First Time Buyer Guide
We have written this guide to show you the process of buying your first home with a mortgage. Hopefully it will give you the knowledge and confidence to make the home buying experience a little easier.
Let us walk you through the journey to becoming a homeowner and getting onto the property ladder.
Buying a home is one of the biggest decisions you will ever make in your life. It’s also likely to be one of the most expensive.
That’s why it’s important to do your homework before you even start looking at houses.
Our first time buyer guide will take you through the process step by step, from working out how much you can afford, to applying for a first time buyer mortgage and completing the purchase.
What exactly is a first time buyer?
A first time buyer is someone who has never owned any residential property. This means that you can only be a first-time buyer once.
Why does it matter? It matters because First Time Buyers (FTB) currently receive special reduced rates for Stamp Duty and are also eligible for other savings and property schemes.
How do banks know if you are a first-time buyer?
Anyone who has owned a residential property before will not be eligible for first-time buyer status.
Even if you only owned a small part of a property, or it was just for a short time, or if it was an inheritance, these all mean that you are no longer a first-time buyer (FTB).
To check, your solicitor and bank will ask questions to establish whether you are a first time buyer. Your bank will be also able to look at your credit report, this shows all credit based applications going back over six years.
As a FTB you will no doubt want to take advantage of the FTB Stamp Duty incentives provided by HMRC.
HMRC could check the Land Registry to search for your name. Or check to see if you have paid Stamp Duty in the past.
Am I considered a first-time buyer after divorce?
You can only be a first time buyer once.
So you wouldn’t be considered a first-time buyer following a divorce if you were previously a co-owner of a residential property. This is because first-time buyer status is reserved for individuals who have never owned a property in the UK or abroad, even if they are no longer associated with that property after a divorce settlement.
GET MORTGAGE READY
Planning for your first mortgage
This section is all about how to get yourself ‘mortgage ready‘.
From checking what you can afford, to learning how mortgages and deposits work.
By going through these steps you will be much better prepared for when you begin house hunting and then need to apply for a mortgage.
One of the hardest parts of buying your first home is saving for the deposit. Buying a home is expensive but the sooner you start saving, the sooner you can get on to the property ladder.
We look at mortgage deposits in more detail further down this page.
MORTGAGE ADVICE
It is never too early to find yourself a good whole of market mortgage broker to help you purchase your first home. While many people will approach a broker at the point they are ready to buy, a broker can be very helpful in the early stages.
Mortgage brokers are experts at helping people to successfully apply for a mortgage. They understand the current options, problems and what criteria mortgage lenders work to. This enables them to assist greatly in planning for your first mortgage.
They can run through what the different fees and charges could be and also what minimum deposit you would need.
Often a borrower is not quite in the best shape, financially speaking. Perhaps they have too many loans or have been self-employed for only a short while. A first time buyer mortgage broker can provide guidance on how to re-shape these things so that the lender has a less complicated situation to assess. Having some time do to this is vital, so don’t delay, speak with a broker as early in the process as you can.
CREDIT PROFILE
It’s a good idea to know about your credit profile.
Your credit score is a key factor that lenders will take into account when assessing your mortgage application. A good credit score indicates to lenders that you are a low-risk borrower who can manage their finances. What credit score is needed for a mortgage? – it’s impossible to provide an accurate figure as each lender has their own score.
There are a few things to check when looking at your credit report:
- missed or late payments
- county court judgements (CCJ)
- bankruptcy or insolvency proceedings
When you apply for a mortgage the lender will be able to see all of these entries, including anything that may have been put there, or left there, in error. So check your report over and get any problems sorted. Your mortgage broker will be able to help with this.
You can check your credit score for free with a number of online providers. It is also a good idea to check your credit report for any errors that could be affecting your score. Click here to check your credit file information held by; Equifax, Experian, TransUnion and Crediva.
AFFORDABILITY
Being able to afford your mortgage is essential, particularly when it is your first. The lender will make their own assessment about your financial position but only you know the finer details. You need to budget for interest rates going up and make allowances for maintenance and repair bills that may crop up from time to time.
Affordability also takes into account your monthly commitments now. These could include overdrafts, credit cards, loans etc. All of these will be listed against your credit file, along with how well you have made the payments. Monthly credit payments are generally deducted from your gross pay before working out what mortgage you could qualify for. A monthly car finance payment of £250 could restrict your potential mortgage size by £12-15,000.
