First Time Buyer Mortgages

A home buyer who is getting on the property market for the first time, will be classed as a first-time buyer and thus eligible for a first time buyer mortgage deal.

This gets more complicated if you have previously been a homeowner but have been out of the property market for a while, some mortgage lenders may still consider you to be an acceptable applicant for a first time buyer mortgage some won’t.

If you are not a first-time buyer but are living with a partner who does qualify for this type of mortgage, you may be able to jointly apply for a first time buyer mortgage.

Your mortgage broker will guide you through the maze of first time buyer criteria to find you the best deal for you and your personal situation.

There are various help to buy schemes available to help first-time buyers on to the property market such as shared ownership mortgages, 95% mortgages, family-gifted deposit options, and government-backed ISAs to help towards your deposit and forces help to buy scheme.

You’ll find our help to buy mortgage page useful if you are looking for options. Remember, these help to buy schemes are changing all the time, our mortgage advice team will help you understand what current options are available.

Your first time buyer mortgage journey will start by having your deposit, whether this be a gift, equity or your savings ready to put down on a property you have set your heart on.

The minimum deposit is typically 5% of the property purchase price, though this can be higher if you have poor credit etc.  The rest of the purchase price, 95% in this example will be made up by your first time buyer mortgage which you will repay monthly over the agreed term.

Typically, your first time buyer repayment mortgage payment will be made up of both interest and capital therefore you’ll see your balance reduce over time.  In very rare situations, an interest-only mortgage may have been recommended, this is where the balance will stay the same throughout the duration of your home.

As your mortgage broker, we’ll recommend the best deal for you, usually with a fixed rate term of between 2 and 5 years and with a term of up to 35/40 years.  Longer terms are popular with first time buyers nowadays to keep the monthly payments down.

At the end of the fixed rate term, we’ll be in touch with your remortgage options, this might be a product transfer with your current lender or a remortgage to a better deal with a new lender.  We’ll sort all of this out for you 6 months ahead of your mortgage ending to give you plenty of notice.

Depending on whether interest rates have increased or decreased, your mortgage payment may reduce or increase at the end of your fixed rate term. You’ll then have the option to fix your rate again if required.

Most of our first time homebuyers prefer a fixed rate for their first mortgage for peace of mind and budgeting purposes.

Here are 8 types of mortgages that are available to first time home buyers:

1. Fixed-rate mortgages – where your interest rate is fixed for 2, 3 or 5 years providing peace of mind that your mortgage payment will not increase during this period.
2. Tracker mortgages – typically, your interest rate will go up and down inline with the base rate meaning your mortgage payment will change.
3. Discounted mortgages – this is where your interest rate is at a discounted rate for set period of 2-5 years against your lenders standard variable rate which moves up and down.
4. Offset mortgages – you can link a savings account to offset the interest that you pay on a mortgage, these can be a good option for savers, however, rates can go up or down.
5. Guarantor mortgages – first time buyers often can provide a guarantor to help them secure a mortgage they couldn’t otherwise qualify for.
6. Gifted deposit mortgages – this is where a family member of friend helps you out with the deposit, the deposit can come from a combination of a gift and/or your savings.
7. Interest-only mortgage – these are rare for first time buyer mortgages, this type of mortgage allows you to keep the cost down by only paying back the interest. You’ll need to evidence you have the funds available to repay the loan in full at the end of the term as a lump sum.
8. Age 40+ mortgage options – if you’re a first time buyer aged 40+ considering your mortgage options, there are lots available to clients of any age. Mortgage lenders have been very innovative in this space with new products and longer terms to meet the demand.

Typically, most apartments and flats are leasehold, and most houses are freehold in the UK. However, from time to time, we do come across leasehold houses.

A leasehold property will have a freeholder that you’ll pay an annual ground rent to and maybe a monthly service charge. The freeholder will usually be responsible for maintaining any communal areas.

Your estate agent will advise you if you’re buying/viewing a freehold or leasehold property. Also, as part of the conveyancing process, your solicitor will go through the paperwork with you, so you know how much ground rent and service charge you’ll pay and what you and the freeholder are responsible for.

