First Time Buyer Mortgage
Buying your first home is a significant decision. It can also feel overwhelming. However, our first-time buyer mortgage guide aims to make the process easier. We encourage you to read the entire guide before deciding. This will provide you with essential knowledge. Should you have any questions or require further assistance, please do not hesitate to contact us. We are here to help!
Buying your first home is an exciting and daunting experience. It marks a major life milestone. However, understanding first-time buyer mortgages can be difficult.
That’s why our first-time buyer mortgage guide exists. We simplify the process, answer common questions, and provide essential information. You will find everything you need to make a confident decision.
Read on if you’re ready to begin your homeownership journey. We’ll guide you through each step of the first-time buyer mortgage process.
If you need additional help along the way, don’t hesitate to contact us.
Who is a First Time Buyer?
If you’ve never owned a property before, then congratulations! You are considered a first-time buyer. That’s right – this includes single people and couples who have yet to purchase a home.
First-time buyers can take advantage of mortgage terms that those not considered first-time buyers don’t qualify for.
Schemes like Shared Ownership and other lender-based schemes are also designed to help buyers get onto the property ladder.
To make the most of this opportunity and begin your homeownership journey, it’s essential to research all possible options before making any decisions.
What is a First Time Buyer Mortgage?
Some lenders offer a first-time buyer mortgage designed specifically for first-time buyers. This type of loan may have lower interest rates, fewer upfront costs, or more flexible terms than other mortgages.
However, even if a lender does not have a special first-time buyer mortgage, they will still lend to any first-time buyer who meets their criteria.
If you are struggling to raise a deposit or do not have sufficient income, specific schemes allow a family member to assist.
The Benefits of First Time Buyer Mortgage
Benefits for the first-time home buyer:
1. Low deposit (down payment) requirements:
When you purchase a property, a deposit called a ‘down payment’ is required. First-time buyers often lack the savings for a large deposit. However, some lenders offer a lower deposit minimum. Therefore, you may access 95% loan-to-value products. This means you need only 5% of the purchase price from your own funds. As a result, homeownership becomes more affordable and accessible for first-time buyers. Nevertheless, remember you will still need money for other costs.
2. Preferred Buyer:
As a first-time homebuyer, you have an advantage over other buyers. This is because there’s no chain involved in your case.
A mortgage chain occurs when you buy a property, that owner buys another, and so on. Consequently, everyone must complete it at the same time. The longer the chain, the more complex it becomes. Everyone must align their mortgages and legal work simultaneously.
Because you are first in the chain, your offer becomes more attractive. This is compared to offers from homeowners needing to sell their existing property.
Therefore, being a first-time buyer benefits both you and the seller, especially for a speedy sale!
3. Innovative mortgage options:
Lenders are always considering ways to help first-time buyers. Some innovative mortgages offer options like gifted deposits from family or friends. Additionally, gifted equity can be used as a deposit. Guarantors can also help cover income shortfalls.
Lenders commonly offer Joint Borrower Sole Proprietor (JBSP) mortgages. JBSP mortgages allow family or friends to assist with deposits or monthly payments. They do this without being named on the property.
This means the first-time buyer gets first-time buyer stamp duty incentives. Meanwhile, the family member assisting avoids any tax complications.
4. Government assistance:
The Government has always sought ways to help first-time buyers get on the property ladder. However, the popular ‘Help to Buy’ scheme has now been withdrawn. Despite this, there are still some options available.
These include schemes for council and housing associations via ‘right to buy’. Schemes like ‘shared ownership’ and ‘help to build’ are also available.
First Time Buyer Deposit
Typically, you will need at least 5% of the property’s cost for a deposit. For instance, if the property costs £150,000, you will need a deposit of £7,500 (5%).
However, a larger deposit can be beneficial. For example, a deposit greater than 5% gives access to more mortgage lenders. This could potentially result in a lower interest rate.
Therefore, consider increasing your deposit to improve your mortgage options.
If you’re struggling to save a deposit, there are some options available to you:
Family gifted deposits, for instance, are when your parents “gift” you the deposit to buy a home.
Moreover, some lenders allow friends or family to “invest” in your property. Up to six people can help boost your deposit or salary.
This support enables you to purchase a higher value property and makes it more affordable.
