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What is a First Time Buyer Mortgage?
A First Time Buyer mortgage would usually be defined as a mortgage for someone that’s never owned a property before, anywhere in the world. However, some lenders may class applicants as First Time Buyer for mortgage purposes if they’ve not owned a property for two or three years.
What are the typical requirements to apply for a mortgage as a First Time Buyer?
You’ve got to qualify as a First Time Buyer to apply for some mortgages. In general, lenders want to see proof of ID so they know who you are, plus proof of address and verification of your income and your expenditure.
If you’re employed, this would be with payslips and bank statements. If you’re self employed, it would be your tax computations and overview from the self assessment you complete each year.
As part of the application lenders may ask to see where your deposit is coming from. If it’s your own savings, they’ll request the bank statements to show the buildup of those funds. Or, you may be getting a gift from a family member, in which case they will ask for a gifted deposit letter. It all varies by lender. We’ll be really transparent with you at the start and let you know exactly what we need to apply for that mortgage.
What is the maximum amount that can be borrowed on a mortgage as a First Time Buyer?
There’s no set limit on how much you can borrow, but broadly speaking, First Time Buyers can usually borrow up to 4.5 times their income. However, some lenders do offer enhanced borrowing for First Time Buyers of up to 5.5 times income. That will be subject to meeting all the relevant criteria.
It would include an assessment of income and expenditure and any relevant commitments would be considered in the background. If all that adds up and the income is sufficient, you can borrow up to 5.5 times income.
What is the minimum deposit required for a First Time Buyer?
In some cases you don’t need any deposit at all. One lender has recently introduced a track record mortgage for renters, where they can consider lending 100% of the property value based on the rent they’ve been paying for the last six to 12 months.
Under certain schemes a discount is available from the local authority or house builders, which means you don’t actually need a physical cash deposit. They use the discount as your deposit. But most commonly, lenders consider a 5% deposit for some flats, but mainly houses.
What are the types of interest rates available on a mortgage for a First Time Buyer?
In terms of interest rate types, First Time Buyers wouldn’t differ that much from a buyer who owns a property currently.
The most common type of mortgage is a fixed rate mortgage, where the interest rate stays constant for a fixed period of time – typically two, three or five years. In turn, your mortgage payment does not change month to month, providing you with some certainty.
The other types of mortgage rates available are variable rate mortgages. That can be a tracker mortgage, which would track an index such as the Bank of England Base rate, or discounted variable rate mortgages. Instead of tracking an index, these follow the lender’s standard variable rate.
In practice, a variable rate mortgage doesn’t offer a fixed monthly payment. That payment can go up or down depending on the index or the rate it tracks goes up or down. So you could have fluctuations in your mortgage costs month to month. You could pay less or more, so it can be more difficult to budget.
There are other rates available as well such as offset mortgages, for people that have substantial savings – or possibly their parents have savings that they could put in an offset savings account, to reduce the amount of over interest payable across the loan.
What are the pros and cons of fixed versus variable interest rate mortgages for First Time Buyers?
The main advantage of a fixed rate is that it provides certainty of your payment each month. It allows you to budget exactly what your monthly outgoings are going to be long term. It does carry less risk compared to the variable rate.
Something to bear in mind is that a fixed rate will usually carry an early repayment charge, commiting you to staying with that lender, or paying a fee to end the mortgage early. Also, in the event that interest rates were to fall, it’s unlikely you’d be able to exit the mortgage and take advantage of a lower rate without incurring that early repayment charge.
Variable rates could benefit clients who feel interest rates might fall and give them a reduced monthly payment. So although you may pay a higher amount for a period of time, when the rates drop you can take good advantage of that, penalty free.
However, it does also carry that risk that rates increase again, in which case your monthly payment would also increase and cost you more each month.
What government schemes are available to help First Time Buyers?
As it stands currently, there is a lack of help available in terms of government schemes for First Time Buyers. Previously we had the national Help to Buy scheme which has closed.
You do have the Shared Ownership scheme available and also something called the First Home scheme, which allows you to purchase a home at a discount. It has to be approved by the developer and the local authority, but you could potentially use that discount as your deposit.
That is quite regional and it does depend on the area where you live whether homes are available on that scheme. You could search to see if any properties on the scheme are available in your particular area.
