First Time Buyer Mortgage

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First Time Buyer Mortgage

Kelly Flanagan talks to us about how the mortgage process works for First Time Buyers.

What are the typical requirements to apply for a mortgage as a First Time Buyer?

Generally speaking, you need two things to buy a property: money for a deposit and an income.

The size of the deposit required will vary from lender to lender, but as a minimum, you should have around 5% of the value of the property you’d like to buy. The more deposit you have saved, the better the rate you’ll be able to secure.

In terms of income, the easiest route to a mortgage is to use payslips to prove what you make from a salaried job. That said, we help lots of clients who are self-employed or those who work varied shifts and have irregular earning patterns.

There are a lot of ways you can improve your affordability from an earnings perspective and we talk to clients about those options.

What is the maximum amount that can be borrowed for a mortgage as a First Time Buyer?

The right thing to do is speak to a broker before you even look for a property, so you know you’re on the right page. The maximum borrowing for a First Time Buyer really depends on certain issues.

Loan size will be impacted by how much deposit the buyer has saved – or has access to in other ways, such as gifted deposits. Also, their household income, how much they spend each month, credit history for everyone applying for the mortgage and the type of property can also have an impact on the mortgage size.

What is the minimum deposit required for a First Time Buyer?

It’s usually minimum 5% of the value of the home you’d like to buy. If you were looking to buy a house for £300,000, for example, you’d ideally need a deposit of £15,000. If you can afford to save more than that, it could help reduce the rate you’ll pay on the money you borrow.

What types of interest rates are available on a mortgage for a First Time Buyer?

There are two main types of interest rates for any mortgage – fixed or variable rate. A fixed rate is set for a specified period of usually two, three or five years. You’ll pay the same amount every month throughout that time, whether market rates increase or reduce.

Variable rates could be linked to the Bank of England base rate or the lender’s standard variable rate. So if the Bank of England moves, or the lender’s variable rate changes, so does your rate.

What are the pros and cons of fixed versus variable interest rate mortgages for First Time Buyers?

If you want the stability and security of knowing what you’re going to be paying each month, a fixed rate is usually the right option. If economic conditions improve after you’ve taken out your mortgage, and interest rates fall, bear in mind your repayments will stay at that fixed level until the end of the specified period.

You can review that, but you’re more likely to have to pay an early repayment charge to come out of a fixed rate period. It’s possible to do this if rates have dropped, but you must make sure it’s worth the potential cost.

If you’re happy to allow some fluctuation in what you repay every month, a variable rate deal might reduce your outgoings if rates fall – but obviously rates could go up, as well. A tracker mortgage, for example, would be linked to the Bank of England. If their base rate goes down, your rate will go down. If it goes up, your payments go up.

A lot of people prefer the stability of fixed rates when buying initially, so they can plan to work on the property or buy furniture. They like to know what they’re paying. But you need to do what you feel is right at the time. As you can see, there are pros and cons to both fixed rate and variable mortgage rates.

What government schemes are available to help our First Time Buyers out?

There are a range of schemes available to support those buying homes for the first time.

The mortgage guarantee scheme was introduced in 2021 to encourage lenders to support more First Time Buyers. The scheme compensates lenders for a portion of their losses if a borrower defaults on their loan. With that scheme, you must have at least 5% deposit.

Only certain lenders are part of the scheme, and there are some restrictions on the specific property you can buy. The mortgage guarantee scheme, however, is due to expire on 30th June, 2025.

Another is the First Home scheme, which allows First Time Buyers to buy a home with a 30% to 50% discount on the market value. First Homes is only available with participating developers or via an estate agent, if the property was originally purchased through the scheme. It’s also only for houses bought in England.

The scheme is managed at local government level and some councils might prioritise key workers over others.

Shared ownership is a good scheme to get people on the property ladder, and is usually available through housing associations and local councils. Shared ownership lets you buy a percentage of a property, as little as 10%. Then you’ll pay rent on the remaining 90%.

But there are schemes where you can buy 50% of the property and rent the other 50% of the property, and buy a larger share as you’re able to afford it. This is also known as staircasing.

As you go through your working life, you hopefully increase your pay, and could buy out the share you’re renting to become the full owner of the property. If you want to sell, the landlord is allowed to choose a buyer for your share to help somebody else who needs to get on the ladder.

Other funding options are available and with almost all schemes, you can get a mortgage to help you buy the house that you choose. [Information correct at time of recording in September 2024]

What documents do I need to get pre-approved for a mortgage as a First Time Buyer?

As a mortgage broker wanting to provide the client with the best service, I would need various documents to pre-approve a mortgage for a client. We need to confirm identity, prove income and check finances.

That would all happen before we arrange an Agreement in Principle, so that we know we’re using the correct figures when pre-applying for your mortgage. Then, when you find a property you’ve got the funds pre-approved.

You can usually upload pictures of your ID to a broker’s system on a secure portal. If you’re self-employed we would ask you to send over HMRC documents.

Basically we need ID, proof of address, proof of income and regular expenditure via your bank statements. If your deposit is just from your savings, we can see that on the bank statement. But if the deposit is somewhere else, we might need you to evidence where the funds have come from.

