First Time Buyers
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First Time Buyer Mortgage
What are the typical requirements to apply for a mortgage as a First Time Buyer?
Generally speaking, you’ve got to be over 18 to get any type of mortgage finance in the UK, and to be classed as a First Time Buyer you need to have never owned a property previously.
Beyond that, clients just need to meet lenders’ eligibility criteria, which differs for each lender. It’s based on many factors including employment status, income and outgoing, deposit level and credit history.
What is the maximum amount that can be borrowed for a mortgage as a First Time Buyer?
This is one of the most important questions that clients have, but the answer is always that it depends on your specific circumstances. My job as a broker is to assess your borrowing capacity, which is referred to as affordability by lenders.
This is done by using documents that you provide, looking at credit history, income, outgoings, deposit level and the lender’s criteria. If you’re utilising a government or new build scheme, I make a personalised recommendation for the maximum amount that can be borrowed.
Then, hopefully, we can get an Agreement in Principle where your credit score and the borrowing amount is confirmed.
What’s the minimum deposit required for a First Time Buyer?
The minimum deposit is subject to a number of factors, and again, as the broker, we’re there to educate First Time Buyers on these factors.
They include whether you’re buying an existing residential home, with or without parental support, or perhaps you’re using a government scheme such as shared ownership. You might be using a lender scheme such as Joint Borrower Sole Proprietor, or buying a new build property with a builder’s incentive scheme such as Deposit Unlock.
This is multifaceted, and I can’t give a generic answer because, especially with some of those government schemes, there are strict eligibility requirements.
What are the types of interest rates available on a mortgage for a First Time Buyer?
These typically fall into two categories: fixed rates and variable rates. If a client wants certainty of monthly payments, I will discuss fixed rates with them.
Based on your priorities now and in the future, I’d recommend the appropriate fixed rate length, whether that be two, three, five, 10 years, or even longer, if it’s suitable.
If a client felt mortgage rates would decrease in a particular period, but understood that they could increase, we could look at variable rate mortgages. These are rates that change and usually track the Bank of England base rate or the lender’s Standard Variable Rate.
The Standard Variable Rate is the default rate you move onto after your fixed or discount deal finishes. This can change at the lender’s discretion. Then there are tracker mortgages, which track a specific interest rate – usually the Bank of England base rate – plus a small percentage for the lender’s profit.
The last one is a discounted variable rate where the lender offers you a discount on their standard variable rate for a set period.
What are the pros and cons of fixed versus variable interest rate mortgages for First Time Buyers?
With fixed rate mortgages, the pros are predictable monthly payments during the fixed rate period, and protection against interest rate rises during that time.
The cons are around potentially having higher initial rates compared to a variable rate, and also having early repayment charges if you try to exit the deal early within the fixed rate period.
With variable rate mortgages, the pros are that you could potentially have a lower rate than a fixed rate mortgage initially or, if you have a slightly higher rate initially, it may be lower in the future – if you anticipate rates to decrease.
There are no early repayment charges for some variable rate mortgages, which give you flexibility to switch rates or sell the property.
On the downside, the monthly payments can fluctuate, which makes budgeting more challenging. Rates can increase with the base rate, or at the lender’s discretion.
What government schemes are available to help First Time Buyers?
Government schemes are there to help First Time Buyers get on the housing ladder. One that’s available to everyone is the Lifetime ISA, an account designed to encourage people to save for their first home. You can save £4,000 a year and the government will top it up with a 25% bonus.
Another scheme is the First Home scheme which was designed to give First Time Buyers the opportunity to buy with a 30% discount.
One that might be more familiar, because it’s in the news a lot, is Shared Ownership, where you can purchase between 25% and 75% of a property. That’s known as a starter share, and you pay rent on the remaining share to the housing association. When your income permits, you can increase the share by 5% or more, which is known as staircasing.
There’s also Right to Buy for council tenants and Right to Acquire for housing association tenants. This allows you to buy your home at a discounted price.
A more recent innovation is the Mortgage Guarantee Scheme, which is designed to increase the supply of 5% deposit mortgages from lenders. The government offers them a guarantee which helps them offer more of those schemes.
