Mortgages for First-Time Buyers
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Mortgages for First-Time Buyers
First-time buyers will be pleased to know that a mortgage for their first house purchase will be no different to a standard mortgage. Lenders apply their usual affordability criteria to borrowers regardless of their level of experience, but you will have a more detailed discussion regarding regular budgets to make sure that you are aware of all the ongoing and peripheral costs around buying a home and the month-to-month expenses around home ownership.
You’ll probably already understand that your budgets will need to take into account Council Tax, utilities and insurances as well as your regular general living expenses such as food, travel and housekeeping. You will also need to consider occasional one-off payments for home maintenance or other unanticipated costs associated with home ownership, and factor in an allowance into your budget for this.Read More
These are the kinds of things and more that one of our experienced advisors will go over with you when putting together your mortgage application in order to give it the best chance of success. If you’ve already been renting, then your experience with regular payments will form the basis for our discussions. You’ll want your case to be realistic and watertight, to show that you’ve thought of everything, that you are responsible people ready to own your own home and able to keep up regular mortgage payments. That’s what you get from The Mortgage Centres.
First-Time Buyer Mortgage Information
First-Time Buyer Mortgage Advice
If you are a first-time buyer, then you’re probably feeling a healthy combination of excitement, nervousness, determination and worry. You’re probably wondering about the whole process, how longs things might take, what could be the best deal for you, the level of detail in your application, how much information you’ll need to provide about your finances, whether your credit score will affect a lender’s decision and a whole lot of other questions besides.
The good news is: we get it. We understand both the stresses and the delights of the path to home ownership. We also know what questions to ask potential buyers in order to determine exactly which mortgage policies to consider and then – with our access to (and great relationships with) lenders from across the full spectrum of the mortgages market – we know exactly which mortgage provider to recommend and the deal that will be right for your circumstances.
The team at The Mortgage Centres has decades of experience in dealing with home loan applications from people of all backgrounds and at all stages of life, and comprises specialists in all kinds of mortgages, including those for first-time buyers. When you’re making your first moves towards finding, buying and maintaining your own home, you’ll feel more comfortable knowing that you’re getting advice from people who’ve seen it all and will guide you every step of the way.
If you contact our team for a free initial discussion, we’ll be able to get a handle on your circumstances and ambitions, see what you want to get out of a mortgage, answer all your questions and take a look at the options available. We’ll make clear recommendations for what you should do next, so you can move forward with confidence.
What are the benefits of using a mortgage broker if I am a First-Time Buyer?
Going over your aims, questions and reservations with a suitably qualified, experienced mortgage broker could prove an invaluable experience. You’ll be able to get total clarity on the process of getting a mortgage and buying a house, as well as your situation and the practical steps you’ll need to take personally.
There are a number of key points about the purchase process we would run through with you, including:
- The whole legal process – who is involved and the stages you’ll have to go through when buying your first home; from what the mortgage lender and solicitor actually do to obtaining a mortgage offer, exchanging contracts and completing.
- A thorough look at your anticipated income and outgoings in order to build up a realistic budget analysis. You’ll need to know the level of mortgage that your income can support, and also consider any possible future changes to your circumstances to avoid unexpected affordability issues.
- How big a deposit you are able to put down, and how the level of your deposit is likely to affect the interest rates available, the terms of the mortgage and your future monthly repayments.
- How various lenders’ affordability assessments and lending criteria could influence your options and decisions going forward. An expert mortgage broker will know which lenders can offer you the most suitable deal for your aims, circumstances and budget over a period of many years, not just the short-term future.
- All the various costs and fees that come with buying a house, such as Stamp Duty Land Tax (SDLT), legal fees, property assessment fees and completion fees.
- Detailed property surveys, when they might be necessary, what your options around them are and the costs involved.
After we get a complete understanding of your circumstances, your requirements and your goals, we will be able to research the marketplace to determine exactly which lender and mortgage product will be the best fit for your needs. The mortgages market is highly dynamic, with deals and rates changing sometimes daily, and we make it our business to keep on top of developments as they happen.
