First-Time Buyer Mortgages

Getting onto the property ladder as a first-time buyer can feel overwhelming, but with the right guidance, it’s more achievable than you might think. This guide covers everything from the best mortgage deals to schemes designed to help first-time buyers.

If you have bad credit, a self-employed income, or are exploring shared ownership, start your journey at our dedicated hub pages for bad credit mortgages, self-employed mortgages, and shared ownership. These pages offer expert advice, tools like mortgage calculators, and access to brokers who can help you secure the right deal.

What is a first-time buyer?

Despite what you might think, it’s not so easy to define a first-time buyer. To help you out and clear any confusion, we’ve devised a quick list to explain what constitutes a first-time buyer and what doesn’t.

How much deposit does a first-time buyer need?

Most lenders require a minimum deposit of 10% of the property’s price before lending to you. This means that to buy a property worth £250,000, you would need a £25,000 deposit. However, it’s possible to buy a house with a smaller deposit of 5%, which leaves you with a mortgage to repay the remaining 95%, but not every lender will offer this. Government schemes are available for those with 5% deposits if you struggle to save more.

Saving a deposit is one of the biggest challenges for first-time buyers, so it’s important to carefully consider whether now is the right time for you to buy. One of the advantages of renting is the lack of upfront costs, which can make it easier to live in a prime location.

The more you save for a mortgage deposit the more equity you’ll have in the property you’re buying. So if you have a 20% deposit, this represents the equity you have in the property. As a general rule, the higher your deposit the likelier it is lenders will offer you lower interest rates which will result in lower monthly repayments.

Our table below will give you an idea of the equity you’d have in your home based on the size of your deposit.

How much can you borrow as a first-time buyer?

The quick answer is that most lenders will allow you to borrow 4 to 4.5 times your income. This is provided you meet their affordability criteria. However, some lenders will allow you to borrow 5 times or 6 times your income depending on your circumstances, but this tends to be reserved for those in stable jobs such as teachers and doctors.

Several factors affect what lenders are willing to loan to you.

They include:

• Your income
• Credit score
• Whether you have debts
• Monthly outgoings
• Savings
• Employment

How much will a mortgage cost per month as a first-time buyer?

If you want an idea of what your monthly repayments might look like based on the criteria listed above and your current savings, use our calculator below:

What does the process of getting a first-time buyer mortgage look like?

Once you’ve got your deposit and have a rough idea of what mortgage type you plan to get, you’ll want to know what the mortgage application process looks like.

Below is a rough guide to give you an idea of what to expect.

1. Save for a deposit: The first step is to save. Most lenders require a minimum deposit of 5 to 10%.
2. Affordability: Once you apply, lenders will assess your mortgage affordability, which refers to whether borrowers can repay the loan they take out. Borrowing is based on your salary; lenders use income multiples to determine how much they are willing to lend. Most lenders will offer you 4 to 4.5 times your income if you meet their affordability.
3. Look at houses: The next step is to look at houses or get an agreement in principle (AIP) first. This isn’t a guaranteed offer of a mortgage, but it gives you an idea of the type of property you could purchase. Getting an AIP involves a soft credit check, but this won’t affect your credit score. Your AIP will be valid for 30 to 90 days, depending on your lender.
4. Make an offer: When you find a house you like, you can make an offer to the seller. The seller will then decide whether to accept your offer or not.
5. Offer accepted: If the seller accepts your offer, you can now start the process of making a formal mortgage application.
6. Apply for a mortgage: When you’ve found a house you like and had an offer accepted, you can make a formal mortgage application. This will involve a hard credit check and an affordability review where your lender will look at your income and outgoings. Depending on the type of mortgage you opt for, your lender will perform a stress test to see if you can keep up with your payments if something happens in the future, such as interest rate rises.
7. Apply by yourself or through a broker: You can apply for a mortgage yourself directly with a lender or use a broker to help you. The advantage of using a broker is that they can help you if any problems arise. Plus, they might be able to find you a better deal than you might find by going direct with a high-street bank, for example.
8. Documents: You’ll need to have several documents to hand when applying for a mortgage. Some of these include and aren’t limited to the following: Proof of income (typically your last three months’ payslips or 2-3 years certified self-employed accounts. You may also need to show three months’ bank statements), your latest P60 form, proof of ID, proof of address, evidence of your deposit.
9. Conveyancing: You’ll need to use the services of a solicitor to ensure all the conveyancing processes and legalities of buying a house are met. This will involve carrying out searches such as an environmental search and a local authority search. They will also help transfer funds, obtain the new title deeds, and agree on a completion date. For more details on this and other useful tips, bookmark our essential moving house checklist for later!
10. Valuation: Your lender will complete their own valuation of the property you’re purchasing. However, it’s worth getting an independent valuation to identify any defects or issues with the property that might cost you more later.
11. Complete on property: When the legal work is done, your solicitor will exchange contracts with the seller’s solicitor, pay your deposit and agree on a completion date.
12. Move-in: Once all the legal work is done and contracts have been exchanged, you’ll be given the keys to the property, and you can move in!