If you work from home for your business such as doing beauty or childminding etc, there may be restrictions in your lease as to what you can do here so it’s important to seek professional advice.

Your mortgage lender will only usually be concerned if there’s a short number of years left on the lease, however, usually, it’s an easy process to get the lease extended. It’s best talking this through with the freeholder for more details about this.

A loan to value ratio, is the amount of funds you can borrow, at a percentage of the properties purchase price. With the minimum deposit for a property purchase generally being 5%, this means you would have a 95% loan to value. If you put down a 10%, you would have a 90% deposit, and so on.

Typically, mortgage deals go in bands, i.e.

95% deals, 90-80% deals, 75% deals etc – this is only an example to show the point as these vary between lenders. Often, if you can afford to put a bigger deposit or borrow some money from family, it might make a difference and take you down to a band with a lower interest rate.

Your mortgage broker will advise you accordingly here. This is a great perk of seeking trusted mortgage advice from an experienced team.

The more deposit that you can put down, the lower your LTV will be. This in turn will hopefully lower the rate of interest of which you will be charged on your first-time buyer mortgage, saving you money overall.

You will need the following to start viewing properties:

1. A deposit, typically 5% from savings, equity, or a family gift.
2. A mortgage agreement in principle from a mortgage advisor.

Once you have found somewhere, to progress your first mortgage application, whether it’s in your sole or joint names you’ll need the following:

1. Identification in the form of a passport, drivers’ licence etc.
2. Recent proof of address.
3. 3 months proof of earnings.
4. 3 months bank statements showing your income and outgoings.
5. Proof of deposit such as your savings account statement showing the funds building up.
6. A credit report might be handy also if you have concerns about your score.

The professionals that you’ll need on your side throughout the process will be:

1. Mortgage broker – it’s always best to use a mortgage advisor that isn’t tied to a bank or doesn’t have an affiliation with an estate agent.
2. Estate agent to progress the sale – you’ll need to provide them with your ID and mortgage agreement in principle certificate to mark your property as sold.
3. Conveyancer/solicitor for the legals, we can help with this if you like as they’ll need to be on your mortgage lenders approved panel.
4. Surveyor – if anything gets picked up on your valuation you may need to appoint a surveyor, as above, using our experience, we can help here with the various reports also.

Hurdles can appear along the journey also and as a first-time buyer this can be daunting. Our mortgage team are here to help you every step of the way. We’ll provide you with an experienced dedicated mortgage case manager to answer all your questions.

It’ll be a condition of your mortgage offer that you take out a buildings insurance policy on your property with your new mortgage lender noted as an interested party. We can arrange this as part of the process with you along with explaining any other optional mortgage protection insurance options such as life insurance, critical illness or income protection.

5% of the value of your new property is usually the minimum, with a 95% mortgage. The deposit can be from your savings, a gifted deposit, or a combination of the two.

It is important to remember, however, that putting down a deposit larger at say, 10% of the purchase price, will widen your mortgage options and open up better deals. If you happen to have a poor credit score, whether that be to a lack of credit history or any debts in your name, you may be required to put down a higher deposit.

Typically, as a first time homeowner if you budget around £2,000 plus any stamp duty that will be about right to cover everything.

The costs associated with your first time buyer mortgage will include:

1. Stamp duty, although, most first time buyers purchase a property under the stamp duty threshold therefore do not pay any stamp duty. Here are the latest rates – HMRC Stamp Duty Rates. If you must pay any stamp duty, this will be picked up during the legal process.
2. Mortgage fees, depending on the type of mortgage that is recommended, there may be arrangement and mortgage broker fees payable during the application process. With mortgage arrangement fees, some products have free deals but come with higher rates, some you pay a fee for, and they have lower rates, some are in the middle etc. As experienced mortgage advisors, we have access to software that will work all of this out for you and let us know which one works out best for you based on your personal situation.
3. Valuation & survey costs, as part of your application process, you may be required for pay for a valuation and a survey on your new property. There are options here ranging from approximately £150 to £1,000 depending on the condition, age, and construction of the property you are buying. For example, if you are buying a newer house then a basic survey will suffice, however, if you are buying an older house then you may want a more in-depth pair of eyes looking over your property for cracks, damp, and other structural problems etc. As your mortgage broker, we can help and advise you accordingly here.
4. Conveyancing costs, we find that conveyancing costs vary in price significantly, it’s always best to get a few ‘all inclusive’ quotes to compare. Estate agents can be quite pushy when it comes to using their in-house services so be careful before agreeing to anything. Typically, for a first time buyer your conveyancing costs should be between £500 and £1,000 all-inclusive plus any stamp duty. The amount will vary on whether you are buying a leasehold or freehold, sole or joint names, have a gifted deposit etc.
5. Moving costs, you may need to hire a van for the day or a removals company to help you move your furniture.