A good broker doesn’t just vanish after completion takes place. We’ll be in touch when the introductory period on your mortgage is due to come to an end to help you assess your options for a good deal going forward – either with your existing lender or by moving to another provider.
Does a mortgage broker obtain exclusive rates for First-Time Buyers?
Regardless of your status as a buyer, an established mortgage broker will indeed often be able to secure deals and rates on an exclusive basis. Mortgage brokers with access to the whole market will be able to source lenders, deals and rates across the full spectrum of the mortgages market – from standard high street names to the niche-market products available through small and specialist lenders.
However, being members of various professional bodies, networks and mortgage clubs – and the high volume of referral business that can result – does afford many brokers the advantage of preferential rates and terms (for example, lower arrangement fees or assistance with other costs) from lenders that would not be available elsewhere.
How much deposit do First-Time Buyers need?
There is no set amount of deposit particularly applicable to first-time buyers, and in general a minimum of 5% of the property value will be required to secure the mortgage. Please note that this may change with time and economic fluctuations.
Exceptions arise if you buy a property at below market value, which could happen if the purchase is from another family member, and perhaps subsidised with a gifted equity deposit. It’s worth always bearing in mind that the larger the deposit you are able to provide, the better the terms and interest rates you are able to get on your mortgage.
A deposit can come from a variety of sources. Commonly, homebuyers will have put money aside regularly over a period of time in order to save up a sufficient sum to get on the property ladder, although we have seen an increased frequency of deposits provided by family members as gifts in recent years. Lenders will not normally have a problem with this, as long as the sums are not repayable and do not entitle the giver to live in the property, or have a financial interest in it.
Whatever the size of deposit you are able to provide, the level of borrowing a lender is prepared to consider will still depend on their affordability assessment.
How much can First-Time Buyers borrow?
In previous times, lenders used to make a calculation of the mortgage they were prepared to offer based on a multiple of your annual income – this was typically anything between three to five times your annual salary. However, this is no longer the case, as society has become more diverse and there are large variations in the way people use their disposable income, making affordability less predictable.
Lenders now use their own affordability calculators (such as this affordability calculator at Nationwide) as a guide for their mortgage offers, which take into account a range of known financial commitments, as well as an individual’s income and some estimated possible future costs derived from previous trends or external sources such as the Office of National Statistics.
Lenders now show more flexibility on income, considering earnings through self-employment as well as traditional employment, and some kinds of benefits may also be acceptable. Our expert advisers will be able to clarify the exact situation during our discussions.
An accurate estimate of the maximum mortgage amount you would be able to borrow will be revealed after your adviser conducts a detailed analysis of your income and expenses. Sometimes, the amount determined after taking into account your anticipated monthly costs works out as actually being more than you would be comfortable with borrowing, which then gives you more flexibility with your mortgage. Some lenders will also apply a maximum loan criteria, perhaps capping the amount they are able to borrow at 4.5–5.0 times your annual income, regardless of the affordability assessment. As you can see, the exact figure will depend on many variables.
Mortgage calculator for First-Time Buyers
The excitement of buying your first home can sometimes be tempered with anxiety and uncertainty over what you might need to know or do in order to see the purchase through to completion. It can feel like there is a great deal of information to find out and learn, and it’s common to not know where to begin. Arranging a mortgage in itself can come with many unknowns, and we often field questions such as:
- How much can I borrow?
- How much will it cost?
- How will my payments change if interest rates go up or down in the future?
- How does a longer or shorter term on the mortgage affect my monthly payments?
You might also have further questions about specific details, like:
- How much Stamp Duty will I have to pay?
- What other costs are involved, and how much are they?
- If I have a bad credit history, what are my chances of getting a mortgage?
- What interest rates are available?
Sometimes, it can seem like the list of things you need to know is endless, and sadly we are not able to give responses to everything via our website. You might be able to find more information you need through the many calculators and articles you can find online, but this research can take up a huge amount of your time and they will still never give you details exactly relevant to your particular situation.
