First Time Buyer Mortgages
If you’re a first time buyer, the process of securing a mortgage can seem daunting. There are lots of different products on the market and it’s hard to know where to start.
This guide will help you understand the basics of first time buyer mortgages in the UK, so that you can make the best decision for your circumstances.
When you’re a first time buyer, the world of mortgages can seem very confusing. There are many different products on the market and it’s important to find the right one for your needs. A mortgage broker can help you compare products and find the best deal for your circumstances.
The first step is to assess how much you can afford to borrow. This will depend on factors such as your income, existing debts including student loans and any savings you have. It’s important to be realistic about what you can afford, as this will help you narrow down your options.
Once you know how much you can borrow, the next step is to compare mortgage products. There are many different types of mortgage products from numerous lenders.
Not all lenders lend to first time buyers , so it’s important to research your options. There are a few things to compare, such as the interest rate, fees and repayment method. A mortgage broker can help you compare products and find the best deal for your circumstances.
Savings and Deposits
When it comes to securing a mortgage, one of the most important things you need to do is save up for a deposit.
The size of your deposit will determine the type of mortgage you can get. The bigger the deposit, the better the mortgage terms will be.
Most lenders require a deposit of 5% of the property value. If you have a larger deposit (10% or more), you may be able to get a mortgage with more favourable terms, such as a lower interest rate.
Many first time buyers are now given cash by their parents to help them to buy a home. This can be used for the deposit, or to increase the deposit, and is called a gifted deposit by lenders.
With this type of family help you can get a 100% mortgage, with no deposit needed from you.
Guarantor Mortgages
It’s not always possible to qualify for a mortgage on your own. A guarantor mortgage allows a close family member to become part of the mortgage so that you can borrow more money. It is most commonly used by first-time buyers. Read more about guarantor mortgages.
Joint Borrower Sole Proprietor Mortgages
A Joint Borrower Sole Proprietor Mortgage (otherwise referred to as a JBSP mortgage) is a type of home loan that allows two people to borrow money together while only one of them is named on the mortgage.
Concessionary purchase mortgages
If your parents offer to sell you a property that they own, for a discounted price, you will need a concessionary purchase mortgage to provide the finance. These mortgages use the discount as the deposit, which can mean you get a 100% mortgage on the purchase price (which is below market value).
New Build Mortgages
Buying a new build is a popular option for first time buyers as no DIY skills are required! Also, you can generally get a discount off of the price and occasionally first time buyer assistance with the deposit. Read more on new build mortgages.
Right to Buy Mortgages
If you are a local authority tenant and want to buy the property you’re living in using the Right to Buy scheme, we can help you find the best mortgage deal.
Many mortgage lenders will have deals which are specifically designed for those buying a home through the Right to Buy scheme. But finding the best deal, and understanding it, can sometimes be a bit tricky.
Mortgage Brokers
A first time buyer mortgage broker is a professional who specialises in helping first time buyers.
A broker will help you find the right mortgage for your needs.
They will assess your financial situation and advise you on which products would be most suitable.
What to consider when choosing a mortgage broker:
- Are they regulated by the Financial Conduct Authority (FCA)?
- Do they have experience in arranging mortgages for first time buyers?
- Can they provide you with a range of mortgage options from different lenders?
- Do they charge a fee for their service?
Types of mortgages
There are two main types of mortgages: fixed rate and variable rate.
Fixed Rate Mortgages
With a fixed rate mortgage, the interest rate is set for a certain period of time (usually 2-5 years), so you’ll know exactly how much your monthly repayments will be during that time.
After the fixed period ends, the interest rate will usually revert to the lender’s standard variable rate (SVR).
Variable Rate Mortgages
With a variable rate mortgage, the interest rate can go up or down over time in line with the lender’s base rate. This means your monthly repayments could increase or decrease.
Tracker Mortgages
A tracker mortgage tracks the Bank of England’s base rate + an additional margin. So, if the base rate changes, your interest rate will change too.
Discounted Rate Mortgages
A discounted rate mortgage offers a reduced interest rate for an initial period (usually 1-5 years), after which it will revert to the lender’s SVR.
Capped Rate Mortgages
A capped rate mortgage is like a variable rate mortgage, but with an upper limit (or cap) on how much the interest rate can increase. This gives you some protection against rising interest rates.
There are three repayment methods to consider
Interest-only
You only pay the interest on your mortgage each month. You don’t reduce the amount you owe on your mortgage unless you make voluntary overpayments.
Learn about interest only mortgages
Repayment
You make monthly payments which include both the interest and some of the capital (the amount you borrowed). This means that over time, your debt will gradually reduce.
Learn about repayment mortgages
Part and part
This combines interest only with repayment under one mortgage account.
The Application Process
Once you’ve chosen a mortgage, the next step is to apply for it. The application process can vary depending on the lender, but usually involves filling out an online form and providing proof of your income, employment and identity.
The lender will send a surveyor to value the property and also check your credit file. If everything is in order, they will issue a mortgage offer, which you can accept or reject.
Once you’ve accepted the offer, the lender will arrange for the money to be paid to your solicitor upon completion. The property will then be registered in your name and you’ll become the legal owner.
If you’re a first time buyer, there are a lot of things to consider when choosing a mortgage. Make sure you compare different products and speak to a mortgage broker to find the best deal for your needs.
Remember to budget for additional costs such as stamp duty, legal fees and surveys. And finally, don’t forget to factor in the cost of moving house!
We hope this guide has been helpful. For more information please contact a member of our team.
