First Time Buyer Mortgages

First time buyer mortgages advice

First Time Buyer Mortgages

When it comes to first time buyer mortgages, applications can seem confusing especially when financial institutions use a vocabulary which you may not be familiar with. It can also be time-consuming and a stressful experience.

The key to a successful first time mortgage application is to do your research and be prepared. There are many things you can do beforehand to increase the likelihood of having your mortgage application accepted.

Our article is aimed at those taking their first step on the property ladder and explains everything you need to know about first time buyer mortgages.

Preparing for your first time buyer mortgage

Your preparation for your first-time buyer mortgage application involves saving for a down payment, reviewing your credit history and researching the mortgage market. In the case of the deposit, this preparation might start 2-3 years before you even apply for a mortgage.

Saving for a first time buyer mortgage deposit

As a first time buyer, you should save up at least 10% of the property purchase price before applying for a mortgage. Although 95% first-time buyer mortgages are available from some lenders, these will end up costing you much more in the long term. Not only will you have to borrow more money (which will be more expensive for you), but the interest rate on these mortgages is much higher too.

The larger the mortgage deposit you have, the more choice you will have with lenders and the better the mortgage deal you will be offered.

Your credit history and your mortgage

It is always advisable to regularly check your credit rating with the UK’s 3 main credit reference agencies (Callcredit, Experian and Equifax). In this way, you ensure that there are no errors which could have a detrimental effect on your credit score.

When borrowing money, your credit history is one of the factors that lenders use to judge whether to offer you a first-time buyer mortgage.

Researching the mortgage market

The terminology of taking out a mortgage can be difficult to understand for first-time buyers. Without the necessary research, it can be impossible to judge which type of mortgage is the best choice for your personal and financial circumstances. You should spend time researching to understand financial terms and comparing the options open to you.

What are the different types of first-time buyer mortgages?

There are many different types of mortgages, but some such as interest-only mortgages are rarely offered to first-time buyers since the 2008 financial crash. Let’s briefly consider the most common types of mortgage:

  • A fixed rate mortgage has a standard interest rate (usually for a 2-5-year term) which makes it easier to budget. However, when the promotional cheaper interest rate ends, mortgage holders are switched to the bank’s SVR (Standard Variable Rate) which is higher. For this reason, you should look around for a new mortgage about two months before it ends.
  • A mortgage with a variable interest rate is generally cheaper, but mortgage payments can increase or decrease in line with changes in the interest rate.
  • A tracker mortgage usually has a 2-year term and is a certain percentage higher than the Bank of England’s base rate.
Property Resources
UK Government Help To Buy Scheme
Financial Conduct Authority (FCA)
Stamp duty calculator for England and NI
Stamp duty calculator for Wales (LTT)

Comparing first time buyer mortgages

When comparing the different types of mortgages on the market, you should look at the APRC (Annual Percentage Rate of Charge) rather than the interest rate. The APRC gives you the overall cost of the borrowing (including fees). You should also check the mortgage term. The standard is 25 years, but you might see longer terms.

Although this brings down the monthly mortgage repayments, your borrowing will cost more. You should also see whether the mortgage gives you the flexibility to pay in lump sums and whether there are any financial penalties for early repayment.

First time buyer mortgage FAQ

Are there any fees for a first-time buyer mortgage?

Yes, there are fees for a first time buyer mortgage. Your lender will charge you arrangement or administration fees for your mortgage application. These vary from lender to lender but cost approximately £2,000. You will also have to pay for the lender’s evaluation of the property you wish to buy. This £150-£1,500 fee (depending on the value of the property) is to reassure the lender that the house is worth its asking price. Other fees might include a booking fee (£100-£250), a mortgage account fee (£100-£300) and a CHAPS money transfer fee (£25-£50). If fees are waived, the money saved is often added to the cost of the mortgage in the form of a higher interest rate.

How long does it take to get mortgage approval?

It can take anything from 18-40 days to have your first time buyer mortgage approved. The time varies depending on your mortgage lender, how straightforward your case is and whether all your paperwork is in order.

Can I get a first-time buyer mortgage if I am on a low income?

There are a number of government schemes to help those on a low income get onto the property ladder and obtain a first time buyer mortgage. These include shared ownership (when you only buy a percentage of the property and rent the remainder); the Help to Buy Equity Loan and the Starter Home Scheme. You should contact Citizens Advice to see what is available in your area and whether you fit the eligibility criteria.

Factors lenders consider with first-time buyers’ mortgage applications

Before 2014 mortgage providers used to multiple your income by 3 or 4 to assess eligibility for a mortgage. Since the Mortgage Market Review (2014), things have become much more stringent, and mortgage providers use many other factors to decide whether to approve a first time buyers mortgage application. To judge affordability, mortgage lenders usually consider:

  • Your annual or monthly income
  • Monthly expenses such as bills and other financial commitments
  • Your credit history and credit rating
  • The size of your current debts (outstanding loans, credit card debts, etc.)

Apart from this overview of your current financial situation, lenders must also stress test your finances. In other words, they check that you would still be able to afford your mortgage payments if there were a change in your personal or financial circumstances.

How much can I borrow as a first time buyer?

The size of your first time buyer mortgage depends on how much the mortgage provider believes that you can afford to repay. Your personal circumstances also play a role in their decision. For example, if you are buying the property alone or with others. Finally, the size of your deposit and your credit history will influence their decision.

In order to get an idea of what your mortgage provider will be prepared to lend you, it is a good idea to apply for a mortgage in principle (MIP) or agreement in principle (AIP). This is an unofficial mortgage application rather than a guaranteed offer of a mortgage. It certifies that after a soft credit check, you might be eligible for a mortgage and the estimated amount they would be prepared to lend you (subject to further checks). A MIP or AIP only lasts 30-90 days but can be shown to estate agents to prove that you are committed to buying.

3 tips to boost your chances of receiving first time buyer mortgage approval

1. In the 6-12 months before applying for a mortgage, you should avoid taking out new lines of credit such as loans. This is because your lender might then decide to turn down your mortgage application because of lack of affordability.

2. A relative could use their savings (an offset mortgage) or act as a co-signer on the loan (a guarantor mortgage) to help your mortgage application. However, both financial products put their assets at risk if you default on your mortgage repayments. For this reason, an independent financial advisor should always be consulted beforehand.

3. Make sure your credit rating is in order. Try to bring any outstanding bills up to date and make sure there is nothing on your credit rating which may detract from your mortgage application. You can conduct a credit check on yourself to find out your current credit score, but remember all credit checks are logged and too many credit applications and checks can also have a detrimental effect when applying for a first time buyers mortgage.

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