The only way to be sure of advice that will take account of your individual circumstances, income, outgoings, priorities and plans is to talk to an experienced mortgage broker. Feel free to get in touch with the team at The Mortgage Centres, for a free initial consultation with one of our friendly expert advisers and a no-obligation quote.
How do lenders work out affordability for First-Time Buyers?
First-time buyers often ask: “How much can I borrow?” This is totally understandable, as knowing this figure will give them a more concrete idea of the kinds of properties they will be able to afford, the offers they will be able to make, and will influence their life choices when it comes to their home and its location.
Traditionally, lenders would work out this figure by applying a multiple to the borrower’s annual income. They would consider the applicant(s) total income and multiply it usually by 4, or sometimes 5 to get the amount they were prepared to lend. In this way, people applying for a mortgage earning the same, or in the same financial ballpark after expenditure and income had been taken into account, would all be offered the same amount. A simple example is a sole applicant who earns £45,000 a year with no credit commitments – £45K x4 would give them a maximum possible mortgage facility of £180,000.
However, in 2014 changes to the market meant that lenders needed to change the way they calculated their offers, basing their assessments on an affordability model rather than simply an income metric. While income is still major factor in their calculations, lenders take a number of other elements into account, including:
- An applicant’s age (i.e. how long can they maintain the loan?)
- The level of deposit or amount of equity
- Number of dependants
- Outstanding credit commitments
- Childcare costs
- Pension contributions and other salary deductions
- Council tax
- Travel costs
- Ground rent and/or maintenance payments, where applicable (i.e. leasehold properties)
This is not an exhaustive list, and some lenders will take more factors into account, and some less, but it does go some way to show you how lenders calculate how much you will be able to borrow, and are now far more thorough and inclusive than they once were, and will be based far more on the day-to-day realities of your finances.
It’s worth remembering that all lenders will have their own individual criteria for lending and methods of calculating the maximum mortgage offer they will be able to make. In general, they will not make a distinction between a first-time buyer and borrowers moving home, but people moving will usually have a level of equity already tied into their existing property, which does make a difference to decisions on lending terms, rates and amounts. It’s also very rare that a lender will offer more than 5x the applicant’s annual income, no matter how much their calculations determine you can afford.
A glance at most lenders’ websites will reveal that they will nearly always have a calculator to give you a rough estimate of the kind of mortgage offer you could expect from them. These will give a quick answer, but the results should be taken with a pinch of salt, as they will never be taking into account all the in-depth details you will be asked during a proper assessment, and so can be therefore misleading.
You would be best advised to speak to an adviser who works with the lender in question about the specific mortgage that interests you, so that they can make the correct calculations before you decide to commit. Alternatively, talk to an adviser on our team at The Mortgage Centres to get an assessment, not just for that specific lender or deal, but potentially a spread of mortgage products for you to consider. As unlimited mortgage brokers, we have access to lenders’ full calculators and so will be able to give you an accurate assessment of your options.
What are the mortgage costs for First-Time Buyers?
First-time buyers will have to consider these costs when purchasing a property:
- The deposit – this is usually a minimum of 5% of the value of the property you plan to buy, but policies may vary from lender to lender and 10% is not uncommon.
- Stamp Duty Land Tax (SDLT) – you will need to pay this to HMRC if you pay over £300,000 for the property.
- Solicitor or Conveyancer fees – they take care of all the legal paperwork involved in a property purchase.
- Payments to the Land Registry (when your property is registered in your name), Local Authority and various other third parties – these will be handled by your solicitor while they carry out due diligence on the property.
- You may also need to pay a fee for a mortgage valuation or survey, depending on the deal the lender offers.
- You may also be required to pay a mortgage adviser’s fee and, depending on the mortgage product, any product-related fees to the lender.
Can I get a First-Time Buyer mortgage?
As a first-time buyer you have no more hurdles to jump than any other kind of mortgage applicant. A lender will make a full assessment of your financial situation, taking into account all your sources of income, your regular outgoings and your existing financial commitments – these can include credit card balances, loans, child care costs and essential travel expenditure. The lender’s calculations will also take possible future interest rate increases into consideration. It’s important to not over-commit yourself financially.
