First Time Buyer Mortgages Explained

Buying a home is likely to be one of the largest investments you’ll ever make, so you should seek support when wanting to step onto the property ladder for the first time. A mortgage is essentially a long term loan which is used for buying a home, and they take about 25 to 35 years to repay. There are many types of mortgage you can get with the various lenders out there, and many will have offers for first time buyers. First time buyers have the right to choose the type of mortgage which is best for them and their circumstances. However, there are also various schemes available which may be able to help people get onto the property ladder. This includes the popular Help to Buy scheme.

How much can I borrow?

This will depend on a range of factors but largely depends on the home buyer’s income and monthly costs for expenses such as travel and bills. Both income and outgoings will be higher if there’s more than one person going on the mortgage. The minimum deposit you’ll require is likely to be 5% of the property value but this figure can be a lot higher depending on your circumstances and if you’re using a Help to Buy scheme or not. Mortgage rates will also be much better if you can offer a higher deposit such as 20% to 40%. Although not essential, you can also get a Decision in Principle drawn up stating how much you can borrow from a lender, increasing your confidence when searching for your first property.

What is the Help to Buy scheme?

The Government’s Help to Buy scheme aims to help those struggling to get onto or move up the property ladder, whether first time buyers or homeowner’s already.

The Equity Loan part of the scheme is only for new build properties in England (as long as they’ve applied to be part of the scheme), and you’ll need a 5% deposit. The Government will lend you a further 20% of the property value. Therefore, you’ll only need a mortgage for 75% of the property value. The benefit of this is that you’ll be paying less each month and don’t need as high a deposit to secure your new home. However, the Government loan must be repaid within 25 years, and you must repay the loan in full if you move home. The loan is only interest-free for the first 5 years, so after this, interest will be applied. The loan is repayable at any time, so many choose to save in order to pay it back as soon as they can.

Other points to mention include:

  • For properties in London, the Government may offer a loan of 40% of the asking price.
  • The scheme differs in both Scotland and Wales including how high a value property you can buy through the scheme, interest rates and what percentage of the property the Government is willing to lend.

Home buyers can also apply for the Help to Buy ISA scheme which helps people save for their first home. The Government will add 25% contributions to your savings once you’re ready to use the money for a deposit. You’ll need to initially save £1,200 in the first month and then £200 a month from then on. However, these free cash bonuses are capped at £3,000, meaning you’ll have to save £12,000 to get the full amount. This can be combined with the Equity Loan part of Help to Buy if you want it to. The deposit can only be used on properties of £250,000 or less in value (or £450,000 or less if in London boroughs).

What other options are there?

One option is to apply for a guarantor mortgage in which a nominated individual (often a parent) will be liable to pay the mortgage should the first time buyer become unable to pay.

Another option is a ‘shared ownership’ scheme which is provided by housing associations. The scheme allows people to buy a percentage of their home (usually 25% to 75%) while paying rent on the remaining share owned by the housing association. You can buy a higher proportion of your home as time goes on.

There’s also a new Government Starter Home scheme which helps first time buyers buy new build homes with a 20% discount off the market value of the property. Although officially starting in 2018 when the first batch of homes become available through the scheme, you can sign up now to find out if you’re eligible.

Which mortgages won’t I be allowed to apply for?

There are certain types of mortgages which lenders may be more nervous about offering to first time buyers. This includes buy to let mortgages which are usually offered to those who’ve already got a mortgage.

Other tips for first time buyers

• It isn’t just the cost of the mortgage you’ll need to consider. Moving home also requires other expenses to be paid such as your legal fees, stamp duty and survey costs.

• Work out your monthly budget and factor this in to your own affordability judgements. It’s important you’re comfortable with the amount you’re borrowing and how much you need to repay each month. Also look at how much running the home will cost, and other charges such as ground rent and contents insurance.

• Get advice about the best type of mortgage for you. There’s plenty of support available, and you can find details of different mortgage types in our mortgage guides. Mortgage brokers will be able to help you assess your lender options, set out your individual circumstances and find the best deal. You’ll also be able to get advice if you think there are circumstances which hurt your chances, such as bad credit.

When looking to apply for any type of mortgage for the first time, getting professional, impartial advice can help you get the best mortgage product for you. Find a trusted mortgage adviser in your local area here.