if you like you can get your own specialist surveys. They are split into 3 types:
- Level 1 – Lenders valuation to make sure the property is appropriately priced at what you’re paying for it.
- Level 2 – home buyers report, to make basic checks on damp, dry rot, roofs, electrics etc.
- level 3 – full structural survey, where a valuer will go and spend half a day or more a the property testing and inspecting to make sure it is structurally sound throughout (usually reserved for old / unique properties with suspected defects).
Depending on the mortgage deal you are taking, there may be a charge for the level 1 valuation. Level 2 and 3 aren’t compulsory, but are something you may want to consider, especially on older properties or those in ‘risk areas’. They can reveal some vital information about a property that otherwise may go unnoticed.
What Insurance do I really need?
It will be a requirement in your mortgage contract that you take out buildings insurance – this is currently the only cover that is made essential with most mortgages nowadays. Contents insurance is optional, but is always recommended. Life cover, critical illness cover, income protection, and sickness & accident cover are also vital protection options – all there to protect your property and your loved ones should anything unforeseen happen.
Why do I need a solicitor?
Although we can help you through the process, mortgage advisers don’t do the legal paperwork. This is taken care of by trained solicitors who deal with conveyancing. If you don’t have a solicitor sorted yet, make an enquiry and one of the specialists can search the market for the best prices.
What do the different rates mean?
There’s the actual rate you will need to pay (the ‘initial rate’), this may be a fixed rate, tracker rate or variable rate. And there is a rate you’ll switch to once your rate period ends known usually as the ‘reversionary rate’. It is usually set at the lenders own standard variable rate (SVR), however sometimes it can be different depending on the mortgage you are applying for. APR stands for annual percentage rate and estimates the overall loan rate over a full year. For more info on rates, and specific rate definitions, see our mortgage types article.
Can first time Buyers apply for buy-to-let mortgages?
With many lenders you will be required to already own a property if you want a buy-to-let mortgage. Some lenders in the market currently do offer buy to lets for first time buyers, but criteria is strict. Make a full enquiry and one of the brokers we work with will find one for you.