What type of first-time buyer mortgage should I get?

If you’re new to the housing market, deciding which mortgage type is right for you can be confusing.

We’ve broken down the mortgage types available to first-time buyers to help you understand what they mean and which one might best fit your circumstances.

• Fixed-rate mortgage: With a fixed-rate mortgage, your interest rate is locked in for a set period, between two to fifteen years. However, most fixed rate deals are from two to five years. If you have a fixed-rate mortgage with an interest rate of 4% over five years, the interest rate won’t change during your term, no matter what happens. Once your term has ended, you’ll need to remortgage onto a new deal with your current lender or a different one. This could be on a fixed rate or one of the options listed below.
• Tracker mortgage: A tracker mortgage follows the Bank of England base rate, with your rate rising or falling in line with whether the base rate rises or falls. Tracker mortgages are a good option when interest rates are low, but your monthly repayments could increase significantly if rates rise.
• Standard variable rate mortgage: The standard variable rate (SVR) is the lender’s basic rate of interest. If you don’t do anything, you’ll typically be moved onto this once your current deal ends. It’s important to note that the interest rates on SVRs are typically higher than those on other market deals.
• Discount mortgage: With a discount mortgage, you’re on the lender’s SVR but receive a discount for a set period. For example, the lender’s SVR could be 5% and you receive a discounted rate of 3.5%. It’s important to note if the lender’s SVR rises, your rate is likely to increase too. To use the aforementioned example, an increase to 6% in the lender’s SVR, could result in your discounted rate increasing to 4.5%.
• Capped rate mortgage: A capped rate mortgage is a type of SVR in which your interest rate has a cap that it will not exceed. The interest rate can still fluctuate, but it will not increase beyond a certain limit, which your lender will define.
• Offset mortgage: You can get an offset mortgage if you have a savings account and mortgage with the same provider. You can use your savings to reduce the total amount of interest you’ll be charged over your term. You’ll need a large deposit of around 20% to 25%, but you can get a family offset mortgage, where a family member’s savings are used instead, if you don’t have a deposit of this size.

What schemes are available for first-time buyers?

Several Government schemes are available. Each aims to achieve something slightly different and has unique criteria and conditions, especially around income. They can mean huge savings to those who qualify, who otherwise might not have been in a position to buy a home at all.

These scheme options include:

• Shared Ownership: In England, Shared Ownership is for new builds and an existing home (through a shared ownership resale scheme) and allows you to buy a share of between 10% and 75% of the property, specifically built to be sold under the scheme. The rest of the property is then owned by a housing association to whom you pay rent.
• First Homes Scheme (only in England): The First Homes Scheme allows you to buy a home with a discount of 30% to 50%. You must be able to secure a mortgage for the remainder of the cost, and the property cannot cost more than £250,000 (£420,000 in London).
• Right to Buy / Right to Acquire: These are both arrangements for long-term tenants of council or public sector landlords (NHS or armed services, for example) who might want to buy the home they live in, allowing them ownership for the first time via a discount. While the Right to Buy and the Right to Acquire are similar in their objective, they are subtly different.
• Lifetime ISA / Help to Buy ISA: These are products, rather than schemes, that come with government backing. In effect, they are savings accounts enhanced by government top-ups, boosting first-time buyers’ savings by up to 25%. For example, with a Lifetime ISA, you can put £4,000 a year into it and qualify for a 25% bonus. A good mortgage broker will be able to advise as to which ISA might help you save towards a deposit.
• Mortgage Guarantee Scheme: The Mortgage Guarantee Scheme allows borrowers to get a mortgage with a 5% deposit. The government guarantees a portion of the mortgage, reducing the risk associated with a 5% deposit. The scheme runs until 30 June 2025.
• Deposit Unlock: The Deposit Unlock scheme is similar to the Mortgage Guarantee Scheme in that it helps you buy a property with a 5% deposit. However, in this case, the loan is insured by the developer. Participating developers include Bellway and Barratt Homes. Nationwide, Newcastle Building Society, and Accord are participating lenders.
• Builder Deposits: Some developers will pay towards your deposit or other associated costs, such as stamp duty or legal fees. Typically, these cash incentives can be worth up to 5% of the purchase price. Some lenders will not accept anything above 5%, while others will not accept this type of deposit at all. Alternatively, developers may offer to contribute towards the costs of items such as white goods as a way of helping you put down a bigger deposit.

