First-Time Buyer Mortgages

Buying a home for the first time is an exciting yet daunting process. It can leave first time buyers feeling a little overwhelmed as they navigate what is likely to be the largest purchase of their lifetime.

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How to apply for a first time buyer mortgage

If you’ve never applied for a mortgage before, it’s understandable that you might be a little nervous – or, at least, unsure of how it all works. But just remember that getting the keys to your first home is a landmark moment and something you can be proud of. And with this guide, you can search for your new home with more confidence about the mortgage process. So read on and find out what you need to know about first time mortgages for new homeowners.

1

Book a call

As a first time buyer, things can feel a little daunting. Book in a free call and we’ll talk you through what to expect. We’re by your side every step of the way.

2

Which mortgage is right for me?

Simply tell us a bit about you and the type of home you are wanting to buy. We have access to a large variety of mortgages, so you can be sure we’ll find the right deal for you.

3

Get mortgage updates

Our mortgage advisors will do the application paperwork for you so you don’t have to worry. We’ll keep you informed of any updates every step of the way, so you can be one step closer to securing your new home!

What is a mortgage?

The origins of the mortgage start with a dead pledge, which doesn’t exactly make them sound all that appealing! Essentially, a dead pledge means “the conveyance of an estate to another for money borrowed until the debt is fully paid”.

Unless you’ve built up a small fortune that Scrooge McDuck would be proud of, you’ll likely purchase your first home with a mortgage. For all intents and purposes, a mortgage is a loan – a bank or building society lends you a portion of the property’s value, with you making up the rest via a deposit.

What is a mortgage?

What is a first time buyer?

A first time buyer (FTB) purchases a home for the first time. That means they haven’t previously owned a house or any type of bricks and mortar used for the purpose of living in. Sounds simple, right?

However, it’s necessary to clarify the distinction because first time buyers get a fair few benefits when they buy a home (more on that in a bit). If you’ve previously owned a property that is your known main residence, then you won’t be classed as a first time buyer.

What is a first time buyer?

Who offers a first time buyer mortgage?

At times, getting a mortgage as a first time buyer can seem difficult. Fortunately, most banks and building societies offer mortgages designed especially for first time buyers.

What is a mortgage broker?

Comparison websites

What are the schemes available to first time buyers?

House prices tend to go one way: up. This is great news for property owners, who see their home appreciate in value over time. For first time buyers, however, it makes getting on the property ladder that much harder. Spiralling costs mean that many people are priced out of owning their own home, fortunately, several schemes are designed to help and encourage first time buyers to become homeowners.

95% mortgages

First Homes Scheme

Shared Ownership

Help to Buy LISA

Help to Buy Mortgage Guarantee Scheme

How can I get a first time buyer mortgage?

You will need to apply with the bank or building society to get a mortgage. This is done directly or through the broker and requires you to meet the lender’s mortgage criteria.

1

Checking your credit score

We’ll get onto this in a moment, but generally speaking, you need a good credit score to get a mortgage. Before you apply, you should check your credit report to see your current score.

2

A deposit

You will need some form of a deposit to buy a house, as it’s incredibly rare to find 100% mortgages. Government regulations now mean it’s easier than ever to buy a house with just a 5% deposit of the property’s value.

3

Talk to a professional

If you’re new to getting a mortgage, it’s probably best that you talk to someone like a broker. Doing so will give you more insight into the process and what you can expect. Plus, they will advise you based on the information you provide them, e.g. how much deposit you have, how much you’d like to borrow and the property’s value.

4

Get an MIP

Before applying for a full mortgage, you will need an MIP. This stands for Mortgage In Principle, although it’s also known as a DIP (Decision in Principle) and an AIP (Agreement in Principle). This a statement from the lender saying they can lend you up to a certain amount – this is not an official mortgage offer.

What documents do I need?

The lender will require that you prove your identity, current address, employment history and more. To meet these requirements, you will need to provide specific documentation, from proof of ID to payslips. Without these details, the lender can’t progress the application and get you on the path to homeownership. But what are the exact documents needed to apply for a mortgage?

