- Low deposits
- 95% LTV available
- Borrow £20k upwards
- Low & fixed rates
- Rep. 4.1% APRC
- All credit ratings
Choosing Your First Mortgage
So you’ve made the decision to buy your first home. Congratulations! Now it’s time to get the funds in place so you can make the purchase, move in and get on with building your life.
As a broker, we can help you find the right deal for your needs. There are 100s of mortgages available for first-time buyers like you. We cover the whole market so we’ll leave no stone unturned. On this page you can find lots of information that will help answer your questions relating to:
- The basics of mortgages you need to be aware of
- How to get together the deposit you’ll need
- Judgements about interest rates
- How to benefit from the Government’s Help to Buy scheme
Get Your Quotes Now
- Access the whole market
- Compare 100s of deals
- Rates start at 3.2% APRC (Rep. 4.1% APRC)
- Low Deposits / 95% LTV
- All credit ratings welcome
- No upfront fees
First-Time Buyer Mortgage Basics
Over the next decade, you’ll become wiser and more knowledgeable about mortgages. But in the meantime, you may feel a little uneasy about terminology, principles and best-practice. Not all of us have family or friends who can help us navigate what is a massive financial decision. Here are what we think are the key elements to consider when entering the mortgage market. Keep in mind that as brokers we will do our best to help you make the best decision and are happy to answer any further questions you may have:
The Maximum You Can Borrow
Before you settle on a property you need to know how much you could borrow. The upper limit will be determined by a number of factors:
- A lender’s maximum loan-to-value (LTV) percentage. For example, a lender may not be prepared to lend more than 90% of a property’s value. If you have your eye on a £250,000 home then you’ll only be able to borrow £225,000.
- The deposit you offer. If you have £15,000 as a deposit and a lender has a maximum LTV of 90% then the implication is that they would only offer you £135,000. Ideas for generating a deposit.
- Your credit rating. The worse your credit rating the lower the maximum LTV they will offer you because of higher perceived risk.
- How affordable the repayments are. A lender will only lend to you the amount which by their judgement you can afford to make repayments on. In the old days, this was done crudely using a concept of “income multiples” (often limited to three times your annual salary) but the assessment now is much deeper.
You can also investigate whether the Government’s Help to Buy scheme could help you, as it has 500,000 other people.
Of course, you’ll want the lowest rate you can find. Keeping it in simple terms the rate you’ll be offered will depend on the level of risk your lender sees. A number of factors affect risk:
- Your personal credit rating – the better your rating the lower the interest rate
- The LTV% – i.e. the greater the deposit you can provide, the lower the LTV% and the lower the risk
- The state of the economy and sometimes the Bank of England Base Rate
You have some influence over some of these risk factors. There are other considerations about interest rates too:
- Should you fix your interest rate, and if so then how far into the future?
- If you choose to stay on a variable rate then can you find a mortgage with an upper limit (i.e. a “capped rate”) or one that is more directly linked to the Bank of England Base Rate (i.e. a “tracker”)?
Decisions about interest rates are always a judgement. You will never know if the decision you make is the best one until years down the line. One thing is clear though. If you fix your interest rate then you will know your monthly repayments will not change over that period. If this is important to you then fixing your rate may be the right thing to do.
Keeping Your Monthly Repayments to a Minimum
Apart from simply keeping the amount you borrow to a minimum and finding that astronomically great interest deal what can you do to keep your monthly repayments as small as possible?
- Lengthen your borrowing term. A “traditional” mortgage is repaid over 25 years, although you can choose the mortgage length to suit you. Don’t let anyone tell you otherwise! As with all credit paying the debt off quicker will always save you money – i.e. the total amount you repay will be less. There is a trend towards longer mortgages simply to help reduce monthly repayment amounts, but this example shows the implications of doing this:
Interest Payment Example
£170,000 borrowed at a fixed 4.5% on a repayment basis
- Over 25 years: Monthly repayments of £945. Total interest over 25 years = £113,363
- Over 31 years: Monthly repayments of £848. Total interest over 31 years = £145,417
You may be tempted by the idea of saving c.£100 per month. But are you comfortable with extending your repayments by 6 years and increasing your interest costs by 28%? Could you make savings elsewhere in your budget to make sure you speed up your repayments?