Most lenders also want to know the proportion of your gross income that is used to service debt (ie loans etc). This is called a Debt to Income Ratio, and ideally this should be less than 50%.
We have some online guides and calculators that may help you to work out what mortgage is affordable.
Monthly repayments
If you just want to see a simple monthly figure for a mortgage amount then we have lots of examples in our guide to mortgage repayments.
Repayment calculator
Our online mortgage repayment calculator provides a more interactive option where you can see the effects if you change the term or interest rate.
How much can you borrow?
We can also provide guidance on the amount of mortgage that you may be able to qualify for. Just pop your income details into our maximum mortgage calculator.
Affordability
How much do you need to earn for a certain size of mortgage? A quick look at the levels of income needed, using lender multiples.
Average Repayments
Explore the average repayments for a UK mortgage: Understand what homeowners across the country are paying and how property types and location can affect your mortgage outlay.
GUARANTOR MORTGAGES
Where borrowers find it hard to get the level of mortgage that they need, possibly due to income multiples, a guarantor mortgage could be one solution.
With this kind of mortgage a guarantor, or guarantors, apply for the mortgage with you. The guarantors agree to guarantee the mortgage repayments and will need to step in to keep up the payments if you are unable to.
A Joint Borrower Sole Proprietor mortgage is a modern version of a guarantor mortgage. It effectively means that the ‘guarantor’ becomes party to the mortgage from the outset and they are expected to contribute to the monthly repayments.
These are a good alternative to a joint mortgage with your parents because they do not become co-owners of your property.
You will find more useful information in our article: How do joint mortgages work?
NEW BUILD MORTGAGES
These are needed when you are buying a brand new house that has never been lived in. New build mortgages are available from a number of well known lenders and are popular with first time buyers. The process of buying a new house is slightly different and your broker will be able to keep you on track through the different stages.
RIGHT TO BUY MORTGAGES
If you are a local authority tenant then you may have the right to buy your home. The Government has a discount scheme in place that starts after 3 years of occupancy. A Right to Buy mortgage can help to raise the money needed to buy your home, upto 100% of the discounted purchase price. If you use an experienced right to buy mortgage broker they will be able to help you through the whole process.
HOW DO MORTGAGES WORK?
A mortgage is a type of secured loan. The money that you borrow is secured against your home. This means that should you stop paying the mortgage, or fall into arrears, the lender would be able to sell your house to recoup the debt plus interest and costs.
The lender will charge you interest on the mortgage, this is how they make their money, and you pay this monthly. There are different types of interest rates to choose from such as:
You will need to decide on the mortgage term. This is the number of years that your mortgage will last for. With a repayment mortgage the longer the term the lower the monthly repayments are. Most first time buyers will choose a term of 25-30 years to keep their costs down, but longer terms are also available.
DEPOSITS AND LOAN TO VALUE
Deposits are often expressed as a percentage:
5% deposit or 10% deposit.
To work out how much this is in money you also need to know the property price. For example:
- 5% deposit on a property worth £200,000 is £10,000
- 10% deposit on a property worth £200,000 is £20,000
Knowing the deposit percentage also gives us the loan to value or ltv. This is the mortgage amount expressed as a percentage. Using the same examples above:
5% deposit on a property worth £200,000 is £10,000 = 95% loan to value
10% deposit on a property worth £200,000 is £20,000 = 90% loan to value
Loan to value is very important when applying for a mortgage. It determines which lenders are available and then which interest rate products you qualify for. The higher your deposit, the lower the LTV, the better the deal.
how does The Mortgage Guarantee Scheme work?
In this guide we walk you through the 95% Mortgage Guarantee Scheme, explain how it works, and discuss who can benefit from it. Whether you’re buying your first home or taking another step on the property ladder, this guide will give you clear and straightforward information to help you see if this scheme fits your home ownership plans.
SAVINGS
First-time buyer deposits
You need a deposit when buying a home with a mortgage. And for most people this means saving as hard as they can in the months or years prior. Saving for a deposit is one of the most important things you can do to improve your mortgage situation.