Proof of ID

Proof of ID

You will need to provide photo proof of your ID during the application. This can usually be a passport, driving licence or identity card.

Proof of address

Proof of address

A utility bill, council tax statement or bank/credit card statement should prove your address. They usually need to be dated within the last three months.

Proof of income

Proof of income

Lenders want to see that you have employment and how much you earn. Therefore, you will need to provide payslips from your employer or a P60 if you’ve just started the job. If you’re self-employed, you’ll likely need to provide at least two years’ tax returns or an accountant’s certificate.

Bank statement

Bank statement

Bank statements provided shouldn’t be to be more than two months old or amended in any way. The lender may ask you about specific items on the statement, especially if they are higher purchases that may seem unusual.

Do I need a good credit score?

Along with showing varying forms of ID, the lender will perform a credit check. This is to check your credit score, which displays your creditworthiness and the likelihood of making the monthly payments on the mortgage. The higher your credit score, the more likely you are to be accepted.

How does a credit score work?

There are three credit agencies in the UK – Experian, Equifax and TransUnion. Each one holds a credit report on you showcasing your overall score. You can access your score for free, either with one of the leading credit agencies or through another credit website, such as ClearScore.

You can boost your score by:

  • Registering on the electoral roll
  • Keeping up with repayments
  • Maintaining a low credit to debt ratio
  • Not opening too many bank accounts
  • Only applying for one type of credit at a time – eg, you shouldn’t apply for several mortgages at once, as this will reflect poorly on your credit.
How does a credit score work?

What’s the difference between a hard and soft search

Hard search
When a lender performs a hard search on your credit report, it becomes visible to other lenders. This is so they can see how many times you’ve applied for finance. A hard search is performed when you begin the full application process.

Soft search
Soft searches don’t show up on your credit report and usually appear when a lender views your report to see if you might qualify for finance. This generally happens at the MIP stage of a mortgage.

What’s the difference between a hard and soft search

What if my score is low?

If your credit score is low, you may still be able to get a mortgage. However, you will be subjected to higher interest rates as a result. If your score is low, you can improve it by checking the following:

  • Proving your current address
  • Building your credit history
  • Making regular payments
  • Keep credit card debt low
  • Check for errors on your report
  • Monitor your credit card for fraudulent activity
  • Keep old accounts open
  • Consider a credit builder card

The higher your score, the greater the chance of being accepted for a mortgage with lower interest rates. However, not having a high score isn’t the end of the world, and you can still get a mortgage as a first time buyer.

What if my score is low?

How much deposit do I need?

Banks and building societies have different rules over the amount of deposit you need. Previously, most lenders required you to pay for about 15% of the home’s value. Therefore, you would find 15% of the property yourself, with the lender covering the remaining 85%. However, new legislation from the government has seen the encouragement of a 5% deposit with lenders. A 5% deposit sees you paying just 5% of the home’s value, with the lender covering the remaining 95%.

5% deposit breakdown

Are 5% deposits a good idea?

Where can I get a deposit from?

Having a deposit to buy a house is one thing, but where does the money come from? Many current homeowners typically raise the deposit with the sale of their existing home, but that option isn’t available to first time buyers. 5% mortgages have been brought in to provide affordable alternatives, but some form of deposit is still required.

Savings

Support from parents

Inheritance

Sale of other assets

Unsecured borrowing

What is loan to value?

There are many jargon terms around mortgages, and some of these may initially confuse first time buyers. One of the most important ones is “loan to value”, which you will encounter before applying for a mortgage.

1

What does loan to value mean?

The loan to value is a financial term used by lenders to express the ratio of a loan in relation to the value of the home. Essentially, it refers to the amount of money the lender will provide based on the property’s value. For example, if the home is worth £250,000, and the lender is willing to provide up to £212,500, the loan to value is 85%. If the lender is ready to provide £237,500, then the loan to value is 95%.

2

How do I find out the loan to value?

