First Time Buyers

There are many mortgage options available for First Time Buyers, and the best choice is based on your needs and preferences

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The First Time Home Buyers Essential
Guide to Affordable Mortgage Finance

The market for first time buyer mortgages is vibrant. Many elements of the market have changed over the years, including criteria for eligibility. However, good mortgage deals for first time buyers are still available to obtain both quickly and easily. 

With so many choices on offer and decisions to make when it comes to approaching your first mortgage, it can be overwhelming! The first and most important steps are to choose an area where you would like to live and to identify the most suitable mortgage for your situation. Our team of friendly expert advisers will help you find a mortgage that best suits your circumstances and goals. 

Providing the deposit is the next major step and being able to put down a larger deposit can give you access to more attractive mortgage deals. The average deposit for first time buyers in 2019, according to The Mortgage Broker Ltd is in excess of £48,000 – of which 40% of first-time-buyers get assistance from family members. The bigger the deposit, the more lenders you will have to choose from and the more affordable your repayments will become.

However, mortgages are available for first-time-buyers with a deposit as little as 5%. There are also some no deposit mortgages available, which we will cover later in this article. 

Once you know how much money you can borrow you can then discuss your mortgage arrangement and repayment plan with your mortgage adviser. This will enable you to narrow down your property search and eventually make an offer on your chosen property, confirming the price you are willing to pay. Should your offer be accepted, your financial circumstances and objectives will be assessed in detail, to determine your ability to support your loan. 

A good first time buyer mortgage adviser will have a great depth of expertise across every type of mortgage and they are perfectly placed to offer the best advice as well as recommend the best product options for you. This guide was created to help you gain a broad understanding of the whole first time home buying process and to answer the most common questions.

How do first time buyer
mortgages works?

FTB mortgages work in the same way as any other potential mortgage – although we appreciate that this is new territory for you, so let us explain it for you in a step-by-step manner. 

The mortgage process is as follows; and yes, this has been simplified. We would recommend using a reputable or even a ‘first-time-buyer’ mortgage specialist, as they will guide you and hold your hand through the process from the very beginning (when you start looking at properties), during (discussing mortgage options), all the way through to moving into your first home.

First Time Buyers

The Mortgage process in 13 easy steps

1

Speak to a mortgage broker and provide them with the …

Speak to a mortgage broker and provide them with the information needed so they can assess your affordability and the maximum loan amount you can borrow. Your broker can also guide you by informing you which schemes may help you achieve your goals.

2

Once your broker knows the figures, …

Once your broker knows the figures, they can provide you with a quote or summary of the potential mortgage deals which are available to you. Your job would be to discuss this in detail with your broker to make sure you understand the costs and the fees involved and that you feel comfortable that this is something you could afford if you found your dream first home.

3

When you are happy with the figures, …

When you are happy with the figures, it is recommended that you get what is commonly known as an ‘Approval in Principle’ (AIP) or a ‘Decision in Principle’ (DIP).

This is a ‘pre-approval’ from the lender, based on the information you have provided the broker. The lender will come back after doing an electronic credit search on you (this is generally done the same day) and they will say “Yes’ or “No’ depending on if they are happy and willing to lend you money. The great thing about this is:

  1. It shouldn’t cost you any money to get to this stage (just make sure your broker doesn’t charge a fee for this) and…
  2. You are not obligated or committed in any way. All this process does, is gives you the peace of mind that a mortgage is available to you, should you find a home to buy and if you want to go ahead and start a mortgage application.

4

Engage with Estate Agents and find a home within your budget.

5

Once you have found a house you wish to buy, make an offer to the Estate Agent, update your mortgage broker and wait with fingers crossed to see if your offer is accepted.

6

Assuming your ‘offer’ is accepted, …

Assuming your ‘offer’ is accepted, inform your mortgage broker. Your broker will check to make sure the mortgage that they quoted for you, is still the best value deal for you, based on your circumstances. Due to the fact that some time may have elapsed, there may be a better option available to you as lenders are always withdrawing and offering new mortgage deals on a daily basis.

7

You will need to instruct a solicitor to …

You will need to instruct a solicitor to deal with the legal work required for the purchase. Your broker will be able to help you find a reputable solicitor to do this work for you and can provide you with competitive quotes. If you are happy with the cost, your broker can instruct the solicitor on your behalf. You can of course do this yourself if you wanted to. The solicitor will send you a questionnaire to complete so they know what work they are being asked to do for you (a decent broker will help with this document if you feel overwhelmed by the questions being asked).

8

Once your broker has confirmed the …

Once your broker has confirmed the best deal for you (90% of cases tend to be with the same lender that you received a ‘pre-approval’ with), then you will need to supply some evidential documents which your broker has requested from you, to accompany the mortgage application. These documents vary from lender to lender, but are likely to include; Proof of Identification / Proof of Address / Latest 3 months’ Bank Statements / Latest 3 months’ Payslips / Proof of Deposit.

