First Time Buyer Mortgage

Podcast approved by The Openwork Partnership on 06/09/2024.

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

First Time Buyers need first of all to have an income, and it needs to be provable. You also need to have some form of a deposit available, and that can be a gift or savings. It can be a gift from someone who’s not a relative, depending on the lender.

The income is used to decide how much you can borrow, and you also need to take into account any debts you have.

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

To get to the maximum borrowing, there are a lot of different factors involved. As we mentioned, income is a very important factor. If you’re on a lower income, that could impact how much you can borrow.

Your circumstances are also important, and lenders take into consideration your children and dependents and your age. A First Time Buyer doesn’t have to be an 18 to 21 year old, you could be a later life First Time Buyer.

The lender will also take into account your committed expenditure, such as any loan repayments you have and credit card balances you pay each month. Everything is factored in to generate the borrowing. There’s no fixed maximum for how much someone can borrow.

What’s the minimum deposit required for a First Time Buyer?

The absolute minimum at the moment is 5%. There’s a deal out there that states it’s a 100% mortgage, with a certain lender on a renting scheme. That’s still taking into account the rent you will have paid, and that will lead to a 5% deposit, realistically.

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

A First Time Buyer can access most rates in the market. Some lenders will have specific remortgage products, which a First Time Buyer wouldn’t be eligible for because they don’t currently own a home.

The rates depend on the level of deposit you’re putting down. If you have a 5% deposit, the rates are higher than for a 10% or a 15% deposit. For First Time Buyers, some lenders offer perks such as a free valuation on the property or cashback when you move into the house.

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

A fixed rate does what it says on the tin. It fixes for a term of two, three, five, seven or 10 years, depending on what the lender’s offering. You’ll know exactly what you’re going to pay month in, month out.

A variable rate mortgage could be a tracker, a discount or standard variable rate. The standard variable rate is normally considerably higher and is set by the lenders. A tracker tracks the Bank of England base rate, usually above or slightly below. At the moment they are above [podcast recorded in August 2024].

If the base rate comes down, your monthly payment goes down automatically, but equally, if the base rate goes up, your payments will go up as well.

A discounted rate is at a set percentage lower than the standard variable rate set by the lenders. Again, that can go up and down.

The main difference is that with a fixed rate, you have the stability of knowing what you’re going to pay. With a tracker or discount rate, your monthly payments can change, which is not always going to give you the right outcome.

What government schemes are available to help First Time Buyers?

Government schemes are always subject to change, but one of the more prominent ones available at the moment is shared ownership. Here, someone buys a share in a property, ranging from 10% up to 75%. You usually just need to put down 5% of the value of the share.

So if the property’s worth £100,000 and you’re buying a 50% share, you could put down £2,500 and mortgage the rest. It’s an affordable home scheme.

In the past there have been other schemes but everything is subject to change with the government. It may be that something new comes about – there has been talk about this with the recent elections [podcast recorded in August 2024].

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

If you’re employed, you need your last three months’ pay slips. It would be helpful to have your P60 as well. We will ask for your last three months’ bank statements, your passport and driving licence.

For the self-employed, we need the last three years’ tax overviews and tax computations. These replace the old SA302s. If it’s a limited company most lenders are going to want the last three years’ full accounts, as well.

It’s also very helpful as a First Time Buyer to have a copy of your credit report, because passing credit checks is not always about the score. People look at credit links and might see they’re at 897 out of 900 – but until we see that full report, the score doesn’t mean anything. Lenders explore other things you wouldn’t necessarily think they would be looking for.

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

Think realistically. See what the property values are in the area where you want to buy.
Assess how much deposit you can actually put down, through savings or gifts. It’s always worth keeping some contingency funds in the background for fees associated with the purchase, such as solicitor and lender fees.

If you’re a First Time Buyer moving out of your parents’ house, you might not even have any furniture. You’ve got to think of how to kit the place out.

Looking at your personal budget will also help you understand what you can afford each month on the mortgage payment and household bills. It’s worth speaking to a broker like ourselves. We’ve got access to the mortgage market and we know the lenders’ criteria, so we’ll be able to match you with a lender that suits your needs and circumstances.

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

Realistically, credit score is always one that comes along. The other thing is having a lot of debt in the background. First Time Buyers don’t always understand that if you’ve got a car lease or car loan at £500 a month, that is going to severely affect the amount that you’re going to be able to borrow.

People also don’t always understand that the lower the deposit, the more of a risk you are for the lender. If you’ve got a lot of debt but you’re managing it, it may not seem an issue to you. But only putting down a small deposit means you’re a higher risk to the lender.

The bigger the deposit, the better it is for you. If you’ve got 10%, that will get you more borrowing and lenders will be more willing to lend to you.

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

If you miss a mortgage payment at any point in the mortgage, the payment will be added back to your mortgage balance. It’s likely to negatively impact your credit file, as a lender will report it to credit reference agencies as an arrear.

If there is any circumstance where you’re not able to make a mortgage payment, speak to the mortgage lender, instead of burying your head in the sand. They can look at a solution based on your circumstances – either potentially a payment holiday or a plan to pay slightly more over a number of months to repay the arrears that have accrued.

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

Yes. It just depends on the severity of the credit issues. Missed payments on credit cards, loans, defaults or CCJs may require more deposit than the standard 5% of the property value.

Getting a copy of your credit report is vital for a First Time Buyer. It may be that you don’t know what’s actually on your credit file. As brokers it gives us an idea of the lenders we can look to place you with. We will also guide you to the level of deposit you will need to get everything over the line.

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

Yes. Certain lenders offer first time Buy to Lets without any issues. The majority of them will want you to have a minimum amount of income, and they will make sure it’s a Buy to Let arrangement and not a backdoor residential – where people Buy to Let and think they can live there. That is certainly not something that can be done.

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

Using a broker is fundamental when you’re a First Time Buyer. We’re working for you, not for the estate agent, and we look after you. We will find the right lender on the market at the time for you. We’ll also hold your hand through the process, making sure that you’re updated every step of the way and you know what’s happening.

There’s nothing worse than applying for a mortgage, being told you’ve got it, and not knowing what is happening. We can liaise with you and with the solicitors, making sure that you’re guided through every single step. That’s what we’re here for.

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

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

Approved by The Openwork Partnership on 06/09/2024.