When advertising their mortgage products, lenders often display their loan to value, also known as LTV. Currently, many lenders offer a 95% LTV for first time buyers looking to get on the property ladder. However, just because a lender offers a specific LTV, it doesn’t mean you have to borrow that amount. It acts as a guide, letting you know the maximum amount the lender will lend. If, for example, they offer a 95% LTV, there’s nothing to stop you from getting a mortgage with a 75% LTV if you have the required funds for the deposit.

What about interest rates?

The higher the LTV, the more you can expect to pay in interest. Typically, interest rates are higher for LTVs above 80%. Therefore, if you can get a deposit that only requires you to borrow up to 79% of the home’s value, you are likely to pay lower interest rates.

What about interest rates?

How do I know if I meet first time buyer mortgage eligibility?

Knowing if you meet first time buyer eligibility requirements can be tricky, especially as lenders have different criteria. When you apply for a mortgage, the lender will assess your affordability by conducting a credit check and looking at your income and expenditure.

While requirements vary from lender to lender, you may need to meet the following criteria:

  • Minimum earnings of £20,000 per year
  • Relatively good credit score
  • UK resident
  • Deposit of at least 5%
  • Manageable expenditure that’s in line with your monthly earnings

Don’t worry too much if you don’t meet all of the above criteria. Again, requirements vary between lenders, and there may be a scenario where they make allowances based on other factors presented to them.

Are there any other factors to consider?

The type of property you want to buy may also play a role – for example, lenders may have stricter requirements if they’re lending on a flat located above shops or an ex-local authority home.

As a rule of thumb, the longer you’ve been in your job, the better. Again, this isn’t definitive, but if a lender can see that you have long-term, stable employment, they may determine that you’re less of a risk and be more inclined to lend. Ultimately, your eligibility depends on your affordability. If the lender believes you can afford to make the repayments, they are likely to grant you a mortgage.

Are there any other factors to consider?

What mortgages are available for first time buyers

For most first time buyers, obtaining a mortgage loan will be necessary to get the keys to your first home. When acquiring a mortgage, there are typically two payment methods: repayment and interest only.

What is repayment?

Interest-only

Which option is best for me

How do I apply for a first time buyer mortgage?

Whether you’re a first time buyer or moving from one home to another, the mortgage application process essentially is the same. It largely depends on the method you use to get a mortgage: eg, with the lender directly or by using a broker.

1

With the lender

If you go with the lender directly, you will most likely need to book an appointment and provide the required documents, such as proof of ID, address and payslips.

2

With the broker

Using a broker means no direct contact with the lender, as the broker takes on the role of intermediary. For many, this simplifies the process. The broker gets the necessary documentation from the borrower and passes it onto the lender.

3

Digital mortgage

Traditionally, getting a mortgage involves many manual processes, like in-person appointments with the lender and sending documents via the post. With an online mortgage, everything takes place online, and there aren’t usually any appointments. In the US, digital mortgages make up the majority of the market share. They are not as common in the UK, but are growing in popularity.

What happens during the mortgage application steps?

There are several steps to getting a mortgage, and most of these take place during the application stage. The timeframe from initial application to completing (buying the property) can take anywhere between a few weeks and a few months.

Pre-approval

Pre-approval

This is the Mortgage In Principle stage (MIP), where you get a decision from the lender about whether or not they will be able to lend to you. Before you go on viewings, many estate agents ask to see your MIP so they can verify that you’re a serious buyer.

Application

Application

This is when you submit your documents – either to the broker or with the lender directly – and they check them while also conducting a credit check to see your current credit score.

Instruct a solicitor

Instruct a solicitor

Once your application is submitted, you should instruct a solicitor to oversee the property purchase on your behalf. They are also known as conveyancers and perform checks on the property to see if it’s in good order. This stage is known as the conveyancing process, and it can often be the longest part of the application.

Property valuation

Property valuation

The lender will value the property to ensure it’s worth the amount you’re paying for it. They will either do this virtually by using recent sales data in the area where it’s located via a desktop valuation. Or they will instruct a surveyor to conduct the valuation in person.

Offer

Offer

If the lender is happy with the valuation, they will give you an official mortgage offer. Should you accept, your solicitor can begin the process of exchanging contracts with the seller.

