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What is a first time buyer?

A first time buyer is someone who has never owned a residential property before, either in the UK or abroad. Or, you have only owned (or currently own), a commercial property with no living space, such as a pub.

You are NOT considered to be a first timer buyer if:

  • You are buying a property with someone else who currently owns, or has owned, a home
  • You have inherited a home, even if it has since been sold or you didn’t live there
  • If you’re having a property bought for you – such as by a parent or guardian – if they own a home themselves

If you are unsure as to whether you qualify as a first time buyer, get in touch with our team today who will be happy to talk it through with you.

 

How to get a first time buyer mortgage

Regardless of whether you are a first time buyer or on your fourth house, the application process for a mortgage is typically the same. 

You should start by working out how much money you have, or can afford, for a deposit, as this will inform how much you are able to borrow, and therefore the price of your future home. 

Applying for a first time buyer mortgage will usually mean undergoing a credit check and an affordability review. This will involve the lender looking at your annual income, other sources of income, and your outgoings. The credit check will tell them if you are a reliable borrower or if you have missed payments on past accounts, such as credit card bills. 

If you choose to opt for a variable rate mortgage – more on this below – or a fixed rate mortgage with a term of less than five years, the lender may ‘stress test’ your finances. This means looking at whether you will be able to keep up your payments if something changes, such as a hike in interest rates. Once they have all this information, they’ll be able to give you a figure for how much you can borrow.

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Which first time buyer mortgage is right for me?

One of the trickiest parts of mortgages is getting to grips with the different kinds that are out there. Each one has benefits and drawbacks, so it’s important you weigh them up before making a decision:

– Fixed rate mortgage – For this kind of mortgage, the interest rate on your mortgage will be fixed for an agreed amount of time. This can be anywhere between two and 15 years but typical fixed rate mortgages will be between two to five years. When the fixed rate ends, you will move over to the bank’s SVR (standard variable rate), which tends to have a higher interest rate – the perfect time to remortgage

– Standard variable rate mortgage (SVR) – This mortgage is set at the lender’s basic rate of interest, and they don’t come with a reduced rate or discount. Lenders can choose to change the interest rate.

– Tracker mortgage – This type has a variable interest rate that follows an external rate, usually the Bank of England’s base rate. Rather than exactly matching the rate, tracker mortgages will usually be set slightly above or below.

– Discount rate mortgage – Similar to a tracker mortgage, discount rate mortgages track a lender’s SVR, but at a lower level. The rate of discount won’t change, but the interest might, therefore your payments will.

– Offset mortgage – If you have a savings account and a mortgage with the same provider, you may be eligible for an offset mortgage. This type allows you to use savings to offset the interest that gets charged to your mortgage. In plain terms, this means you won’t pay interest on your mortgage to the same value as the amount in your savings account. The more you have in your savings account, the more you will save in interest, and the less your monthly payments will be.

– Capped mortgage – Also linked to your lender’s SVR, but the rate is capped at a set level. Some capped mortgages won’t fall below a set limit.

A personal approach to your first mortgage

With a Mortgage Experience adviser on your team, you can sit back, relax, and make yourself a cuppa, safe in the knowledge that we will be doing all the heavy lifting to find you a suitable mortgage with the best rates available. This gives you more time to pack, and well, do the actual physical heavy lifting (should you wish) as you move into and enjoy your new home or the financial benefits of your remortgage.

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How much deposit does a first time buyer need?

A first time buyer will typically be asked to put down a minimum deposit of 10% of the property’s purchase price 

Buying a house is a big financial commitment, and lenders require a deposit to secure the mortgage and to reassure them that you can afford your new purchase. It is possible to get a 95% mortgage – with a 5% deposit – although these have become less popular in recent years. Get in touch with our team today to see how we can help you secure a 5% deposit mortgage.

If you are in a position to do so, it is better for you to put a bigger deposit down on your first home. Not only will this put you in a better position for favourable mortgage rates – meaning lower monthly payments – it also means you’ll have more equity in your property.

First Time Buyers FAQs

What is the minimum deposit for a first-time buyer?

This may vary depending on your circumstances, however, for many lenders, your deposit should be at least 5% of the property’s value.

