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How to get a mortgage as a first time home buyer

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For most people, buying a house is the single most expensive purchase they will make in their lifetime. The amount will seem astronomical to most, but can be made easier to afford by taking out a mortgage that spreads the cost over many years.

Due to the large amount of money being borrowed, taking out a mortgage can be a complicated and lengthy process. Don’t let that put you off though – if you’re keen to buy a property and refurbish it, or simply use it as your first home, it can be incredibly worthwhile.

The following guide has everything you need as a first time buyer, taking into account all the details you need to think about prior to signing your name on the dotted line. Bear in mind this guide is designed for those who have never taken out a mortgage before, and are thinking of buying their first property.

So have a read through and find out what you can expect to happen during the purchase of a first home. If you’re ready to start looking at mortgages already, head over to our dedicated mortgages page and have a browse.

Are you ready to get a mortgage?

Whether you’re wanting to move out of your parents’ home to live on your own, thinking of moving in with a partner, or simply want to stop renting, there are many circumstances that can lead you to wanting to buy your first property.

You might be keen to get that first step on the property ladder, but it can be a lengthy process, so don’t expect for it to happen overnight! There are plenty of things to consider before you start calling up removal vans, but thankfully we’ve listed them here so you can decide whether you’re truly ready to get a mortgage.

Here are a couple of questions to ask yourself:

  • Do you earn a regular income?
  • Can you afford to make repayments every month?
  • Do you have a deposit saved?
  • Have you checked your credit score?

If you answered ‘no’ to any of the above, the likelihood is that you aren’t quite ready for a mortgage, even if you’ve been thinking about it – but that doesn’t mean you won’t be in the future, so you can still start your search.

Like any financial product, you need to be able to prove that you can make repayments and are a trustworthy candidate in order to be considered for such a large sum of money. This means proving that you have a regular income and you also earn enough that you can afford to pay for a mortgage.

You will also need to have some sort of deposit saved. Thankfully there are options such as help to buy schemes where you only need 5% of the value of the property, but you will need some sort of lump sum to put towards your new home.

Lastly, do you have a good enough credit score? If you have had credit cards and loans in the past but have failed to make repayments on time, chances are your credit report will reflect that. Try to make improvements to your credit score before thinking about applying for a mortgage – read more on that here.

What kind of deposit do I need to buy a house?

This all depends on the price range of the properties you’re looking at. In general, a 10% deposit is seen as a minimum amount to put down, though a 5% deposit is also accepted as part of a help to buy scheme, though this isn’t available on all properties. For example, a house costing £125,000 would require a minimum 5% deposit contribution of £6,250.

While 10% would be a minimum, a comfortable deposit amount to put down is 20% of the total amount, as this would give the lender reassurance that you’re able to commit to your investment. In general, putting a larger deposit down does open up deals with cheaper interest rates, so it is always preferable to save more in the case of a mortgage.

Since it can be difficult to save for a deposit and it can take a long time if you don’t have much disposable income, many first time buyers also opt for asking their parents for a deposit, or at least to make a contribution. This can be a quick way to reach your desired deposit amount, as long as the bank of mum and dad are feeling generous!

If you’re at the stage where you need to start saving, then there are plenty of first time buyer ISA schemes available, including the Help to Buy ISA provided by the government. These are the details you need to know about taking it out:

  • You will earn 25% of whatever you deposit in the ISA as a bonus when you purchase your first property
  • In the first month you can deposit up to £1,200
  • In subsequent months you can deposit up to £200
  • The minimum you can deposit into the account in total is £1,600. This would give you a bonus of £400
  • The maximum you can deposit into the account in total is £12,000. This would give you a bonus of £3,000
  • If both you and your partner are saving for your first house, you can each have an ISA and deposit into it separately

For more information, head over to the Help to Buy ISA information page here.

First-time buyer mortgages explained

Now that you’ve decided you’re ready to apply for a mortgage, why not start browsing our mortgage deals to see if you can find one that fits in with your circumstances. If you need a bit more advice on what to choose, the following information will come in handy:

Repayment vs. interest-only

There are currently two main types of mortgage you can choose from. A repayment mortgage is the most common and most straightforward of the two, as you will be repaying the loan amount along with the interest at the same time, every month.

On the other hand, an interest-only mortgage is much cheaper, but a lot more complicated. It’s also a lot less common now that a few lenders have stopped doing them. As the name implies, you will just be repaying the interest every month, but you will be left with having to pay the entire loan amount at the end of the agreed term. This means that you will have to organise a separate savings scheme that will allow you to pay off the loan.

