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Mortgage Advice For First Time Buyers

Steven Harmon breaks down the most common questions on mortgages for First Time Buyers

What is a First Time Buyer?

If you are looking to buy your first home, you will be considered a First Time Buyer, so long as the home will be your primary residence. Both the economy in recent years and the onset of Covid-19 have meant that First Time Buyers have found it difficult to get onto the property ladder.

Thankfully, with some research and financial preparation, it’s still perfectly possible for First Time Buyers to find a competitive mortgage deal.

Do I need an Agreement in Principle?

An Agreement in Principle is a conditional mortgage offer that you can obtain from a lender, prior to making a full mortgage application. This is not binding for yourself or the lender and it’s important to realise that it’s not an actual mortgage offer. It can, however, be very beneficial for First Time Buyers, as it can give you a good idea of your property budget. When you find your chosen property, it can also convince the seller that you’re a credible buyer.

How much can a First Time Buyer borrow?

As mortgages are calculated based on your financial circumstances and credit score, whether you’re a First Time Buyer or not should not affect how much you can borrow.

A typical mortgage is based on a multiple of between three and five times your annual salary. The multiple used in each case will depend on both the lender’s criteria and your personal affordability.

Whilst a mortgage calculator could give you an idea, it’s not recommended because it doesn’t give you a full picture of your borrowing capability. Whereas an Agreement in Principle is a more definite indication and can reduce the chances that you will fall in love with a house that’s out of your price range.

How can improving my credit score help?

Your credit score can have a big impact on the mortgage that you are able to obtain. It can be the deciding factor in whether a lender accepts your application at all, as well as affecting how much you can borrow and the interest rates available to you.

Improving your credit score before applying for a mortgage can both improve your overall chance of acceptance and your access to competitive mortgage rates.

How to improve your credit score

Check that your address is accurate across all accounts held
Register your name and current address on the electoral roll, if they’re not already
Minimise spending within existing credit agreements
Pay all bills in full and on time in the year prior to application
If you have never taken credit, credit builder credit cards can be a helpful to prove you are a responsible borrower

Speak To An Expert

The Mortgage Company was established over 30 years ago and have a strong reputation for being local mortgage experts.

How much deposit do I need?

A deposit of between 10% and 20% is typically needed to buy a property and being a First Time Buyer shouldn’t have any impact on this. Unfortunately lenders have been more cautious overall as a result of Coronavirus, so some lenders may ask for a higher deposit from First Time Buyers at the current time.

What help is available for First Time Buyers?

There are a number of home ownership schemes aimed predominantly at making it easier for First Time Buyers to get onto the property ladder. If you are struggling to save for a large deposit or have a lower income, these schemes could provide alternative mortgage options:

The Newbuy scheme

This scheme gives you a 95% mortgage, so long as you can provide a 5% deposit. The interest rate on your mortgage will be reduced to around 75% of the standard market interest rate.

The Shared Ownership Scheme

This scheme allows you to purchase a share of your first home, usually between 25-75%. Your mortgage borrowing is therefore much lower, meaning it’s easier to attain, and both the deposit and repayments on your mortgage are much more affordable. You will also have to pay rent on the remaining share of the property, which is usually owned by a housing association.

What fees are involved with buying a home?

Arrangement fees

Most lenders charge an administrative fee for the arrangement of the mortgage, known as the arrangement fee. The cost will vary depending on which lender you choose.

Valuation fees

Estate agents will require that each property is independently valued, so you will need to pay valuation fees for your chosen home.

Legal fees

During the mortgage application process, you will need to instruct a solicitor, who will arrange conveyancing and local authority searches on your new home. This will incur legal fees, which you will also need to consider alongside the other application costs.

Stamp duty

Stamp Duty is ordinarily due on the purchase of any property over £300,000 and a stamp duty calculator can help you to determine how much this might mean for you. The current Stamp Duty holiday in the UK is due to end on 30th June. Until then, Stamp Duty is only due on the purchase of properties above £500,000.

How can The Mortgage Company help First Time Buyers?

Buying a house is a huge responsibility that can be a daunting step for anyone. Deciding whether a fixed rate or variable rate mortgage or a home ownership scheme would be more beneficial to you is not always straightforward. At The Mortgage Company, our Mortgage Brokers can explain the benefits of each of your options in plain English and provide continued guidance throughout the entire application process.

We have access to competitive mortgage deals from a wide range of both high street and independent mortgages lenders, as well as an intimate knowledge of which lenders are more sympathetic to the needs of First Time Buyers.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE