Mortgages for First-Time Buyers
First-time buyers will be relieved to learn that obtaining a mortgage for their first home will be no different than obtaining a normal mortgage. Lenders apply their standard affordability criteria to all borrowers, regardless of their level of experience, but you’ll have a more in-depth discussion about regular budgets to ensure that you’re aware of all the ongoing and ancillary costs associated with home ownership, as well as the month-to-month expenses.
You undoubtedly already know that your budgets must account for Council Tax, electricity, and insurances, as well as your usual living expenses like food, transport, and cleaning. You’ll also need to account for one-time payments for house maintenance or other unplanned costs that come with owning a home, and set aside money in your budget for them.
If you’re a first-time home buyer, you’re undoubtedly experiencing a healthy mix of enthusiasm, trepidation, determination, and concern. You’re probably curious about the entire process, including how long things might take, what might be the best deal for you, the level of detail in your application, how much financial information you’ll have to provide, whether your credit score will influence a lender’s decision, and a slew of other questions.
The good thing is that we understand. We understand both the challenges and the pleasures of house ownership. We also know what questions to ask potential buyers in order to determine which mortgage policies to consider, and we know exactly which mortgage provider to recommend and the deal that will be right for your circumstances because we have access to (and great relationships with) lenders from across the mortgage market.
We’ll be able to get a hold on your circumstances and objectives, see what you want out of a mortgage, answer all your questions, and look at the possibilities available if you contact our team for a free introductory discussion. So you can move forward with confidence, we’ll provide clear recommendations for what you should do next.
Going over your goals, questions, and concerns with a sufficiently skilled and experienced mortgage broker could be a very beneficial experience. You’ll have complete clarity regarding the mortgage and home-buying process, as well as your personal situation and the practical measures you’ll need to follow.
There are a number of key points about the purchase process we would run through with you, including:
- From obtaining a mortgage offer to exchanging contracts and finalising, the entire legal process – who is involved and the phases you’ll have to go through when purchasing your first house – from what the mortgage lender and solicitor do to what you’ll have to go through when buying your first home.
- A detailed examination of your expected income and expenses in order to construct a realistic budget analysis. To avoid unforeseen affordability concerns, you’ll need to know how much mortgage your income can support, as well as any potential future changes in your circumstances.
- How much of a deposit you can afford, and how much of a deposit you can afford will effect the interest rates offered, the terms of the mortgage, and your monthly payments in the future.
- The impact of various lenders’ affordability evaluations and lending criteria on your future options and selections. An experienced mortgage broker will know which lenders can provide you with the best deal for your goals, circumstances, and budget over the long term, not only in the near future.
- Stamp Duty Land Tax (SDLT), legal expenses, property assessment fees, and finishing fees are all charges and fees associated with purchasing a home.
- Detailed property surveys, when they’re needed, what your options are, and how much they’ll cost.
We’ll be able to analyse the market and identify which lender and mortgage product will be the greatest fit for your needs once we have a thorough understanding of your situation, requirements, and aspirations. We make it our business to stay on top of developments as they happen in the mortgage industry, which is highly dynamic, with deals and rates changing on a daily basis.
A competent broker does not simply vanish once the transaction is completed. We’ll be in touch when the introductory period on your mortgage is due to come to an end to help you assess your options for a good deal going forward – either with your existing lender or by moving to another provider.
Regardless of your standing as a buyer, a reputable mortgage broker will frequently be able to get unique deals and prices. Mortgage brokers with complete market access will be able to find lenders, deals, and rates across the whole mortgage industry, from well-known high street companies to specialised products offered by small and specialised lenders.
Being a member of various professional bodies, networks, and mortgage clubs – and the high volume of referral business that can result – does, however, provide many brokers with preferential rates and terms from lenders that would not be available elsewhere (for example, lower arrangement fees or assistance with other costs).
There is no standard deposit amount that applies only to first-time purchasers, although a minimum of 5% of the property value is necessary to secure the mortgage. Please keep in mind that this is subject to change based on time and economic conditions.
Exceptions apply if you purchase a home for less than market value, which may occur if the property is purchased from a family member and possibly subsidised with a donated equity deposit. It’s important to remember that the bigger the deposit you can put down, the better the conditions and interest rates you’ll obtain on your mortgage.
A deposit might come from a number of different places. Homebuyers will often have put money down on a regular basis over a period of time in order to save up enough money to get on the property ladder, though we have seen an increase in the number of family members providing deposits as gifts in recent years. Lenders are usually unconcerned about this as long as the funds are not repayable and do not entitle the giver to live in or have a financial stake in the property.
Whatever deposit you have available, the amount of borrowing a lender is willing to consider is still determined by their affordability assessment.
The exhilaration of purchasing your first home can be tempered with fear and uncertainty about what you’ll need to know or do in order to complete the transaction. It’s common to feel overwhelmed by the amount of information available and to be unsure where to begin. In order to arrange a mortgage, there are a lot of unknowns, and we frequently get queries like:
- What is the maximum amount I can borrow?
- How much will it set you back?
- What will happen to my payments if interest rates rise or fall in the future?
- What effect does a longer or shorter mortgage term have on my monthly payments?
You might also have further questions about specific details, like:
- What is the amount of Stamp Duty I will have to pay?
- What other expenses are there, and how much do they cost?
