Your First Mortgage
Buying a house is one of the most important purchases you will ever make, and buying a home for the first time will be an even more daunting prospect. Add to this the vast array of mortgage products available from a wide range of sources and you could be left with a high-stress, confusing decision. To help you with making the right decision we have put together the following tips for first time buyers and a frequently asked questions (FAQ) section further down:-
Top 10 Tips
- Ensure that you are realistic when working out exactly how much you can afford to spend on your new house. You should ensure the intended mortgage is affordable (by doing a budget calculation, use our free Budget Planner ) and it is wise to seek a Mortgage in Principle Certificate (sometimes known as Agreement In Principle ‘AIP’), so that you know how much you can offer once you have found a suitable property. Even a newly built house will require some sort of furnishings, whereas older properties may require extensive work, such as re-flooring, tiling or renewing the wiring. Make sure that you factor in all these likely expenses, in addition to the purchase price, and other fees such as conveyancing and stamp duty.
- When buying for the first time, there may be a number of details in the houses you are looking at, which you may not pick up. Always take an experienced home buyer, such as one of your parents, or a home-owning friend, when looking at a property. If this is difficult to arrange, then make sure you at least get some assistance once you have selected a property you like and are arranging a second viewing. Take our free Property Viewing Checklist to assist your viewings.
- If you have been used to living at home with your parents, remember to budget for expenses such as council tax, gas and electricity bills, boiler servicing, and other home repairs.
- Make sure you know what the likely council tax charge will be in your new property. The selling agent should be able to tell you what tax band the house you are interested in buying is in, and the charges levied by your local authority. https://www.gov.uk/council-tax-bands
- Even if you do not have children, remember that property in the catchment area of good local schools will always be much easier to sell later on. However, due to this desirability this may also be reflected in a higher purchase price.
- Always consider how your transport arrangements will change at your new house. If you have a car, your insurance premium may increase dramatically if you move from a town with relatively low crime into a city centre with higher crime rates or if you move from your parents’ house with a locked garage to a smaller terraced house with on-street parking.
- Consider the availability of public transport services, making sure you find out local bus routes, the frequency of train services from your nearest station and, if you are moving a long distance, the range of flights available from your local airport. Even if you drive everywhere, this information will be useful for anyone coming to visit you who does not drive.
- Write down a list of local amenities which are important to you. This may include shops, restaurants, pubs, sports centres, parks and cinemas. If you enjoy activities such as walking, or cycling, the neighbourhood you plan to move in to may be very different to the one your parents are living in and may not have the same access to parks and other recreational facilities. Before making any final decision about where to move to, take a stroll or bike ride around the local area and note down where the key facilities are.
- If you are a heavy internet user, check to see that broadband or other high speed internet is available in the street you are moving into. The selling agent should be able to tell you this. Try this https://checker.ofcom.org.uk/en-gb/broadband-coverage
- Try, where possible, to find somewhere to live that is close to your main place of work. Commuting can be one of the biggest household expenses, and as you are likely to be spending much more time on domestic chores and/or DIY, living somewhere which minimises your commuting distance will be very important. If property is more expensive nearer to your place of work, make sure you weigh up this additional expense, when compared to the costs and time of commuting. You may wish to ask colleagues in your workplace to see if there are possibilities to lift share with anyone from the area.
What is a first time buyer?
Typically, you’re considered a first time buyer if:
- You’ve never owned a residential property either in the UK or abroad, or
- You only own – or have only owned – a commercial property with no living space attached to it (for example, a pub with upstairs accommodation).
You’re probably not a first-time buyer if:
- You’re buying a property with someone who owns, or has previously owned, a home
- You’ve inherited a home, even if you never lived there and it’s since been sold
- You’re having a property bought for you by someone who already owns their own home, like a parent or guardian.
How does getting a mortgage work if you’re a first time buyer?
When getting a first time mortgage, start by working out how much money you have for a deposit, then find out how much you can borrow.
Applying for a mortgage will typically involve an affordability review and a credit check. The mortgage provider will look at your annual salary and other income, as well as your outgoings like household bills and debts from loans and credit cards. Plus, they’ll check your credit history to find out whether you’re a reliable borrower or whether you’ve missed payments in the past.
If you opt for a variable rate mortgage or fixed rate mortgage of less than five years, the lender will also ‘stress test’ your ability to repay your mortgage in the future – in other words, would you be able to keep up your payments if something changed, like a rise in interest rates? They’ll use all the information they’ve collected on your finances to decide how much you can borrow.