Average First Time Buyer Age
The average age of a first-time buyer in the UK is increasing. It has steadily risen over the past few years. First-time buyers face a competitive and expensive housing market.
Many cannot purchase a home until their thirties. This is due to high student debt, property prices, and tight mortgage lending criteria. Affordability is a significant barrier for many buyers.
Furthermore, first-time buyers need to save longer to build a deposit. This deposit is necessary to qualify for a mortgage. Consequently, buying a home becomes a delayed dream for many.
First Time Buyer Mortgage Scheme
There are a range of schemes available to help first-time buyers to get onto the housing ladder. The schemes can assist with either a shortfall of deposit, a shortfall of income for affordability, or both.
Shared Ownership:
Also known as “Part-buy, part-rent” this is where you purchase a share of the value of the property you are interested in. The property is usually purchased from a local authority or housing provider. If buying a new build, you will be expected to purchase between 10% and 75% of the property’s value and rent the remainder.
After six months of ownership, you can increase your share of the property through a process called ‘staircasing’. You can buy in increments of 1% as affordability allows. The cost of additional shares is subject to market value at the time you buy.
Loan to Value:
When discussing mortgages, you might hear the term ‘Loan to Value’ (LTV). This means the amount borrowed to buy your home (the loan) compared with the mortgage lender’s property valuation.
For example, suppose you buy a home for £200,000 and put down £20,000 (10%) as a deposit. You would then have a mortgage of £180,000. Therefore, your LTV would be 90% because the amount borrowed (£180,000) is 90% of the home’s value (£200,000).
The lower the LTV, the lower your interest rate is likely to be. This is because the lender takes less risk when you use more of your own money.
Mortgage Advice..
Thinking of getting a mortgage? Our experienced team of skilled mortgage advisers are here to offer the essential guidance you require. Relying on our comprehensive understanding of the mortgage market, we’ll ensure you secure the perfect mortgage to suit your specific situation.
Mortgage Advice..
Thinking of getting a mortgage? Our experienced team of skilled mortgage advisers are here to offer the essential guidance you require. Relying on our comprehensive understanding of the mortgage market, we’ll ensure you secure the perfect mortgage to suit your specific situation.
Mortgage for Adverse Credit for a First Time Buyer
Interest only Mortgage First Time Buyer
An interest-only mortgage lets buyers pay only the interest monthly, not the principal balance. Consequently, this can help first-time buyers by keeping their monthly payments lower. It makes home ownership more affordable in the short term.
However, first-time buyers should know they must repay the mortgage in full at the end of the term. Thus, they need a realistic strategy for repayment.
Lenders typically offer interest-only mortgages to those with very high incomes or deposits.
An alternative is to take the longest mortgage term available. Many lenders offer terms of up to 40 years. Although you will pay more interest over time, longer terms mean lower monthly payments. Therefore, this may be more affordable.
First Time Buyer Mortgage Advisor
Finding a first-time buyer mortgage advisor can greatly help with navigating the home-buying process. A first-time buyer mortgage advisor is an experienced professional. They help first-time buyers understand their options and find the right mortgage that meets their needs.
They provide advice on the types of first-time buyer mortgages available. Additionally, they help compare different lenders and products. Often, they can offer advice on improving credit scores or saving for a larger deposit.
A mortgage advisor can also aid in the home-buying process. They help buyers submit their applications and understand legal documents. Thus, a mortgage advisor is invaluable to first-time buyers.
By working with a mortgage advisor, first-time buyers gain knowledge and confidence. Moreover, they increase their chances of finding a suitable mortgage.
Using a Mortgage Broker is particularly useful if:
- You only have a small deposit.
- You are self-employed or have adverse credit.
- You are struggling with affordability.
- You would like the most competitive deal.
- Other needs, such as complex property.
First Time Buyer Mortgage Advice
Check Your Credit Score:
Do your research:
Set a budget:
Before looking for first-time buyer mortgages, first-time buyers should make sure they know their budget and how much they can realistically afford to pay in monthly mortgage payments. This will help narrow down first-time buyer mortgage options and help first-time buyers avoid taking on more debt than they can handle.
Get pre-approved:
Once first-time buyers have an idea of their budget, and what type of first-time buyer mortgage they’re looking for, it can be beneficial to get pre-approved by a lender. Getting pre-approved ensures first-time buyers that their first-time buyer mortgage will be approved (if their credit score and other financials meet the lender’s requirements).