- Use an Interest-only mortgage. With this type of mortgage, your monthly mortgage payments only cover the interest charge. You are not repaying capital. This will reduce your monthly cost but your debt remains unpaid and you will need some other way to pay off the debt at the end of the mortgage term. These types of mortgage are not usually offered to first-time buyers.
- Use a mortgage that allows overpayments. With these mortgages your lender allows you to repay a portion of your capital over and above your monthly repayments or via larger monthly repayments. You may have to pay a higher interest rate for this flexibility.
- Remortgage when you can. Always keep your mortgage under review. If it ever becomes obvious that you could benefit financially from changing your mortgage then you should look at remortgaging.
Useful First-Time Buyer Articles
How to Get a Deposit Together
You are going to need a deposit equivalent to at least 5 or 10% of the purchase price of your first home. Most people target around £25,000 as a deposit. However, the average deposit actually paid is around £45,000! In your case where is this deposit going to come from?
If you manage your money poorly then maybe there are numerous savings you could make right now. If your rent is stifling your ability to save for a deposit would you be prepared to move back to your parents’ to avoid the rental burden? Could your parents provide your deposit? How would they do this and what terms would they give you?
The sooner you start to address the deposit conundrum the sooner you’ll have it ready and the sooner you can buy the home you really want.
- How to save for a deposit on your first home
- How parents can financially help their children
- The Bank of Mum & Dad
Help to Buy Scheme
First-time buyers can benefit from a range of options aimed at easing their way into the housing market. It’s Government-run and has already helped over 500,000 people across the UK. Choose from the following options:
- Help to Buy ISA – a savings scheme topped up by Government. Useful as you prepare your finances for the day you want to buy.
- Help to Buy Equity Loan – you provide a 5% deposit and the Government provides a loan of up to 20% (40% in London) on favourable terms.
- Help to Buy Shared Ownership – targeted at people who want to own part of a property and pay rent on the balance they do not own.
Our Money & Credit Guides
If you’re uncertain which type of credit might suit you or you have a money problem then one of guides may help you. We summarise each type of loan and their pros and cons, and address issues regarding debt and credit ratings.
First-Time Buyer Mortgage FAQs
First-Time Buyer Mortgages: things to know before you apply
Yes, in that it could affect not only the interest rate you are offered but also the amount of a deposit that you will be required to provide. If your credit rating is less than perfect then it is never too late to start improving it.
If you had a payday loan over two years ago then you are probably OK. Mortgage lenders view payday loans as a sign of financial stress. If you have resorted to a payday loan to get by then a mortgage lender will be highly sceptical that your finances are in a condition where they could tolerate mortgage repayments. However, if your last dalliance with a payday loan was 2 or more years ago, and if your credit rating is much improved since that time then it should demonstrate to a mortgage lender that you’re now in control.
Ideally, you should obtain one or two mortgage offers in principle before you start house hunting:
- you’ll be certain about what you can afford to buy
- the estate agent will know you are a serious buyer
Offers in principle typically last 30 to 90 days giving you plenty of time to look at properties. Keep in mind that getting these offers may involve a hard credit check (that leaves an imprint on your credit file) and for credit rating reasons it is best to limit these. If you can get offers that only involve a soft search then all the better. A good mortgage broker can help you find appropriate lenders.
The current rates of stamp duty for first-time buyers are as follows:
|Up to £300,000||Zero|
|The next £200,000 (i.e. £300,001 to £500,000)||5%|
|Above £500,000 normal rates apply|
However, as a response to the Covid-19 pandemic, the UK Government implement a stamp duty discount for property bought between 8 July 2020 and 31 March 2021:
|Up to £500,000||Zero|
|Above £500,000 normal rates apply|
To check how much stamp duty you will pay on your new property use the UK Government’s calculator.
There is a range of fees that you could face. Some relate to when you accept your mortgage and others if you wish to exit your mortgage early. Read more about fees here.
We all know the UK housing market is very tough for first-time buyers. The proportion of people owning their home has fallen. And the average age when a person buys their first home has been rising and is now around 30 years old. Getting a deposit together for a house is very difficult with around 50% of people aged 25 to 34 having no savings at all. Yet, every year around 350,000 to 400,000 first-time buyer mortgages are issued. The size of the average first-time buyer mortgage is £175,000 paying for a house with an average value of £220,000. This implies a deposit of £45,000 and an average LTV of 80%.
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