Once you’ve found out how much you can borrow, you’ll have an idea of the type of first home you can afford.
First time buyer’s deposit
Generally, a first time buyer is expected to put down a deposit of at least 5- 10% of a property’s purchase price.
Lenders require a deposit to secure the mortgage and as reassurance that you can afford the financial commitment. The deposit can come from a combination of sources such as savings, investments and gifted deposit from relatives.
The more you can save for a deposit, the more equity (or ownership) you’ll have in your first home. You’ll then be in a better position to get more competitive mortgage rates, which might mean lower monthly payments.
Which type of first time buyer mortgage is best for me?
The right type of mortgage for you as a first-time buyer depends on your personal circumstances. To help you find the right fit, we’ve put together a breakdown of the different types or mortgage:
- Fixed Rate Mortgages – This is when the interest rate on your mortgage is fixed for an agreed time – anywhere between 2-15 years, but most commonly between 2-5 years. A fixed-rate mortgage offers stability, so you can budget for a set period. When a fixed-rate term ends, you’ll normally move to the bank’s standard variable rate mortgage, which tends to have a higher interest rate than other products.
- Standard variable rate mortgages (SVRs) – Set at the lender’s basic rate of interest. SVRs don’t come with discounts or reduced interest rates, and the lender can choose to change the rate of interest they charge.
- Tracker mortgages – These have variable interest rates that follow an external rate, typically the Bank of England’s base rate. They don’t match the rates they follow, but are set a certain percentage above or below.
- Discount rate mortgages – Similar to tracker mortgages, these track (at a lower level) a lender’s SVR by a set amount. For example, if the SVR is 6% and the discount is 1%, you’ll be charged an interest rate of 5%. But these rates can change, and while the level of discount won’t change, the rate of interest might.
- Capped mortgages – These are also linked to the lender’s SVR, but the rate won’t go above a set level. Alternatively, a capped or ‘collared’ mortgage is a type of loan where the interest rate won’t fall below a set limit. These are much less common than other deals.
- Offset Mortgages – These are available to people who have a savings account and mortgage with the same provider. They allow you to use your savings to offset the interest you’re being charged on your mortgage, meaning you won’t pay interest on your mortgage to the same value as the savings in your account. The more in savings you offset, the more you’ll save in interest, which means your mortgage payments will cost less. Offset mortgages typically allow you to make regular or lump sum overpayments, which can help you pay off your mortgage sooner.These can be more complicated than other mortgages, so you should be careful you understand the financial commitment, as well as the impact any change to your savings (particularly negative changes) can have on your mortgage.
How much can I borrow as a first time buyer?
The amount a first-time buyer can borrow depends on several things. A mortgage provider will work out how much you can afford to pay back each month by looking at:
- Your credit rating and history
- Your salary, along with any additional income
- Your outgoings
- How much deposit you have
The cost of the home you want isn’t considered at this stage. Mortgage providers will use your information to work out how much you can realistically afford and give you a mortgage limit based on that information. This will give you a solid guide to which homes you can afford.
As a first-time buyer, you’ll also need to consider how an increase in interest rates might affect your ability to pay back your mortgage.
As with any loan, you should be very careful not to stretch yourself too far. Only borrow an amount that you can realistically afford to repay, and ideally leave some extra money left over for savings or unexpected expenses.
When should I apply for a first time mortgage?
Before you start looking at properties, it’s advisable to get an ‘Mortgage Agreement in Principle’ a lender. This isn’t a guaranteed mortgage offer, but it gives you a good idea of what you could buy. It’s likely that estate agents will ask you to get an agreement in principle before you can start making offers.
Getting a Mortgage Agreement in Principle only needs a soft credit check, so your credit score won’t be affected. They’re also commitment free, which means that you’re under no obligation to take the mortgage if you change your mind. An agreement in principle is usually valid for up to 90 days.
Once you’ve got your Mortgage Agreement in Principle, you can start searching more seriously and think about making offers. When you’ve found the home you’re interested in buying, you can agree the finer details and get an official mortgage offer.
When you contact us, we will talk to you about the mortgage options available to you. If you haven’t found the right property, we can still provide you with some facts and figures that can help to find the right price range for you.
A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME OR PROPERTY. YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST FORMS OF BUY TO LET MORTGAGE.