9

The mortgage process will start and …

The mortgage process will start and this will include a valuation of the property you wish to purchase, along with plenty of communication between the lender and the broker (you will, of course, be updated throughout this process). The entire process usually takes between 2 and 8 weeks to be formally approved for your mortgage and get all the ticks in the right boxes. This is the point at which the lender will produce what is called a ‘Mortgage Offer’.

10

The Mortgage Offer is a formal …

The Mortgage Offer is a formal document and a copy will be sent to yourself, your mortgage broker and your solicitor, allowing you to progress to the next stage, ahead of preparing for completion. The next stage involves your solicitor doing further work behind the scenes, including such things as ‘searches’ and other enquiries to make sure that you are not buying a house with a planned nuclear reactor being built next door!

11

After all enquiries have been …

After all enquiries have been answered, you can start to agree a moving in date. A discussion between your Estate Agent, yourself and the sellers will take place so you can get to a mutually agreed date. Do let your broker and solicitor know of this planned date as they will still have work to do behind the scenes for you.

12

Once this planned date is confirmed, …

Once this planned date is confirmed, your solicitor will discuss with you the ‘Exchange of Contracts’. Before contracts have been exchanged, you or the seller can pull out of the transaction at any time – hence why buying a house is known to be stressful. However, once you have ‘Exchanged Contracts’ you (and the seller) are contractually committed to conclude the buying / selling process.

13

Once a date for completion is set …

Once a date for completion is set (your solicitor will set this after discussing it with you), your mortgage company will be informed by the solicitor, so that they can prepare to release the money to the Solicitor, who will in turn, pass these funds to the seller. Your mortgage broker will make sure any insurances are put on risk for you and you can then move into your new home! (assuming you have booked your removals van ?)

First Time Buyers

Which is the best type of mortgage for first time buyers?

This depends entirely on your individual circumstances and can only be answered by a mortgage adviser once they know your income, your expenditure, your credit profile, your deposit and how much you would like to borrow. A simple example of this would be that someone with a squeaky-clean credit file and a 15% deposit would get a better deal than an applicant with a 5% deposit and a less than perfect credit profile. In summary, find a broker that won’t charge you a fee for their advice/guidance and let them come up with some results for you.

Do I qualify as a first-time-buyer?

If you don’t currently own a home, then yes, you could qualify as a first-time-buyer (FTB). Whether you qualify for a ‘first-time-buyer mortgage’ is a different scenario and this all depends on your income, expenditure, the size of your deposit and credit file which has been covered above. Some lenders will classify you as a FTB even if you have previously owned a house although this is lender specific.

First Time Buyers

Deposit Questions

How much deposit do I need to buy a house?

In most cases, you will need a down-payment as a first-time-buyer – although there are some lenders offering mortgages for first-time-buyers with no deposit. These types of mortgage will come with lots of terms and conditions as described later in this guide. Another good tip is simply: – the higher the deposit, generally speaking a better deal or rate will be available from the mortgage lender. Lenders will offer rates based on a 5%, 10%, 15%, 20%, 25% and 40% deposit, with the rule of thumb being that the higher the deposit, the more competitive the deal will be.

Can the deposit come from a family member?

100% mortgages (Where you have no deposit) are available for UK first time buyers in certain circumstances, although they do come with a few terms and conditions. To be accepted for this type of deal you would need a family member to have savings or ample equity within their own home, which the mortgage provider could use as security. Lenders will either want this family member to move a set amount of savings to them for security, or they will place a ‘charge’ over the equity in their property.

You would be advised to discuss these options with your mortgage broker, so they can offer you some guidance on the schemes available. They would want to confirm that your parents or other close family members are in a position to assist you with this type of ‘no money down’ mortgage.

Can I get a mortgage without a deposit?

These days it is very common for first time buyer mortgages to include parental help in the form of a deposit or to act as guarantors for mortgage payments. So Yes, the whole deposit or even just part of it, can be provided by a close family member. When a family member does provide a deposit, the lender will want them to provide it to you as a ‘Gift’ and not a ‘Loan’ which is due to be paid back at some point in the future.

What other costs / fees
should I be concerned about?

Valuation Fee – This should be shown within the mortgage quote / summary and is payable at the time of the mortgage application. Approximate cost £150- £500 depending on the price of the house and the type of valuation survey chosen.

Lenders Fees – These fees should be shown within the mortgage quote / summary and will range from £0 – £995 (they could be more on some occasions). These fees can either be paid upfront or added to the mortgage loan.

Broker Fee – Some brokers may charge a fee for their service. This fee can be charged upfront, upon ‘Mortgage Offer’ or upon ‘Completion’. This fee will always be shown and made transparent when you first discuss mortgages with a broker and will be shown in the fee section in your mortgage illustration. An acceptable fee for a standard mortgage, in our opinion, ranges from £295 – £695 based on the level of work carried out and the service you receive.

First Time Buyers

Solicitor Fees – Your solicitor fees will be between £1000 – £1600 based on your location. 

Stamp Duty – Stamp Duty is not payable if the purchase price is less than £300,000. If your purchase price is higher than this £300k threshold, the cost will be detailed within the solicitor’s quote – although your broker can provide you with this figure if required. Please note you are only classified as a FTB in the governments eyes, if you have never owned a property, mobile home, house boat or owned a property anywhere in the world.