There are other options as well. I’ve not mentioned schemes for armed forces personnel etc, but your mortgage broker is there to discuss these with you.
As these are government funded schemes, they’re designed to help those who are struggling to get on the housing ladder. There can be a strict eligibility criteria and the schemes can be pulled at any time.
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What documents do I need to get pre-approved for a mortgage as a First Time Buyer?
There’s an extensive list of documents to get pre-approved, but it generally goes into certain categories, starting with ID and proof of address with your passport and driving licence.
Then you’ve got proof of income, which means payslips and, for the self-employed, tax computations and accounts. We need proof of expenditure such as bank statements, and proof of deposit – such as saving statements or a letter from parents explaining that they are gifting a deposit. Then it’s your credit file.
The documents generally fall into one of those five categories.
What are the steps to follow when applying for a mortgage as a First Time Buyer?
I would strongly recommend that you do your research online and speak to friends and family to get recommendations on a good broker. Then, start speaking to the broker at the very point that you’re looking to embark on your journey.
That way we can get documents from you, make a recommendation and obtain an Agreement in Principle. When you go into the estate agents, the new build developer’s office, or the shared ownership housing association, you’re armed with a confirmation that you are mortgage ready.
You can hopefully buy in confidence – and once you find that dream property and the offer is accepted, just let the broker know and we’ll literally take over from there. We get the application ready, submit the application and see it through to completion when you get the keys to the property.
What are the most common mistakes to avoid when applying for a mortgage as a First Time Buyer?
Obviously, I was a first time buyer myself so I understand how hard it is. The thought of going to see a broker was intimidating – just like going to see a bank manager.
I completely understand that mistakes can happen in the process because it’s not something you’ve done before. The most important thing for First Time Buyers to do is seek advice from a mortgage broker before they start viewing properties.
If you start putting offers on properties and see a broker afterwards, they might confirm that you can’t borrow what you need. You’ll have wasted your time and the estate agent’s time – and they’re less likely to take you seriously in future.
It’s also psychologically crushing to have invested that time and not purchase the property you’ve set your heart on.
Another issue is that sometimes a client doesn’t declare any adverse credit or credit blips in the past. If a broker starts researching without requesting a copy of the credit file, the recommendation will not be as accurate as it could be.
Another common mistake is for a First Time Buyers not to have their solicitor ready at the point of application. That’s something the lender will ask for.
A final thing to be aware of is that a lot of estate agents insist on clients seeing their own brokers. But you’re not obliged to do that. That’s not actually a practice they should be doing. So please don’t feel pressurised in that situation.
What happens if I miss a mortgage payment as a First Time Buyer?
It will be recorded on your credit file and you’ll have to make arrangements with the lender to repay the missed payment. That can be small payments over a period of time.
Because it’s recorded on your credit file, it will affect your eligibility for future credit. That’s not just mortgages, but obviously anything that requires credit, such as mobile phone contracts, car finance etc. That’s the implication.
Can I qualify for a mortgage as a First Time Buyer with bad credit?
It depends on the level of adverse credit, as each lender has a different credit scoring system and underwriting criteria. A mortgage broker will guide you through the process and make an appropriate recommendation.
Can I get a Buy to Let mortgage as a First Time Buyer?
Yes you can, but unfortunately in the past, some borrowers decided to use Buy to Let to purchase a larger property than they could otherwise have afforded – and then proceeded to reside in it.
Although Buy to Let mortgages are generally assessed on the rental income rather than your personal income, those past practices now mean that lenders assess First Time Buyers like a residential mortgage, instead of based on the rent.
How can a mortgage broker help me with my First Time Buyer mortgage application?
When you contact a mortgage broker, remember they represent you and not the lender. Our role is to support you from your initial thought of buying a home until completion of the purchase process. Our job is to ensure you get prepared and give yourself the best chances of achieving the borrowing required. That’s the catalyst to owning your own home.
We’re there to listen to your needs and aspirations, understand your personal and financial circumstances, and then help you make an informed mortgage decision. We then submit an application on your behalf and liaise with all parties to make the process and the journey as smooth as possible.
It can all take several months, so to have somebody on hand who’s always there, who understands the process and has done this many times, is particularly beneficial to First Time Buyers.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
SOME BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