Fixed-rate vs. variable rate

The next choice you have to make is what kind of deal you would prefer. Having a fixed-rate means that the interest you pay on top of the loan amount will stay the same for a set period of time (usually a couple of years). This is ideal for those who like to plan ahead and don’t want their payments going up or down without them knowing. The only disadvantage is that once the initial period ends, the interest rate will normally shoot back up to a standard variable rate (see below).

On the other hand, a variable rate mortgage means the interest rate can change go up or down depending on fluctuations in the UK economy. This is fine, as long as interest rates aren’t shooting up dramatically at the time. The three most common variable rate deals include:

  • Tracker – this variable interest rate follows the Bank of England base rate and goes up or down depending on any fluctuations. This usually lasts for a few years as an introductory offer, before changing to standard variable rate
  • Standard Variable Rate (SVR) – this variable rate is set by the lender themselves, and can follow the Bank of England base rate, but at a few percentage points above. However, the lender has the right to move the interest rate as they wish, and will usually capitalise when rates go up as borrowers will have to pay more
  • Discount Variable Rate – this is usually the SVR but with a discount applied to make it much less, and subsequently cheaper for borrowers. However, the discounted period only lasts for a few years before jumping back up again

How long should you repay your mortgage for?

A regular amount of time to repay your mortgage is usually over 25 years, but some mortgages can be paid off over 35+ years as a way of keeping monthly payments low. Of course, the quicker you can pay it off, the cheaper it will be for you, despite the monthly payments being higher.

If you can comfortably afford to go for a 25-year mortgage, it can make things a lot easier down the line, as you can be mortgage free earlier and be free to save for retirement. However, this isn’t always practical if your income won’t allow for it.

Try adjusting how many years you would like to spend paying it off and find a compromise that will allow you to pay it off as quickly as possible, without leaving you penniless every month.

What other perks are available?

There are other options available for your mortgage deal, allowing for a bit more flexibility when you need it over such a long period of time.

The most common perk available is the ability to overpay on your mortgage. By overpaying, you can comfortably save yourself a lot of money off the total interest of your mortgage, simply by putting in an extra £50 or £100 per month. However, lenders will often restrict the amount you’re allowed to overpay and will penalise you if you overpay too much.

Another perk that can be included is the ability to take a payment holiday. This comes in handy if you have additional expenses in a certain month, or if you lose your job and need a bit of extra time to get a new one and reinstate your regular income. However, you will have to arrange it with the lender, who will insist you have already overpaid or will increase your monthly repayments to compensate for the missed payments.

A necessary perk is the option to ‘port’ your mortgage to another property. This gives you the ability to move house before your mortgage term is up, and gives you a bit more flexibility rather than being stuck in a house that has become undesirable for one reason or another.

What other fees will I need to pay?

  • Stamp duty land tax (SDLT) – whilst this is usually the largest expense for those purchasing a property, first-time buyers are exempt from the charge as long as the property is not worth over £300,000. Unfortunately, this does not apply to first time buyers in Scotland and Wales
  • Arrangement fee – this can be upwards of £2,000 but can be included in the mortgage price, though this will incur further interest over the mortgage term
  • Booking fee – also referred to as a reservation fee, this is usually so that you can reserve the particular interest rate or deal, and is normally in the region of £100 to £200
  • Valuation fee – you are required to make a valuation of the property to prove to the lender the property is worth the amount you would like to borrow. It can depend on the value of the property but can be around £250
  • Survey – whilst a valuation is for your lender, a survey is for you to check if there are any issues with the property itself. You can get a condition report for £250, homebuyer report for £400 or even a full structural survey for £600
  • Legal fees – also known as a conveyancing fee, this is the costs of using a solicitor and can be between £850 and £1,500

I’m ready to start comparing mortgages

Absorbed all of that wisdom? It can be a lot to take in for a first-time buyer, but will start to make sense once the process starts to get going. If you’re still struggling, you can also reach out for more help from your solicitor, or a mortgage advisor to get some reassurance over your mortgage decisions. Be advised these services will incur an additional cost though.

If you’re at the stage where you’ve picked out your property, saved up a sizable deposit and know what type of mortgage you want, it’s time to get going with a mortgage! Have a browse through our selection of mortgage deals and see what you can find that suits your circumstances. Good luck!

Robert Bester - Content Writer

Updated on 3rd June 2019