First Time Buyers

Should a first-time-buyer get the mortgage first or find a house first?

Our advice would be to sort out your finances first. This way, you know what you can afford and the costs involved. Once you know these figures, you can search for your first home within a price range that you know is affordable. If you do it the other way round and find your dream house first, then apply for a mortgage, you may find that you can’t afford it or the lender won’t give you the mortgage you need to buy it which will be extremely disappointing.

How long does the buying
process take?

The typical first time buyer mortgage process takes on average 3 – 12 weeks. This time frame is wide because there are many factors at play here. The mortgage for example, could be approved in 24 hours. The mortgage offer could be produced within 2 – 6 weeks. The actual process can then add more days or weeks to this process depending on: 

1. Whether or not the solicitor is ‘on the ball’, OR if they encounter any problems/issues along the way which would need to be resolved and/or 

2. The seller and the rest of the chain would need to have their ‘ducks lined up in a row’ in regard to their mortgages being sorted and their completion and moving in dates all being agreed upon. If one of these factors breaks down, or someone in the chain pulls out, the process can really drag on.

First Time Buyers

What is “The Chain”?

When you buy a house there is often a ‘chain’ of people, all relying on each other for the house buying/selling process to work. This is probably best explained by an example:

  • You find your dream house and buy from Mr & Mrs Jones
  • Mr & Mrs Jones are moving to a new house and are buying Mr & Mrs Smith’s house
  • Mr & Mrs Smith are selling to downsize to the beach and are buying from Granny Smith
  • Granny Smith is moving into a nursing home.

So, in the above scenario there is a ‘chain’ of people, all reliant on each other on getting mortgages approved and hoping that no one pulls out, has a better offer, or a change of heart. If someone pulls out of the chain this is referred to as ‘the chain has broken’ – not words or a phrase you want to hear

With first time home buyer new build mortgages, then there is no chain and the process is so much simpler as you are not relying on any third parties.

Some might say that buying a house is one of life’s most stressful processes and it is for the reasons and delays mentioned above, that people might feel or experience this. 

The mortgage process itself and being approved by a lender is actually relatively easy and painless. 

DO FTB’S HAVE ACCESS TO ANY SCHEMES WHICH CAN HELP WITH THE PURCHASE? E.G. SHARED OWNERSHIP / HELP TO BUY (HTB)

Yes, first-time-buyers can access both Shared Ownership Schemes and Help to Buy (HTB). Both schemes are designed to make house ownership more achievable to first time buyers. We have summarised these schemes here for you.

First Time Buyers

Shared Ownership

A Shared Ownership mortgage is where you own a percentage (%) of the house and pay rent for the share that you don’t own. It allows buyers to get on the property ladder, where they may not have been able to previously, based on affordability or the size of the deposit needed. Most Shared Ownership deals will allow you to buy the remaining share (known as ‘Staircasing’) when time and your personal scenario allows for this.

First Time Buyers

Help to Buy (HTB)

HTB is a government run scheme designed to assist people get on the housing ladder. The most common form of HTB is where you put down a 5% deposit on a new-build home and the government provides a 20% deposit. This allows you to obtain a 75% mortgage deal which are better value deals compared to a 95% mortgage deal.

The ‘equity’ that the government have assisted with, is interest-free for a period of 5 years and thereafter there is an interest payment to be made which needs to be factored in for your future affordability.

 

Can someone else guarantee your mortgage?

Yes, and this is the point of a guarantor. It is in effect someone else guaranteeing to the mortgage company that they will pay the monthly mortgage cost if you were to default or stop paying. However, most mortgage companies insist that the guarantor is a close family member rather than a friend.

What is a Joint Borrower,Sole proprietor mortgage?

There are many variations of a guarantor mortgage and a brief overview is provided in this article. Some of the options available are:

  • Some mortgage lenders will accept a family member as a guarantor, and will base the mortgage on their income and your future earnings potential.
  • Others may use a guarantor for part of the deposit requirement. They may take this deposit as physical cash, savings deposited into a different bank account or a charge on the family member’s property.
  • A new style house ownership known as ‘Joint borrower, sole proprietor’ is more common nowadays instead of the traditional ‘guarantor’ mortgage. An example of this is that you buy a house with your Mother / Father – The affordability is based on their earnings (as well as yours), the mortgage is in everyone’s name, but you are the legal and sole owner of the property.

Our advice is to speak to a professional first time buyer mortgage broker to discuss the various options available to you as every bank / lender has different criteria on what they will / will not offer you.

First Time Buyers

Did you know?

  • An average deposit of just over £32,800 is required to get on the property ladder in the UK
  • For London, the average deposit for a FTB is even higher at £110,565
  • In the 10 years from 2008 to 2018 FTB’s have increased from 192,300 to 372,000
  • The average house price for a FTB has increased by 39% from £153,000 to £212,400 in 2018
  • Terraced houses followed by Semi-detached houses were the preferred choices of first time buyers over the last 10 years

Or, Call us FREE on 08000 320 316

First Time Buyers

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