In terms of other schemes that aren’t necessarily government run, the Helping Hand scheme from one lender offers enhanced borrowing for First Time Buyers which of course would help them get on the ladder. And, as we alluded to earlier, there is a scheme from a separate lender that allows one to buy a property with no deposit, as long as you can prove a track record of renting. [podcast recorded in January 2024]
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What documents do I need to get preapproved for a mortgage as a First Time Buyer?
We class being pre approved as getting a Decision in Principle or an Agreement in Principle. Everyone calls it different things but ultimately they are the same.
We input your income and your expenditure and they’ll complete a soft credit search. Some lenders do use a hard credit search. They look at your credit profile to double check the information we’ve given them. We will need some documents to verify who you are, what you earn and your outgoings. Giving a lender fully inaccurate information gives you the best possible outcome of being approved.
What steps are involved when applying for a mortgage as a First Time Buyer?
Once you have a Decision in Principle in place, you’ve found a suitable property and been lucky enough to have your offer accepted, you would come back to your mortgage advisor.
We would look to submit the full application to the lender for you. You would provide all the relevant documentation to us, including proof of any potential deposit. We would submit the application, saving you time.
We would then help you all the way through that process, working with any relevant lender requirements and getting the mortgage offer issued. That’s when it will go over to the solicitors and the legal work will begin. Our help won’t end there – we’ll contact the solicitor for you and work through any requirements as quickly as we can.
Admittedly, there are some elements of legal work we can’t get involved in, but we always will help wherever possible and push that process through as smoothly and as quickly as we can.
At the point when you exchange contracts, we will discuss arranging relevant home insurance and any mortgage protection or income protection so you’re protected should the worst happen. If you fall ill and cannot work, or end up in a position where you might not be able to pay the mortgage and bills, protection products could help you in that situation.
What are the most common mistakes to avoid when applying for a mortgage as a First Time Buyer?
Something we see quite often is people being really excited to purchase their first home and getting a bit ahead of themselves. They scroll through Rightmove for hours and fall in love with a property, view it and put an offer in before even speaking to a mortgage advisor. They haven’t even established whether it’s something that they can afford right now.
To avoid being disappointed, in case the affordability for that particular property is out of reach, speak to a mortgage advisor first. We can look at your circumstances, what deposit you have, what criteria we are up against and find you a mortgage option before you fall in love with your new home.
What happens if I miss a mortgage payment on a mortgage as a First Time Buyer?
If you feel like you may be approaching some financial difficulty, the first plan of action is preventative – so contact your lender first. They are there to help you, so explain the situation truthfully and honestly and they may be able to make arrangements.
You possibly might make a reduced payment for a set period of time, or they may allow you to go on interest only basis to reduce that cost for a while. That way you can avoid having a missed or late payment marker on your credit file.
Always speak to your lender at the earliest opportunity. If you have already missed a mortgage payment, just open that channel of communication. Hopefully the lender can set up a payment plan to get you out of arrears and not cause any long-term detrimental effects to your credit profile.
Can someone qualify for a mortgage as a First Time Buyer with bad credit?
It’s a common misconception that if you have bad credit you can never get a mortgage. Don’t let your bad credit put you off looking for a mortgage or wanting to buy your first home – get in touch. Let’s see what your circumstances are and what kind of bad credit it is, how long ago it was and let’s work from there.
Whether it fits lenders’ criteria or not, we can make a plan about how we can move forward to buy your first home. Perhaps in six months or a year’s time you can start looking again with lenders who will be happy with your circumstances.
How can a mortgage broker help someone with a First Time Buyer mortgage application?
Come and have a chat with us. We’ll have an honest conversation about what you’re able to borrow. We take a diligent approach. We get all the relevant documents up front to give you very accurate information about your purchasing power.
Once you’ve had this information we’ll secure the Decision in Principle for you and you can go away, find a property you like and make an offer. Then we can submit the application for you – taking away all the stress and hassle of doing it on your own.
We’ll liaise with your chosen solicitor, or recommend one that we work with. We make sure any outstanding requirements are satisfied as quickly as possible and keep the estate agent abreast of the situation. Then, fingers crossed, you will be moving into your first home as quickly as possible.
What final advice would you give First Time Buyers?
Get advice at the earliest point in the process, so you know exactly where you stand and how you can move forward. That way it’s as smooth as possible and causes the least stress for you. We’re here to help and hold your hand. We’ll take on the stress and get you into your first house.
PLEASE NOTE: YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.