Co-Ownership (Northern Ireland)

Similar to England’s Shared Ownership, Co-Ownership is only available in Northern Ireland.

Co-ownership is available for any property in Northern Ireland up to a value of £190,000. You can buy a share of between 50% – 90% and pay rent on the part of the home that you don’t own.

If you’re not quite ready for home ownership yet but expect to buy within three years, you may want to consider Rent to Own, which lets you move into a rental property and buy it when the time is right.

New Supply Shared Equity Scheme (Scotland)

Another scheme similar to Shared Ownership, the NSSE Scheme Is only available to buy a new build in Scotland from a housing association or local authority.

You can buy between 60% and 80%, with the rest owned by the Scottish Government.

There is also an Open Market Shared Equity Scheme that enables you to buy a share of a property on the open market and is not restricted to new builds.

Other options to consider

A guarantor mortgage is a way for a first-time buyer to be approved by a lender without a hefty deposit or going through a specific scheme. However, it does involve a suitable and willing relative providing collateral. In other words, they will pay your mortgage if you can’t.

There are other products, too, for when family members’ generosity and financial position can help you onto the ladder, such as a family springboard mortgage.

If you can find an amendable lender, you could secure a high loan-to-value mortgage, such as a regular 95% mortgage that’s not affiliated with any schemes or even a 100% no-deposit loan. However, you should note that these can be tricky to get hold of in a fluctuating economic situation.

If you’re a first-time buyer on a low income but have a large deposit saved, this might also help. As long as you can prove your affordability to lenders, that down payment will increase your equity and decrease your loan size, which could unlock better rates and be a much cheaper mortgage in the long term.

What interest rates to expect

The table below provides an illustration of the typical interest rates available for first-time buyers.

The rates quoted above are subject to change at the lender’s discretion at any time. The best way to keep track of the rates available at any given time is to speak to a mortgage broker.

Which lenders offer incentives for first-time buyers?

Another hurdle for first-time buyers in a constantly shifting economic climate is that it can be impossible to know which lenders are willing to lend via niche schemes and mortgage products.

For example, guarantor mortgages are only available with a finite number of lenders, including Kent Reliance, Penrith Building Society, and Generation Home. They all have strict criteria around loan-to-value borrowing caps. Right now, no mainstream banks are accepting applications for guarantor products.

There are more willing lenders on board for shared ownership hopefuls, including bigger names such as Halifax, Barclays, TSB, and Santander, and even more for Right to Buy (NatWest, Virgin Money, and Norton Home Loans included).

This is where your broker comes in. They have insights into the industry and stay up-to-date with trends and shifts.

Speak to a broker who specialises in first-time buyer mortgages

There hasn’t been a time in recent history that has been tougher for first-time buyers to get a foot on the ladder. Rising house prices affect the size of deposit you’ll need, plus increasing monthly repayments caused by interest rate hikes can make the challenge seem insurmountable.

Having the backing of a professional broker with experience and knowledge takes the pressure off and provides a better chance of being successful in a tough market. The advisors we work with are impartial, five-star rated, fully trained and happy to get you where you need to be – in your first home.

Call us today for a free impartial consultation so we can match you to the right person on 0330 818 7026 or make an online enquiry to get started.