First Time Buyers

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Buying your first home is a very exciting time – but it is one of the biggest financial commitments you will make. That step on the property ladder that you have been waiting for is well within reach but it comes with responsibility.

It is important to have as much information possible before applying for a mortgage. This is so you can make the best commitment for you.

What Types of Mortgages Are Available?

There are two main types available which are fixed rate mortgages or a variable rate mortgage. A fixed mortgage means the repayments remain fixed throughout the length of the deal. This means even if interest rates vary, your mortgage will not be affected.

Variable rate mortgages are made up of four different types:

  • Tracker Rate – A rate which tracks a fixed economic indicator, usually the Bank Of England rate. For example if the Bank Of England rate increases by 2%, so will your mortgage payment. Some tracker mortgages only last a few years and then turn into a Standard Variable Rates (SVR) mortgage.
  • Standard Variable Rate (SVR) – This rate is rarely available to new customers. It is a standard rate after discounted rates have ended. It is set on the Bank of England base rate but can be 2-5% above. This varies with different lenders.
  • Discount Rate – A discounted rate from the underlying rate (usually SVR) which will only be temporary.
  • Capped Rate – A rate which is variable but cannot exceed a certain limit. These are however rare.

Deciding between a fixed mortgage or a variable mortgage will greatly depend upon your own personal circumstances. Fixed rate mortgages ensure that the monthly payment will not vary and offers a sense of certainty that other rates cannot. Variable rates are not fixed and can potentially offer amounts of discount but they are subject to change at any time.

How Do I Get A Mortgage As A First-Time Buyer?

First Time Buyers go through a financial process which includes showing proof of deposit and undergoing a detailed check into personal finances.

There are a lot of personal factors taken into consideration, such as:

  • Amount of debt (if any) owed
  • Your payment history on things like credit cards, loans or mobile phone bills
  • Your employment history
  • Your age
  • The type of property and the area you want to buy in
  • Your credit score
  • If you can afford it, as judged by looking through several months of outgoings.

Lenders vary their criteria in regards to who they will lend to and at what rate. An independent mortgage adviser can offer an expert overview of the market to help find which mortgage suits you best.

How Much Can A First-Time Buyer Borrow?

First Time Buyers with the right deposit can access three to four times their annual salary. This can rise for purchasers with certain lenders. Lenders also take into account your own personal financial circumstances, such as your income and outgoing payments.

The way that lenders calculate is highly individual to the lender. A mortgage calculator can act as a guideline whilst house hunting. It gives an estimate of how much you might be able to borrow, but speaking to a Mortgage Broker will give you a more accurate figure including fees and clauses you need to be aware of.

How Much Of A Deposit Will I Need?

Deposits can sometimes act as a deterrent for First Time Buyers. Some lenders require a minimum of 5% of the property’s value as a deposit. This is however rare, comes with a high interest rate, and has other criteria that you’ll need to meet.

A more typical deposit would be 10-15% of the property’s value. There are specialist lenders available to help if you’re struggling to gather a deposit. A Mortgage Broker will be able to guide you through the process and find you the best deal for your needs.

What Is A Mortgage Broker and Do I Need One?

A Mortgage Broker is a qualified mortgage adviser. They can offer expert advice regarding the market and give advice tailored to your situation. They are not compulsory when purchasing your first mortgage; yet they are useful.

Mortgage Brokers will take all of your circumstances into account and then do all of the searching for you. Some also have access to ‘broker exclusive deals’ due to working with certain lenders.

A ‘whole of market’ Mortgage Broker gives an expert opinion across the whole of the market.

Do I Need A Mortgage Decision in Principle?

A mortgage decision in principle is a conditional offer of acceptance based on a check of your income and credit. It is not compulsory but first-time purchasers can use this check to build confidence with lenders. There is no guarantee of acceptance and too many checks can affect your credit score.

How Can I Improve My Chances of Getting a Mortgage?

As mentioned before, lenders are very individual in their criteria when approving mortgages. Making sure that your credit is correct and good will heighten your chances of being accepted for your mortgage application.

Closing any unused credit cards will help to boost your credit, so will paying outgoing bills on time. Avoid using overdrafts and payday loans as they suggest poor money management and can lessen the chance of a mortgage offer.

What Help Is Available For First Time Buyers?

There are currently a number of government schemes in place to aid first-time buyers in the purchasing of a property. The main scheme, Help To Buy, is a low-interest loan towards your deposit. You will need to have 5% of the property value as a deposit. The Government lends first-time buyers up to 20% of the property value at a low rate.

There is also the option of a shared ownership mortgage, which are run by property developers and housing associations. You buy a portion of the home (usually 75%) as normal then pay the remaining percentage as a rental.

Shared equity is similar, but involves taking the remaining percentage as a loan. You can then eventually purchase the remaining percentage as your income hopefully increases.

What Other Costs Do First Time Buyers Have To Pay?

There are more financial factors to consider when buying a property for the first time. You will need money for removal costs, surveys, solicitors fees, home insurance and arrangement fees on the mortgage. It is an extremely good idea to take out income protection in case your circumstances change quickly.