As well as their affordability assessment, lenders will also carry out a credit history check to identify any issues you may have had with repayments in the past. As part of guaranteeing your identity, they will also need to see your address history for the last 3 years, and will expect you to be registered on the electoral roll at your current address.
Further supporting documentation, you will need to provide with your application:
- Evidence of your income – usually 3 months’ worth of payslips if you are in conventional employment, or your tax calculations and accounts if you are self-employed.
- Three months’ worth of bank statements.
- Proof of identification and address.
- Evidence that you have the deposit amount.
Help to Buy: Equity Loan
The Help to Buy: Equity Loan is a scheme set up by the Government to help first-time buyers get their first foothold on the property ladder with a new build home. The loan can cover up to 20% of the property value (interest-free for the first 5 years), meaning you will only then need to apply for a 75% loan-to-value mortgage on top of finding the 5% deposit. This will put you in a far better situation with lenders, as a 75% mortgage may open the door to more favourable interest rates.
After five years, interest on the Help to Buy: Equity Loan will be charged at a rate of 1.75%, increasing each year in line with the Retail Prices Index +1% until the loan is paid off. If you want to pay the loan off early before it reaches the end of term, you can do so but the repayment amount will be equal to 20% of your property’s value at the time. Bearing this in mind, it might be worth your while paying off the loan as soon as possible by using savings or perhaps applying for a remortgage (if your finances allow) when the time for interest to apply approaches. The loan must be repaid in full after 25 years, and the property must be your only residence.
Help to Buy is for first-time buyers only, and not available to Buy-To-Let investors or people who own other property after completing their purchase. You will also not be able to rent out your existing home and buy a property through Help to Buy.
The Lifetime ISA is a Government scheme designed to help people to save up for a deposit for a home or for retirement, or both. Available to anyone between the ages of 18-40, you are able to pay in up to £4,000 per year into a Lifetime ISA until the age of 50 and the Government will top up any contributions by 25%.
Your Lifetime ISA savings can be used for the purchase of a first home up to the value of £450,000 anywhere in the UK, no sooner than one year after you open the ISA account. If not used for this purpose, you will only be able to withdraw the sum it contains when you reach the age of 60, or are diagnosed with a terminal illness.
If you have both a Lifetime ISA and a Help to Buy ISA, you can only use the Government bonus from one of them to help purchase your first home.
I am a First-Time Buyer with poor credit - can I get a mortgage?
The criteria for qualifying for a mortgage when you have a poor credit history are very similar whether you are a first-time buyer or already own your own home.
Lenders will base any mortgage decision around the hard facts contained in your credit file, with items of bad credit ranging from relatively minor series of late card payments to more serious instances of default, County Court Judgments or even bankruptcy. They will also take into account how much time has passed since these instances occurred and your current financial conduct, as we all understand that people and behaviours can change over time.
When assessing your eligibility if you have a poor credit score, lenders will also look carefully at your business and personal bank statements to get a clear picture of your general financial conduct.
You will not be instantly disqualified from applying for a mortgage if you have a bad credit history, but you may have to do a little more work to support your case. As we’ve seen, the assessment process takes many variables into consideration, and your application will be given a much greater chance of success if it is framed in the most favourable way to the lender. An experienced mortgage adviser can be of great help in this, and talking over your application with one of the team at The Mortgage Centres could be vital in obtaining the mortgage you need.
Mortgage rates for First-Time Buyers
You’ll be happy to know there are no penalties on interest rates for first-time buyers, and you will be able to access the same rates as any other mortgage applicant. The differences between your case and that of an established homeowner may show up due to the level of deposit you are able to provide.
The higher the deposit you are able to put down, the better the terms and interest rates you are usually able to get. People who already own a home are likely to have been in the process of paying off their first mortgage and will probably have some equity tied up in their property. Therefore, this will count in their favour like a deposit.
