Being a first time buyer embarking on your mortgage journey can be both an exciting yet uncertain time. It 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 understand it can be a daunting and confusing time, so we’re here to help.
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. However, it’s not a simple ‘one size fits all’ answer. Different lenders will make their own calculations and each one will usually come up with a different figure.
The amount that you can borrow is worked out on an affordability basis. This means 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 factors that a lender considers.
How much will you need for a deposit?
The coronavirus pandemic has impacted many industries and mortgage deposits did 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 was no longer an option to purchase your residential home with a 5% deposit unless you were using one of the government schemes in place; such as the Help to Buy.
However, in the recent Budget a 5% deposit mortgage guarantee scheme was announced to help prospective homeowners with smaller deposits back onto the property ladder.
What should you do first in your mortgage journey?
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 by speaking to a mortgage broker before you do anything else. This means that 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.
We know that 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.
By starting your mortgage journey early it also means that 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. Therefore increasing your chances of mortgage application success.
Applying for a first time mortgage with a partner
A significant amount 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.
This means that both incomes, savings and deposits are taken into account; also meaning that 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. This is something key to discuss with your mortgage broker.
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 change.
For a first time buyer, fixed rates are generally the most advised option due to their stable and low risk nature. This makes 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)
We know all this terminology can seem quite overwhelming but it’s not as hard as it seems. In short, 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 again to see what 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 and save you money.
Family help
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 meant that 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 due to end on 31st March 2021 and is only applicable to those who want to buy a new build property. The scheme enabled 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. This increased to up to 40% if you were purchasing a property in London. You would 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.
However, the new scheme will run from April 2021 to March 2023. As with the current scheme, under the new scheme, the government will lend buyers up to 20% of the cost of a newly built home, and up to 40% in London. The loan is interest-free for the first five years and then interest fees start at 1.75% and rise each year in April by the Consumer Prices Index plus 2%. Borrowers are also charged a monthly management fee of £1 for the term of the loan.
Along with restricting the new loan to first-time buyers only, the Government has also introduced regional price caps, which means that homes eligible for the loan have to below the set maximum price. The price caps are:
| Region | Price cap for Help to Buy homes April 2021 to March 2023 |
| North east | £186,100 |
| North west | £224,400 |
| Yorkshire and The Humber | £228,100 |
| East Midlands | £261,900 |
| West Midlands | £255,600 |
| East of England | £407,400 |
| London | £600,000 |
| South east | £437,600 |
| South west | £349,000 |
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. This 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.
Stamp duty
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 was a stamp duty holiday introduced due to the pandemic, which meant that you didn’t have to pay stamp duty on any property that was worth up to £500k.
This stamp duty holiday was initially due to end as of March 31st 2021.However, it will be extended until 30th June, which aims to help many people in the process of buying a home. As from 1st July it will fall to £250,000 for another three months, before returning to its standard £125,000 rate on October 1st.
Get in touch
We strongly believe it’s best for first time buyers to have as many options as possible available to them. Contacting 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.
To find out more about how we can assist you with your Mortgage requirements, please click here to get in touch.