For example, if you’re lucky enough to be gifted a deposit from a parent or a grandparent,
we would need a letter from them to say it’s a gift, with a bank statement to show the funds.

Speak To an Expert
We’ll find you a solution that covers your needs, circumstances and preferences and do all we can to make your mortgage application process as smooth as possible.

What are the steps to follow when applying for a mortgage as a First Time Buyer?

The first step is to find out what you can afford. Sometimes you can borrow more than you might choose to, and it’s important to get a good idea of your budget when house hunting.

We can help you by running through some scenarios through our system, but it’s worth getting your finances in order, paying off any debts that you can, reducing your outgoings if possible and building up the biggest deposit you can before you start looking at houses.

Once you’re confident about your financial picture, we’ll talk you through mortgage options and present a recommendation based on what we think suits your circumstances.

If you’re happy with the mortgage we’ve suggested, we will provide you with a Decision in Principle, which is a formal offer from a mortgage lender once they have done a credit check. When you find a suitable property, it means the funds are pre-approved and available.

You’ll make an offer to the seller or vendor and if it’s accepted, we’ll start the full mortgage application for you. We’ll make sure everyone involved is on track – from estate agents to solicitors, and we can step in and prompt their action if things go wrong or it becomes too quiet.

What are the most common mistakes to avoid when applying for a mortgage as a First Time Buyer?

Going straight to a bank or building society for a mortgage could be a mistake for a First Time Buyer. Speaking to only one lender will limit the range of products available to you, and you may end up with something that’s not exactly right for your circumstances.

Even worse, you could be told that you can’t borrow the money – when another lender could look at your circumstances differently and give you the funds.

If you use a mortgage broker, we have access to a much wider range of mortgages and you’ll end up with the most suitable deal for you. You’ll save time, too, because we search through all of the mortgages for you. You might also save money, as we can access offers not available on the high street.

If you’re trying to do it alone, you might find your application is declined by the lender. This often happens if one or more of the lender’s policies aren’t met. Also, each time you apply a check is run on your credit file. Too many checks can have a detrimental impact.

Historically, people are used to shopping around, but mortgages don’t really work like that. If you go to multiple lenders who credit check to see what they can offer you, it could cause issues with your credit file – and even affect whether you could get a mortgage at all. So you need to get it right within the first couple of tries.

What happens if I miss a payment on a mortgage as a First Time Buyer?

It’s really important that you make your mortgage payments on time each month. Missing just one leaves a mark on your credit file and will impact your ability to borrow in the future – or whether you can get a better deal when your mortgage review is due.

If you’re struggling to make repayments or you think you might, get in touch. Your lender will have dedicated support for borrowers, or you can give us a call and we’ll help.

A Mortgage Charter set up by the government is designed to help people cope with the rising cost of living and any impact on paying a mortgage. Under the Charter, lenders have made commitments to help borrowers out of difficult money situations.

So please always get in touch for help. Don’t bury your head and hope it doesn’t happen. Speak to the lender before you miss a payment.

Can I qualify for a mortgage as a First Time Buyer with bad credit?

Yes. I have helped clients who have been told they couldn’t get a mortgage elsewhere – so that there are lenders that do this.

Bad credit won’t stop you getting a mortgage, but the range of lenders available might be more limited. It helps if you have a bigger deposit. We know which lenders will accept borrowers with adverse credit histories, so we can help you save time by researching your options with lenders that consider people with slightly adverse credit history.

Can I get a Buy to Let mortgage as the First Time Buyer?

Yes, it is possible to buy a property to rent out, even if you’ve never owned your own home. Again, limited lenders will accept First Time Buyer for a Buy to Let but there are options, and we can help you find the right deal.

How can a mortgage broker help me with my First Time Buyer mortgage application?

We’ll start by explaining the whole process, so you know what’s coming and you can be properly prepared. Then, after we’ve discussed your situation and goals, we’ll recommend only the mortgages we think are right for you.

Once you’ve considered our advice and agreed to go ahead, we’ll handle the whole application process with the lender for you. Just complete our online portal, by yourself or with us over the phone or face to face, and we’ll take care of everything else.

It’s our job to make sure everyone involved in the mortgage and property purchase completes their tasks on time. So when you get your keys and move in as quickly as possible, you’ll look back and will have had a good experience.

Buying property shouldn’t be hard, and we strive to make sure that’s the case, doing everything we possibly can. We get in touch with the lender, solicitor, surveyor, estate agent and anyone else on your property team as needed.

Finally, we’ll help you achieve lasting protection and security by explaining which insurance policies are most applicable to you. You’ll be able to make an informed judgement when it comes to protecting your family, and ensuring your home remains your home even if life doesn’t go to plan.

Mortgage Style Ltd, trading as Mortgage Style, is an appointed representative of the HL Partnership Limited, which is authorised and regulated by the Financial Conduct Authority.

YOUR HOME/PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP TO DATE WITH YOUR MORTGAGE REPAYMENTS.

MOST BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

There may be a fee for mortgage advice. The precise amount will depend upon your circumstances but will range from £495 to £595 and this will be discussed and agreed with you at the earliest opportunity.