Work with a mortgage advisor:
A first-time buyer mortgage advisor offers valuable advice during the home-buying process. They help compare different first-time buyer mortgages. Additionally, they provide advice on improving credit scores. Therefore, a first-time buyer mortgage advisor is invaluable for first-time buyers’ homeownership journeys.
These tips help first-time buyers navigate the home-buying process and find the right mortgage. With a bit of research, preparation, and help from a mortgage advisor, first-time buyers can find the perfect mortgage for their needs.
Make Sure You Can Afford Your Monthly Repayments
Mortgage affordability calculators are everywhere these days. Why not try Connect’s calculator to see your borrowing potential?
Lenders have different affordability calculations. They change these calculations regularly. Some lenders accept a missed utility bill payment from two years ago. Others might reject your application for this reason.
Some lenders consider CCJs but need to know the amount, purpose, and reason. Using a qualified independent mortgage broker saves you time and stress.
As a rule of thumb, employed clients with 12 months’ work history and clean credit reports can expect to achieve 4.5 times their salary.
The most important thing is knowing how much it will cost each month. Make sure you can afford it.
Considering a budget before looking for a property is a good idea. Think about how much you can afford to pay every month. Remember to cover everyday costs like gas, electricity, and food.
Budget for The Other Costs of Buying a Home
Apart from your monthly mortgage payments, there are other associated costs when buying a home, either upfront or ongoing.
- Solicitor or Conveyancing Fees.
- Search and Land Registry Fees.
- Mortgage Arrangement and Valuation Fees.
- Removal and Moving Costs.
- Buildings Insurance.
- Initial Furnishing and Decorating Costs.
- Stamp Duty (Land and Buildings. Transaction Tax in Scotland, or Land Transaction Tax in Wales).
Final Thought
First time buyers should research the market and lenders, determine how much they can afford, investigate different mortgage options, understand associated fees, and get pre-approved before house-hunting to secure a first time mortgage. With these steps taken, first time buyers can confidently begin their journey to homeownership.
FAQs: First Time Buyer Mortgage
Most frequent questions and answers about first time buyer mortgage
To be eligible for a first time buyer mortgage, you must generally not have ever owned property before. Some lenders may class you as a first-time buyer if you have not owned a property for many years.
Your mortgage affordability depends on your income, credit score, and other financial factors. A good starting point is to calculate how much you can afford monthly for a mortgage payment by subtracting your expenses from your income. Speak with a mortgage advisor to find out what type of loan you qualify for and get an estimate of how much you can borrow.
Yes, a first-time buyer can get an interest-only mortgage. However, they will need to meet certain criteria to qualify for one. A longer-term repayment mortgage may be more suitable.
First-time buyers can access a range of mortgage products, such as fixed rate, variable rate, tracker, and offset mortgages. There are also special schemes that can help first-time buyers get on the property ladder. Each option has its advantages and disadvantages, so it is essential to research the different types of mortgages before deciding.
Yes, first-time buyers can obtain a self-build mortgage to finance the construction of their own home. Some lenders have specific products designed for this purpose and may offer incentives such as cashback or discounts on legal fees. There is also a Government scheme called ‘help to build.
What next?
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About the Author
Liz Syms is the CEO and Founder of Connect Mortgages, a specialist in finance for property investment. With over 25 years of experience in mortgages and financial services, Liz has helped countless people get their dream homes and investment properties. She is passionate about giving her clients the best advice possible when it comes to financial decisions relating to mortgages and protection and is dedicated to providing the highest quality of service. With her wealth of knowledge in the industry, Liz is a respected leader in mortgages and financial services and has grown her team to over 300 advisers nationally. She strives to make Connect Mortgages one of the most successful companies in its field.
About the Author
Liz Syms is the CEO and Founder of Connect Mortgages, a specialist in finance for property investment. With over 25 years of experience in mortgages and financial services, Liz has helped countless people get their dream homes and investment properties. She is passionate about giving her clients the best advice possible when it comes to financial decisions relating to mortgages and protection and is dedicated to providing the highest quality of service. With her wealth of knowledge in the industry, Liz is a respected leader in mortgages and financial services and has grown her team to over 300 advisers nationally. She strives to make Connect Mortgages one of the most successful companies in its field.