Some lenders do have favourable rates reserved for first-time buyers, designed to attract new business, with bonuses or benefits associated with the deal. These perks can be free valuations or surveys, cash back incentives or the waiver of some fees.
Talk to one of our experienced advisers at The Mortgage Centres to see what incentives or benefits could be available to you as a first-time buyer.
What is a guarantor mortgage?
A Guarantor mortgage is a way of accessing the level of mortgage you need to buy a property that suits your needs, even if your personal income is not at the level required to afford it. This kind of arrangement is perfect for people who are at the stage of their career where they are not yet earning enough to fund anything but the smallest mortgage, but whose income is likely to rise substantially in the medium term.
This works by a third party or individual agreeing to guarantee the repayments on the mortgage. They will not have any entitlement to live in the property, will not be named on the title deeds and will not have any financial interest in the property, but they will be a named party on the mortgage agreement and will cover your payments if you are not able to.
The lender may stipulate that the Guarantor provides additional security on the loan, which could take the form of:
- A Legal Charge against a lump sum in an interest-paying savings account. This could be for an amount equal to the additional lending that the lender has allowed under the terms of the Guarantor mortgage, and it will not be accessible until the mortgage is affordable based purely on the borrower’s income.
- A Legal Charge against the residential property of the Guarantor. This means if they do not cover any repayments missed by the borrower, then their own property is at risk of being repossessed in order to recover the debt.
A responsible lender will want to take a close look at the Guarantor’s finances to ensure that they are sufficiently healthy to take on this commitment, and that they would be able to cover your mortgage payments in addition to their own home loan instalments, regular outgoings and household spending. They will very likely be expected to own their own property and have a clean credit record. To ensure independence and freedom from influence, it will be essential for the Guarantor to get their own solicitor in connection with this agreement, and the lender’s legal representative would expect to see evidence of this.
Mortgage advice for First-Time Buyers
When you’re looking into buying your own home for the first time, it’s easy for the excitement and ambition to feel overwhelmed by worries about the process and anxiety over what you may or may not know. Perhaps the most daunting aspect of purchasing a property is getting a mortgage – with so many different products and deals on offer it can be a labyrinthine task to sift through them all and try to weigh up the pros and cons, and calculate what might work best for you in the long run. And you might never be sure that there wasn’t a better deal somewhere that you missed.
With so much hinging on the mortgage, this is usually the point where potential new homeowners seek advice on what they should go for. Advice on mortgages can come from many places, among them the following:
Family and friends – especially those that own their own homes and may have been through the process more than once. They’ll be able to share some great first-hand experience, but may not be fully aware of the details of the current mortgage market and their information may be no longer relevant or simply not accurate.
The Internet – the source of much wisdom and information, all at your fingertips, all day, every day, and constantly being added to. However, the sheer volume of data, articles, figures and information can be bewildering to navigate, and you cannot always be sure that the advice given is entirely impartial, or suitable for your situation.
Lenders – fully qualified advice that will be moulded to meet your needs. While they know what they are talking about, you need to remember that they will only be able to discuss products and deals within their own portfolio and not a range of competitive alternatives from elsewhere on the market.
Mortgage brokers or financial advisers – again, offering fully qualified advice that will be tailored to account for your needs and circumstances. They are likely to charge a fee for their service, although some receive payment from the lender rather than the client. However, it’s worth checking their access to the market, some of them may only have access to a limited panel of providers and not have the unlimited authorisation necessary to give you the widest possible choice, which may be vital in finding the right mortgage to meet your needs.
First-Time Buyer mortgage advice
The team of advisers at The Mortgage Centres has access to the vast majority of providers in the mortgage market, and is in a position to take a comprehensive look at what’s available from a broad spectrum of lenders, as well as conduct assessments of your application based on lenders’ own criteria and calculators.
To see what could be the best deal for you as a first-time buyer and find out more about the schemes, offers and benefits that might be available, contact us today. We’ll be happy to help you and save you the time, energy and uncertainty of searching the market yourself. Give us a call on 0330 094 5876.