Being a first time buyer embarking on your mortgage journey can be both an exciting yet uncertain time; which can leave you with a number of questions, thoughts and worries surrounding your mortgage and the process you will go through as a first time buyer.
We have answered some frequently asked questions surrounding first time buyer mortgages using our expertise and experience from helping many people apply for their first mortgage.
How much can you borrow as a first time buyer?
This is typically the question that everyone wants to know before they’ve even started their mortgage journey, but it’s simply not a ‘one size fits all’ answer. Different lenders will make their own calculations and each one will usually come up with a different figure.
How much you borrow is worked out on an affordability basis; how much a lender believes you will be able to afford from looking at your income and outgoings. The amount of deposit you have saved for your home and your age will also be a factor a lender considers.
How much will you need for a deposit?
The 2020 coronavirus pandemic has impacted many industries and mortgage deposits have not escaped the cut backs.
In general, as a first time buyer you could buy a residential home with a deposit of 5%, with more lenders coming into play when that was increased to 10%. Essentially, the bigger your deposit, the better your mortgage rate was.
As of August 2020, there’s no longer an option to purchase your residential home with a 5% deposit unless you are using one of the government schemes in place; such as the Help to Buy.
What should the first step in your mortgage journey be?
As a first time buyer, it can be very overwhelming to know where to even start on your house-buying journey.
We believe it’s important to explore your mortgage options before you do anything else. This is so you can start looking at houses that you know you can realistically afford as you will already know how much a lender is willing to give you from an agreement in principle.
It can be extremely disheartening to find your dream home and put an offer on it, only to find out that you can’t actually afford it when you come to explore the mortgage options that are available to you.
Starting your mortgage journey early also means you are fully aware of your credit status. It’s not uncommon for first time buyers to stumble across credit issues they didn’t even know existed; which could affect your chances of securing a mortgage. If you find out early enough, it’s easier to work through the necessary steps you need to take to improve your credit score and therefore increase your chances of mortgage success.
Applying for a first time mortgage with a partner
A lot of first time buyers look to buy their first home and enter into their first mortgage with a partner and the process doesn’t differ to that of buying alone.
Both incomes, savings and deposits are taken into account; which also means both your credit scores will be assessed by a lender. It’s important to note that if you or your partner has bad credit, it could affect your chances of buying a home.
What types of repayment are available for first time buyers?
Fixed rates – this is where your rate is fixed for a certain period of time. Your interest rate is a set level so you know exactly what you are going to be paying each month, making it a great repayment option when it comes to budgeting and managing your money.
Tracker rates – this form of repayment follows the Bank of England base rate. If the base rate increases or decreases, your monthly repayment rate will reflect this.
For a first time buyer, fixed rates are generally the most advised option due to their stable and low risk nature; making it easier to budget for your mortgage repayments without the added stress of the base rate skyrocketing.
Initial product period and Standard Variable Rates (SVR)
The initial product period is how long you take your fixed or tracker rate for. Usually the options are two, three or five year fixed for first time buyers. It’s important to note that when you are within your initial product period, you are tied to your lender so there will be a penalty if you leave the lender before your initial product period expires.
The SVR rate is the rate you move onto when your fixed period expires. This rate tends to be higher than the fixed rate you would have previously been paying, therefore, it’s usually at this point that you explore other options with a mortgage broker that could be more suitable for you.
As a mortgage broker, we keep an eye on this process for you and get in touch five or six months before your current rate is due to end so we can explore your options.
As a first time buyer, you may have the option of family support and receiving money from a family member towards your deposit. This is acceptable with most lenders, but there are some who require you to have a certain proportion of your own savings.
Previously, you could also have a member of your family as a guarantor; which means they signed to agree that if for some reason you couldn’t afford to make your mortgage repayments, they would do so on your behalf. However, this no longer exists – instead there’s a Joint Borrower Sole Proprietor scheme where a family member can use their income to support your borrowing capacity.
The Help to Buy scheme
The current Help to Buy scheme run by the UK government is only applicable to those who want to buy a new build property and the scheme enables you to put in a 5% deposit and then receive an equity loan from the government of up to 20% of the property purchase price, which increases to up to 40% if you are purchasing a property in London.
You then apply for a mortgage on the remaining percentage of the property price, which is usually around 75% if you are purchasing outside of London.
This essentially means the government loans you a percentage of your property. After 5 years you would start to pay interest on the loan, or you could explore other options such as remortgaging after you have had a discussion with a mortgage broker to figure out the best option for you and your circumstances.
Is shared ownership a good idea?
The shared ownership scheme is where you buy part of the property and rent the other part from the housing association, so you start paying rent on the property from the day you move in.
Shared ownership is a good option to consider as long as you structure your numbers properly. You essentially need to ensure you are building enough equity in your share in order for shared ownership to be worthwhile.
Prior to the coronavirus pandemic, first time buyers wouldn’t have to pay stamp duty on a property that costs less than £300k. However, there has now been a stamp duty holiday introduced due to the pandemic, which means you don’t have to pay stamp duty on any property that is worth up to £500k.
This stamp duty holiday is going to be stopping as of March 31st 2021 and the stamp duty rules after this date are yet to be confirmed.
Get in touch
We believe it’s best for first time buyers to have as many options as possible available to them. Approaching a mortgage broker like us means you will have access to a number of different lenders and mortgage rates, so we can work together to find you the best rate possible – supporting you every step of the way.
We offer a free, no obligation consultation so you can establish your options and decide whether we are the best fit for you completely free of charge.