Useful schemes you may be able to use include the forces help to buy scheme, the shared ownership scheme, right to buy and any government backed schemes.

There are also options such as guarantor mortgages, gifted-deposit mortgage options and buying at a discounted rate off a family member or landlord to help first-time buyers.

To learn more about the first-time buyer help to buy mortgage schemes that may be available to you, please get in touch with one of our mortgage advisors and they will run through your options with you.

Generally, in the UK most first time buyers do not pay stamp duty as their purchase price falls below the minimum threshold. For first-time buyers buying more expensive homes, stamp duty will be payable.

Stamp duty rules are changing all the time so it’s always best to check out the current HMRC Stamp Duty rates so see how much you will have to pay.

If you are buying a property over the threshold, then your stamp duty will be handled by your conveyancer as part of the process.

Firstly, a conveyancer is a qualified property, a solicitor is a qualified in many aspects of law therefore will usually be more expensive than a conveyancer to handle your purchase.

There are several factors that you consider when choosing a conveyancer, here are some of them:

• Reviews and reputation – have you been recommended, what are their online reviews like etc.
• Mortgage panel – are they on your mortgage lenders panel of approved conveyancers?
• Locality – are you happy to deal over the phone and email or would you like someone more local where you can go into the office?
• Price – is the price reasonable and have you compared prices? Estate agents can often put a huge mark up on their in-house services so be careful here. It’s always best to get an ‘all-inclusive’ quotation so you can compare easily.
• Responsiveness – what are they like getting back to you on emails and calls etc, having an un-responsive conveyancer can make the process slow and stressful.

If you would like your mortgage broker to provide a couple of quotes, then they will be more than willing to help you compare the above. We have lots of experience ourselves as to what they are like from previous customers also, so we can add value to you here.

As expert providers of mortgage advice, we are able to search 1,000s of first-time buyer mortgages to find you the most suitable deal for your circumstances whereas a bank will be limited to their own products.

We find that estate agency mortgage arrangers can be very pushy when ‘qualifying’ you for your purchase. Remember, do you want the vendor knowing your maximum borrowing capacity when you’re trying to negotiate on price.

A mortgage broker will work for you and, as a first-time homeowner, will help and guide you through the whole process impartially.

The bank used to be a popular choice, as the local manager knew your finances inside and out and would take this into consideration when offering mortgage products. Nowadays, it’s good to shop around and match you to a deal that meets your personal situation.

Using the services of a mortgage broker can often get the process completed a lot quicker, with a lot less stress and you have a lot more choice. Here at UK Moneyman, we have access to a large panel of lenders, so we can tailor your mortgage to your personal circumstances.

As with all mortgage applications, certain documents are required by your mortgage broker and new lender as part of the advice process.

First time buyers will need to provide the following documents to apply for a mortgage:

1. Identification in the form of a passport, drivers’ licence etc.
2. Recent proof of address.
3. 3 months proof of earnings.
4. 3 months bank statements showing your income and outgoings.
5. Proof of deposit such as your savings account statement showing the funds building up.
6. A credit report might be handy also if you have concerns about your score.

We advise our first time buyers to start a folder on their computers and to start gathering everything together into one place for when they are ready to start the ball rolling.

Your mortgage rate is not guaranteed until we submit your application, therefore, the quicker you are able to get these documents to us the more secure your rate will be which will help your budgeting.