Remember, if you can save more and put down a larger deposit, then typically you should be able to get a lower interest rate on your mortgage.

Are there government schemes that can help?

There are government buying schemes available to get your first home, however, you and the house you are buying must meet certain criteria. Whilst we can still help you, take some time to understand the Help to Buy schemes in more detail, before getting started on your journey. Our advisers are also specialists in helping people use the Help to Buy scheme, and can guide you through the whole process. 

How much can I borrow?

How much you could borrow would depend on your circumstances. For instance, lenders will undertake affordability checks, with your deposit, and credit history factoring into the decision.

What is a joint mortgage?

A joint mortgage is when you take out a mortgage with someone else. This could be a spouse, partner, friend or family member. Both people on the mortgage will be responsible for payments. Joint mortgages are usually for two people, although some lenders will allow more. Bear in mind that the more people who are on the mortgage, the more people become liable for repayments.

What is LTV?

LTV stands for loan-to-value ratio, and it is the amount of money you can borrow on a mortgage versus the overall worth of your property. For example, if the property you want to buy is worth £200k, and the lender will lend you 90% of its value, the mortgage will be £180,000 and your deposit will need to be £20,000. Most lenders will have a maximum LTV that they are willing to offer.

Should I buy a freehold or leasehold property?

If this is your first time buying a house, you’ll probably come across the terms freehold and leasehold quite a lot in your search. 

Freehold means you own both the property and the land it sits on. Most houses you buy are freehold. Leasehold means that you will own the property but not the land it is on, and it remains this way for the length of your lease with the landowner. Most maisonettes and flats will be leasehold, meaning you will have to pay fees, such as service charges and ground rent.

There are pros and cons to each, which you should consider carefully before making a decision. It can be difficult for properties with short leases to sell on, and some lenders won’t consider a mortgage if the lease has less than 70 years left.

What is a guarantor mortgage?

You may have come across the term ‘guarantor’ if you have rented in the past. A guarantor is someone who makes repayments if you can’t; in this case, they will repay your mortgage. A guarantor mortgage can be worthwhile exploring if you have no deposit or a very small one, are struggling to find a lender, or want to buy a more expensive house. Of course, you will need someone who is willing to sign as your guarantor. 

Asking someone to be your guarantor is a big commitment on their part, as they will be liable for your monthly mortgage payments if you can’t pay them. If they are then unable to pay, your home may be repossessed. Before committing to a guarantor mortgage, you and your potential guarantor should both seek legal advice.

What is shared ownership?

If buying a home is out of your range at the moment, then a shared ownership scheme may make the prospect more affordable. Shared ownership involves buying a share of a house, then paying rent on the remaining share. If you are able to in the future, you can buy the remaining share.

Shared ownership should be considered carefully before committing. Splitting the ownership of a home may limit who you are able to sell to in the future, and any improvements will need to be approved in advance.

As with any financial commitments, always seek legal advice before becoming tied into a mortgage.

What costs do I need to consider?

Although it will make up the bulk of your payment, your deposit isn’t the only expense you have to consider when buying a home, for the first time or otherwise.

Valuation fee – A valuation is carried out by the lender to determine if your house is worth the amount they are willing to lend you. The fee for a valuation varies between providers.

Survey fee – A survey is different from a valuation because it looks at the structure of the property along with any potential issues. This could include structural or building problems, or restrictions on planning permission. The cost of a survey can vary depending on the level of detail you require.

Arrangement fee – This is the fee you pay to take out a mortgage, and the price will vary among providers. Most will let you add the arrangement fee onto the mortgage itself which, although it sounds better than an upfront payment, means more interest in the long run.

Legal fees – This is the cost for solicitors to handle all the conveyancing involved with your purchase, and can range from £500 to upwards of £1,500.

Broker fees – This is a fee payable if you use a broker to secure your mortgage. Many brokers will earn their fee through a commission with the mortgage provider. Using a specialist mortgage broker can help you get access to more lenders and more favourable rates.

Stamp duty – This is a tax that is payable on any property purchase over £125,000 – or £300,000 if you’re a first time buyer. The rate increases as the value of your property goes up.

Talk to one of our Mortgage Experts on 0808 172 9354

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