Mortgage received and completion

Mortgage received and completion

The lender will pay the mortgage amount to the solicitor, who will then use the loan amount and your deposit to pay the seller. This is the completion stage, and it usually takes place a couple of weeks after exchanging contracts.

How does loan repayment work?

You will be required to make monthly payments once your mortgage officially begins. The lender will agree a date with you for when the payments come out of your bank account and set up a direct debit.

1

What is the interest rate?

Like any other form of lending, the lender adds their interest to the amount you borrow. Interest is the cost of borrowing money and amounts to a percentage of the mortgage balance. Therefore, if the interest is 3% on a £200,000 loan, you will need to pay £6,000 in interest over the course of the loan.

2

Initial rates

Lenders set their rates based on the BOE, but they often offer an initial rate. This is a lowered interest rate designed to make the mortgage product more appealing. An initial rate usually lasts between two to 10 years, although longer ones are available. A lender’s rate might be 5% (this is known as the standard variable rate), but they offer an initial rate of 2% for two years. For the first two years of the mortgage, you pay 2% interest and then move onto 5% or remortgage.

How is a mortgage rate calculated?

There are several different factors considered by the lender when they set rates. These include:

  • Cost of funds: The cost to the lender to fund the mortgage
  • LTV (Loan To Value): The amount being lent compared to your deposit
  • Competition: Level of competition in the market
  • Your credit history: Higher credit scores equate to lower interest rates

On top of that, the Bank of England (BOE) base rate is taken into consideration. The BOE sets interest rates, and mortgage lenders use it as a guide to determine their own rates. Currently, the BOE base rate is 0.75%. Therefore, the lender will set their rate above this figure.

How is a mortgage rate calculated?

Have a question?

How does repayment work?

What else should I know?

What is the difference between a fixed rate and tracker?

What is a fixed-rate mortgage?

What is a tracker mortgage?

Which option is better?

What is stamp duty and will I need to pay it?

Stamp duty is a type of tax that you need to pay when buying a property. Its official name is Stamp Duty Land Tax, and the amount you pay depends on your buying status. Fortunately, there are some exemptions for first-time buyers. The stamp duty is a percentage of the property’s value. The following is a breakdown of stamp duty land tax rates for buyers:

Fee or charge
£0-£125,000
What's it for?
0%
Fee or charge
£125,001-£250,000
What's it for?
2%
Fee or charge
£250,001-£925,000
What's it for?
5%
Fee or charge
£925,001-£1.5m
What's it for?
10%
Fee or charge
Over £1.5m
What's it for?
12%

Do first time buyers pay stamp duty and when?

First time buyers receive more favourable rates as it’s their first property purchase. For example, a first time buyer doesn’t pay any stamp duty on property valued up to £300,000. Standard rates apply for anything over £300,000.

Your solicitor completes the stamp duty payable on your behalf, so you’ll need to factor in the amount when looking for a home if it costs more than £300,000. For example, a property sale of £350,000 would require stamp duty of £2,500 for a first timer buyer.

What other costs do I need to consider?

Along with paying the deposit, the monthly repayments and possibly the stamp duty, there are other costs that you may need to consider when getting a mortgage to buy your home.

Fee or charge
Arrangement fee
What's it for?
Also known as the product fee, the arrangement fee is for the mortgage product and can usually be added to your mortgage (though it will also accumulate interest)
Average cost
£0 - £2,000+
Fee or charge
Booking fee
What's it for?
The booking fee is charged for applying for the mortgage. Many lenders include the booking fee as part of the mortgage, but it can also be a separate charge
Average cost
£99 to £250
Fee or charge
Valuation fee
What's it for?
The fee the mortgage lender may charge to value your property. Some lenders charge on top of their service, while others include it for free
Average cost
£0 - £1,500
Fee or charge
CHAPS (Clearing House Automated Payments System)
What's it for?
Also known as telegraphic transfer fee, CHAPS is when you pay for your mortgage provider to transfer the money to your solicitor
Average cost
£25-£50
Fee or charge
Mortgage account fee
What's it for?
This is the cost of the lender’s administration fees
Average cost
£100 - £300
Fee or charge
Missed payments
What's it for?
Some lenders charge a fee if you miss a mortgage payment
Average cost
Dependent on the lender
Fee or charge
Mortgage broker fee
What's it for?
If you use a broker, there may be a fee involved for the service. Some brokers charge while others are free
Average cost
Around £500
Fee or charge
Early repayment charge
What's it for?
The early repayment charge is the cost of repaying your mortgage early. Not all lenders command an early repayment charge
Average cost
Percentage of the mortgage
Fee or charge
Exit fee
What's it for?
The fee to the lender for repaying your mortgage. If you previously paid a mortgage account fee, it’s unlikely that you’ll need to pay an exit fee
Average cost
£75 - £300