The size of your deposit affects the amount you borrow. So the larger the deposit, the smaller the mortgage needs to be, leading to more affordable monthly repayments.
As well as saving for the deposit you also need to factor in some other initial costs such as:
- solicitor fees
- broker fees
- mortgage fees
- stamp duty
- survey fees
First time buyers generally aim for a deposit of 5-10% of the property value. There are a good number of lenders to choose from with this size of deposit.
At the point you apply for a mortgage you will need to prove how much you have saved and over what period. If possible, it is a good idea to consolidate savings into just a few accounts, or even one, to make this process simpler.
Our Guide to Mortgage Deposits goes into a lot more detail if you would like to learn more.
Gifted deposits
A gifted deposit is when someone else gives you the cash you need for the mortgage deposit. This may form all or part of the overall deposit needed.
Most but not all lenders allow gifted deposits, and you will be required to prove the cash is a true gift, and does not need to be repaid.
Should parents be unable to hand over their cash savings then a family offset mortgage could be worth considering. It uses the savings of parents to offset the mortgage interest but without losing ownership of the money.
A springboard mortgage, or family deposit mortgage, does much the same thing.
You will find more useful information in our article: What is a gifted deposit?
Concessionary purchases
Where a parent decides to sell a property to their child, for less than the market value, this is called a concessionary purchase.
If a mortgage is needed this often means that the discount is to be used as the deposit, without putting in any actual cash.
A concessionary purchase mortgage can be used to effectively fund 100% of the purchase price.
How to get a mortgage with no deposit
Affordability can be a huge barrier to getting onto the housing ladder.
If you are struggling to save up the 5% deposit that most lenders ask for, then perhaps a no deposit mortgage could be an option.
You won’t need a cash deposit yourself, but you will need help from a family member. Read on to learn how they work and where to get one.
CONTACT A MORTGAGE BROKER
If you are ready to take the next step then we can put you in touch with a fully qualified independent mortgage broker.
MORTGAGE AGREEMENT IN PRINCIPLE
What is an Agreement in Principle?
An Agreement in Principle (AIP) is sometimes known as a ‘Decision in Principle’ or DIP. An Agreement in Principle is issued by a lender and gives you an idea of how much you could borrow towards the purchase of a property.
Getting a mortgage in principle can make it easier when you start to look for properties to buy. You will have an idea of what your budget is, and you can show it to estate agents and new home builders to prove you’re a serious buyer who has done their homework. Some estate agents insist that first time buyers have an AIP before they can begin viewing properties.
Your mortgage broker will be able to arrange one for you. It has to come from a specific lender so your broker will need to fully understand your financial situation before being able to suggest a lender to approach. A Mortgage Decision in Principle is not a formal mortgage offer, so you will still have to make a full application to see if you can get a mortgage.
When you need to properly apply for a mortgage you are not committed to the lender who provided the AIP. You have a completely free choice.
HOW TO APPLY
Applying for a mortgage
Once you’ve had your offer on a property accepted, you need to formally apply for a mortgage.
Your mortgage broker will be able to assist and they are likely to need some further information about you and the property you are buying. Once they have found a good deal they will send you a mortgage illustration, this will tell you what the repayments will be, including fees, APRC and other charges.
What to consider before making an offer on a house?
Does a student loan affect your mortgage?
Do you need a survey to get a mortgage?
Guide to applying for a mortgage
Why do mortgage lenders need bank statements?
Is a mortgage illustration the same as a mortgage offer?
IN ADDITION YOU WILL NEED TO KNOW
How much mortgage to you need?
You will have an idea of what the maximum could be but the higher the amount of deposit you can afford, the lower the mortgage needed. So the purchase price less your deposit is what the mortgage needs to cover.
Which repayment method?
This will normally be a simple choice between interest-only or repayment. Our article “What are the different mortgage repayment methods?” explains the options.
Which interest rate deal?
This is the choice you have between a fixed rate, tracker rate or variable rate. When applying for a mortgage you need to specify what deal you would like.
What mortgage term do you need?
This is the number of years that you would like your mortgage set up for. Most FTBs would choose a term of 25-30 years as this makes the repayments more affordable.
You will need to provide paperwork that proves your identity, your income and outgoings and your deposit. Applying for a mortgage also commits you to spending money on the property valuation, mortgage arrangement fee and the broker’s fee. All of this will be confirmed by your mortgage adviser.