- What are my odds of receiving a mortgage if I have a terrible credit history?
- What are the current interest rates?
It may appear that the list of things you need to know is limitless at times, and we regret that we are unable to respond to all of your questions via our website. You might be able to get additional information from the numerous calculators and articles available online, but this research can take a significant amount of time, and they will never provide you with insights that are specifically relevant to your circumstance.
“How much can I borrow?” is a common question among first-time buyers. This is logical, since knowing this number will give them a better understanding of the types of houses they can afford, the offers they can make, and how their life choices will be influenced when it comes to their home and its location.
Traditionally, lenders calculated this value by multiplying the borrower’s annual income by a factor. To determine the amount they were willing to lend, they looked at the applicant’s total income and multiplied it by four or five. People applying for a mortgage who make the same amount, or are in the same financial ballpark once expenses and income are factored in, will all be offered the same amount. For example, if a single applicant earns £45,000 per year and has no credit obligations, £45K multiplied by four will provide them a maximum mortgage facility of £180,000.
However, market changes in 2014 meant that lenders had to adjust the way they calculated their offers, relying on an affordability model rather than only an income metric to make their decisions. While income is still an important part in lenders’ calculations, they also consider the following factors:
- An applicant’s age (i.e. how long can they maintain the loan?)
- The level of deposit or amount of equity
- Number of dependants
- Outstanding credit commitments
- Childcare costs
- Pension contributions and other salary deductions
- Council tax
- Travel costs
- Ground rent and/or maintenance payments, where applicable (i.e. leasehold properties)
This is not an exhaustive list; some lenders will consider more factors, while others will consider fewer; however, it does show you how lenders determine how much you can borrow, which is now far more thorough and inclusive than it was previously and will be based far more on the day-to-day realities of your finances.
This is not an exhaustive list; some lenders will consider more factors, while others will consider fewer; however, it does demonstrate how lenders determine how much you can borrow, which is now far more thorough and inclusive than before, and will be based far more on the day-to-day realities of your finances.
First-time buyers will have to consider these costs when purchasing a property:
- The deposit – this is normally a minimum of 5% of the property’s value, but policies vary by lender, and 10% is not unusual.
- If you pay more than £300,000 for a home, you must pay Stamp Duty Land Tax (SDLT) to HMRC.
- Fees for a solicitor or conveyancer — they handle all of the legal documentation associated with a home acquisition.
- Payments to the Land Registry, the Local Authority, and any third parties will be handled by your solicitor while they conduct due diligence on the property.
- Depending on the lender’s offer, you may additionally have to pay a charge for a mortgage valuation or survey.
- You may also be required to pay a mortgage adviser’s fee as well as any product-related costs to the lender, depending on the mortgage package.
The Help to Buy: Equity Loan is a government-sponsored programme that aims to assist first-time buyers in gaining a foothold on the property ladder by allowing them to purchase a new construction home. The loan can cover up to 20% of the property’s worth (and is interest-free for the first five years), so you’ll just need to obtain a 75% loan-to-value mortgage after that, on top of the 5% deposit. A 75 percent mortgage may open the door to more advantageous interest rates, which will put you in a much stronger position with lenders.
The interest rate on the Help to Buy: Equity Loan will be 1.75 percent after five years, increasing each year in line with the Retail Prices Index plus 1% until the loan is paid off. If you pay off the loan before the end of the term, the payback amount will be equivalent to 20% of the current value of your home. With this in mind, it might be worth your time to pay off the loan as soon as possible by utilising savings or filing for a refinancing (if your resources allow) when the interest-bearing period approaches.
Help to Buy is only accessible to first-time purchasers, and it is not available to Buy-To-Let investors or persons who already own a home. You also won’t be able to rent out your current home while using Help to Buy to purchase a new home.
The Lifetime ISA is a government-sponsored programme that aims to assist people in saving for a down payment on a home, retirement, or both. Anyone between the ages of 18 and 40 can contribute up to £4,000 per year to a Lifetime ISA until they reach the age of 50, and the government will match any contributions by 25%.
Your Lifetime ISA savings can be used to buy the first home in the UK up to the value of £450,000 no sooner than one year after you start the ISA account. If not used for this purpose, you will only be entitled to withdraw the funds when you reach the age of 60 or have a terminal disease.
You may only use the Government bonus from one of your ISAs to help you buy your first home if you have both a Lifetime ISA and a Help to Buy ISA.
Whether you are a first-time buyer or already own a house, the conditions for qualifying for a mortgage with a low credit history are relatively similar.
Any mortgage choice will be based on the actual facts included in your credit history, with items of bad credit ranging from minor late card payments to more major cases of default, County Court Judgments, or even bankruptcy. They will also consider how much time has elapsed since these incidents occurred, as well as your current financial behavior, as we all know that people and their behaviors change with time.
If you have a low credit score, lenders will carefully examine your business and personal bank statements to gain a clear picture of your overall financial behavior.
If you have a negative credit history, you will not be automatically denied from applying for a mortgage, but you may need to put in a bit more effort to prove your case. As we’ve seen, the assessment process takes a lot of factors into account, and if you arrange your application in the most favorable way for the lender, you’ll have a far better chance of getting approved. An experienced mortgage adviser may be very helpful in this regard, and discussing your application with one of Areton Mortgage staff members could be crucial in receiving the mortgage you require.