What happens if I can’t afford the monthly repayments?

If you miss one or two payments, the lender may charge a missing payment fee. The cost depends on the lender, but it will be stated in the terms and conditions of the mortgage. The lender will likely get in touch if you miss a payment, although you should try and notify them beforehand. By taking the initiative and making contact, you might be able to arrange a short-term payment plan, so you don’t fall behind on your payments.

1

Poor credit

Missed payments show up on your credit score and can last several years. If you miss mortgage payments, you could also find it more challenging to get other finance in the future or remortgage.

2

Mortgage protection payment

It’s possible to get mortgage protection payment insurance (MPPI) when you first get the mortgage. It will come into effect if you can no longer make the payments in the event of being made redundant or if you can’t work due to an injury and illness.

3

Sell the home

If you can no longer afford the payments, you may decide to sell the home. Doing so can pay off the rest of the mortgage and hopefully leave you with some extra money from the sale of the property.

4

Home repossession

If you continue without paying your mortgage and don’t try to come to an arrangement with the lender, you could eventually lose your house. The lender has the right to take away your home if all other options fail. If your home is repossessed, your name will permanently be on a register that makes it hard for you to get a mortgage again. This is the worst-case scenario.

What is remortgaging?

During your mortgage, you may need to remortgage your home. This is when you replace the existing mortgage with a new one, and it usually happens between two and 10 years after the first mortgage.

How does a mortgage work?

Why might I need to remortgage?

Are there any other options?

Mortgage jargon

Being a first time buyer can be daunting, especially when industry professionals start throwing around words you don’t understand. Below are some of the most-used mortgage terms with a brief explanation of what they mean.

AIP

AIP

Agreement in Principle. This is also known as a mortgage in principle or decision in principle and relates to the lender confirming the maximum amount they can lend

Arrears

Arrears

Arrears is when you’ve defaulted on the mortgage payments

Capital

Capital

The amount of money you borrow to purchase the property

Conveyancing

Conveyancing

The legal process you need to go through when buying or selling a property

ERC

ERC

Early repayment charges. Penalty fees you may need to pay for leaving the mortgage early

Equity

Equity

The amount of property you own outright. For example, if your deposit was £55,000, and you’ve paid £20,000 off the mortgage, you’ll own £75,000 of the home

Feel more confident

With this guide, you can feel more confident about getting a mortgage as a first time buyer. You might feel like there are many hurdles to clear, but it can be more straightforward than you think. And if you’d like some impartial advice, speak to Mashroom about first time buyer mortgages. Book in a free consultation call we’ll help guide you through the process and find the right first time buyer mortgage for you.

Feel more confident
Mashroom Mortgages is a trading name of Emash Ltd which is an appointed representative of Mortgage Advice Bureau Limited and Mortgage Advice Bureau (Derby) Limited which are authorised and regulated by the Financial Conduct Authority.

Your home may be repossessed if you do not keep up repayments on a mortgage or any debt secured upon it. A fee of up to 1% of the mortgage amount may be charged depending on individual circumstances. A typical fee is £495.

Emash Ltd. Registered Office: 21 Navigation Business Village Navigation Way, Ashton-On-Ribble, Preston, Lancashire, England, PR2 2YP. Registered in England Number: 11735831.