Costs to budget for
Buying a property will always involve different types of fees and costs and it’s a good idea to be aware of these from the beginning. But as a first time buyer these are unlikely to be very familiar to you, so here is a quick run down.
Product fees
The product fee will be charged by the lender and may differ between different interest rate products. This can sometimes be added to your mortgage, rather than having to pay out of your own money.
Valuation fees
Your lender will need you to pay for a basic mortgage valuation. Borrowers often choose to pay extra for a more detailed inspection of the property. Our Guide To Property Surveys explains how this works.
Higher Lending Charges
If your loan to value is above 75% then it is likely that the lender will look for some additional security. This could means that they charge you a higher lending fee.
Broker fees
Most mortgage brokers will charge customers a fee for finding and setting up their mortgage. This is usually payable when you apply for the new mortgage.
Solicitor fees
Legals fees for a mortgage can be quite expensive so it will be worthwhile getting a few different quotes before selecting a conveyancer. The cost will include the solicitors fee plus other charges and disbursements, these will all be itemised for you.
Stamp Duty
Stamp Duty is payable to the government as a tax on property and land purchases. First time buyer do get some concessions to reduce this burden. SDLT is handled by your solicitor and any tax due is paid shortly after completion. Our stamp duty calculator can help you to work this out.
Removal costs
You may need to pay to move or store your belongings. Using a removal firm is the most expensive but also the least amount of work. Or you could recruit a few friends and rent a van to keep the cost down.
Insurance
Buildings insurance is compulsory when buying with a mortgage. Cover should start when you exchange contracts. It is also wise to consider home contents insurance and life insurance.
You will find more useful information in our article: “A Guide to Mortgage Fees“
Insurance
What insurances do you need?
Buildings insurance
Your mortgage lender will usually require you to have buildings insurance in place before they release the funds for your purchase. The policy normally starts on exchange of contracts as this is the point that you are liable to go ahead with the purchase.
This type of insurance covers the cost of repairing or rebuilding your home if it is damaged by fire, flooding or other events.
Contents insurance
Contents insurance covers the cost of your personal belongings and the contents of your home, if they are damaged, lost or stolen. It is not a mandatory requirement, but it is a good idea to have it in place to protect your possessions.
You can either buy buildings and contents insurance separately or as a combined policy. The best way to find the right cover for you is to compare policies from a range of insurers.
Mortgage life insurance
Mortgage life insurance is designed to fully pay off your mortgage if you die during the term of the policy. It is not compulsory, so lenders can’t make you take out life insurance but it can give peace of mind to know that your family will not be left with a large debt if you die.
Most people will use a decreasing term policy to protect a repayment mortgage against unexpected events such as death or serious illness.
The cost of mortgage life insurance depends on a number of factors, including your age, health and the amount of cover you need. It is important to compare policies from a range of insurers to find the most competitive deal.
Get on the property ladder in six steps
01
Mortgage Broker
Talk to a whole of market mortgage broker to establish what mortgage is affordable and how the mortgage process works. They can also arrange an agreement in principle for you.
Property Search
Register with as many property sites and estate agents as you can. This will enable you to build up your knowledge on the different types of houses for sale and what is available within your price range and desired location. Once you’ve found the right property it’s time to put in the winning offer!
02
03
Apply for a Mortgage
Once your offer has been accepted it is time to formally apply for your mortgage and your broker will help you to do this. You will also need to tell your solicitor about the new property.
Mortgage Offer
Once the lender has satisfactorily completed all of their checks, including a valuation inspection of the property, they will issue you with a mortgage offer. This is a key milestone in the process.
Your mortgage has been approved!
04
05
Exchange of Contracts
Both sets of conveyancers have been working hard since your offer on the property was accepted. Various searches will have been carried out and the contracts to buy and sell the property have been agreed. Then it’s time to exchange the contracts.
Once done your new home is only a week or two away from being yours!
Completion
A completion date is normally agreed at the point contracts are exchanged and for most people this will be 2-3 weeks later. On the chosen completion day your solicitor will send your deposit and mortgage money over to the person selling the house and then it’s yours! Congratulations.
Time to get the keys and move in.
