What we cover in this guide
- Try our mortgage affordability calculator
- Read our First-Time Buyer guide
- Mortgages for First-Time Buyers
- What are the benefits of using a mortgage broker if I am a First-Time Buyer?
- How much deposit do First-Time Buyers need?
- Does a mortgage broker obtain exclusive rates for First-Time Buyers?
- How much can First-Time Buyers borrow?
- I am a First-Time Buyer with poor credit – can I get a mortgage
- Mortgage calculator for First-Time Buyers
Mortgages for First-Time Buyers
First-time buyers will be pleased to know that a mortgage for their first house purchase will be no different to a standard mortgage. Lenders apply their usual affordability criteria to borrowers regardless of their level of experience, but you will have a more detailed discussion regarding regular budgets to make sure that you are aware of all the ongoing and peripheral costs around buying a home and the month-to-month expenses around home ownership.
You’ll probably already understand that your budgets will need to take into account Council Tax, utilities and insurances as well as your regular general living expenses such as food, travel and housekeeping. You will also need to consider occasional one-off payments for home maintenance or other unanticipated costs associated with home ownership, and factor in an allowance into your budget for this.
These are the kinds of things and more that one of our experienced advisors will go over with you when putting together your mortgage application in order to give it the best chance of success. If you’ve already been renting, then your experience with regular payments will form the basis for our discussions. You’ll want your case to be realistic and watertight, to show that you’ve thought of everything, that you are responsible people ready to own your own home and able to keep up regular mortgage payments. That’s what you get from The Mortgage Centres.
First-Time Buyer Mortgage Advice
If you are a first-time buyer, then you’re probably feeling a healthy combination of excitement, nervousness, determination and worry. You’re probably wondering about the whole process, how longs things might take, what could be the best deal for you, the level of detail in your application, how much information you’ll need to provide about your finances, whether your credit score will affect a lender’s decision and a whole lot of other questions besides.
The good news is: we get it. We understand both the stresses and the delights of the path to home ownership. We also know what questions to ask potential buyers in order to determine exactly which mortgage policies to consider and then – with our access to (and great relationships with) lenders from across the full spectrum of the mortgages market – we know exactly which mortgage provider to recommend and the deal that will be right for your circumstances.
The team at The Mortgage Centres has decades of experience in dealing with home loan applications from people of all backgrounds and at all stages of life, and comprises specialists in all kinds of mortgages, including those for first-time buyers. When you’re making your first moves towards finding, buying and maintaining your own home, you’ll feel more comfortable knowing that you’re getting advice from people who’ve seen it all and will guide you every step of the way.
If you contact our team for a free initial discussion, we’ll be able to get a handle on your circumstances and ambitions, see what you want to get out of a mortgage, answer all your questions and take a look at the options available. We’ll make clear recommendations for what you should do next, so you can move forward with confidence.
How do lenders work out affordability for First-Time Buyers?
First-time buyers often ask: “How much can I borrow?” This is totally understandable, as knowing this figure will give them a more concrete idea of the kinds of properties they will be able to afford, the offers they will be able to make, and will influence their life choices when it comes to their home and its location.
Traditionally, lenders would work out this figure by applying a multiple to the borrower’s annual income. They would consider the applicant(s) total income and multiply it usually by 4, or sometimes 5 to get the amount they were prepared to lend. In this way, people applying for a mortgage earning the same, or in the same financial ballpark after expenditure and income had been taken into account, would all be offered the same amount. A simple example is a sole applicant who earns £45,000 a year with no credit commitments – £45K x4 would give them a maximum possible mortgage facility of £180,000.
However, in 2014 changes to the market meant that lenders needed to change the way they calculated their offers, basing their assessments on an affordability model rather than simply an income metric. While income is still major factor in their calculations, lenders take a number of other elements into account, including:
- 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, and some lenders will take more factors into account, and some less, but it does go some way to show you how lenders calculate how much you will be able to borrow, and are now far more thorough and inclusive than they once were, and will be based far more on the day-to-day realities of your finances.
It’s worth remembering that all lenders will have their own individual criteria for lending and methods of calculating the maximum mortgage offer they will be able to make. In general, they will not make a distinction between a first-time buyer and borrowers moving home, but people moving will usually have a level of equity already tied into their existing property, which does make a difference to decisions on lending terms, rates and amounts. It’s also very rare that a lender will offer more than 5x the applicant’s annual income, no matter how much their calculations determine you can afford.
A glance at most lenders’ websites will reveal that they will nearly always have a calculator to give you a rough estimate of the kind of mortgage offer you could expect from them. These will give a quick answer, but the results should be taken with a pinch of salt, as they will never be taking into account all the in-depth details you will be asked during a proper assessment, and so can be therefore misleading.
You would be best advised to speak to an adviser who works with the lender in question about the specific mortgage that interests you, so that they can make the correct calculations before you decide to commit. Alternatively, talk to an adviser on our team at The Mortgage Centres to get an assessment, not just for that specific lender or deal, but potentially a spread of mortgage products for you to consider. As unlimited mortgage brokers, we have access to lenders’ full calculators and so will be able to give you an accurate assessment of your options.
Mortgage rates for First-Time Buyers
You’ll be happy to know there are no penalties on interest rates for first-time buyers, and you will be able to access the same rates as any other mortgage applicant. The differences between your case and that of an established homeowner may show up due to the level of deposit you are able to provide.
The higher the deposit you are able to put down, the better the terms and interest rates you are usually able to get. People who already own a home are likely to have been in the process of paying off their first mortgage and will probably have some equity tied up in their property. Therefore, this will count in their favour like a deposit.
Some lenders do have favourable rates reserved for first-time buyers, designed to attract new business, with bonuses or benefits associated with the deal. These perks can be free valuations or surveys, cash back incentives or the waiver of some fees.
Talk to one of our experienced advisers at The Mortgage Centres to see what incentives or benefits could be available to you as a first-time buyer.
What are the mortgage costs for First-Time Buyers?
First-time buyers will have to consider these costs when purchasing a property:
- The deposit – this is usually a minimum of 5% of the value of the property you plan to buy, but policies may vary from lender to lender and 10% is not uncommon.
- Stamp Duty Land Tax (SDLT) – you will need to pay this to HMRC if you pay over £300,000 for the property.
- Solicitor or Conveyancer fees – they take care of all the legal paperwork involved in a property purchase.
- Payments to the Land Registry (when your property is registered in your name), Local Authority and various other third parties – these will be handled by your solicitor while they carry out due diligence on the property.
- You may also need to pay a fee for a mortgage valuation or survey, depending on the deal the lender offers.
- You may also be required to pay a mortgage adviser’s fee and, depending on the mortgage product, any product-related fees to the lender.
Can I get a First-Time Buyer mortgage?
When you apply for a mortgage, the lender will make a full assessment of your financial situation, credit profile and history. This includes:
- Any loans
- Any credit cards
- Childcare costs
- Travel costs
- Address history for the last 3 years
- Registered on the electoral roll at your current address
- Evidence of income
What is a guarantor mortgage?
- A third party is names on the mortgage application as guarantor
- They are required to sign a legal document and agree to cover the monthly repayments if you do not cover them
- The guarantor will not own or have any interest in your property
- They will not be named on the Title Deeds
Why would a mortgage in principle be declined?
Here are a few of the most common reasons:
- You’re not listed on the electoral roll
- There are errors on your form
- Your deposit is too small
- You’re asking to borrow too much
- Your credit rating is lower than the lenders like to see