First Time Buyers Guide

First Time Buyers Mortgage?

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Our guide to first time buyer mortgages

If you are planning to move away from renting and purchase your first home, there are a a few main things you will want to consider:

Can I get a mortgage?

This is a great place to start! Although the answer might not be as straightforward as you might like. It all depends on if you are accepted by a lender. All lenders have their own criteria for acceptance. For example, they will look at your history of making payments on time, your current income and your deposit.

They might also look at factors like the type of home you are buying, your employment type and your age. Affordability is also a key factor, so they will want to know if you will be able to afford the mortgage for the lifetime of the loan.

Credit scoring also factors heavily in a lender’s decision. Credit scores can be very complex, with different credit checking agencies offering a different view of your credit history. The good news is that every lender is different, so being rejected by one lender doesn’t mean that all lenders will reject you.

Many lenders will also take the wider economic situation into consideration. If lending is slowing down, they will make their criteria more stringent. But if they have a lot of money to lend, they might relax their rules.

The best step if you are struggling to make sense of the mortgage market is to speak to a specialist mortgage broker. They will be able to help you make sense of your position, and guide you towards lenders that are more likely to accept your application. For more information about bad credit mortgages and mortgages for the self-employed, check out our in-depth guides.

How much will I be allowed to borrow?

In general, most lenders will allow you to borrow up to 4x your annual salary. This might be increased to 5x your salary if you have a strong credit profile, high income or a big deposit. All lenders will want to know that your repayments will be affordable, so they look at your existing commitments going into the mortgage agreement to make a decision.

Your salary at the time of the application is important, but lenders appreciate this can change. If you are at the start of your career and working in a professional industry, lenders will appreciate that your income is likely to increase over the years. If, however, you are nearing retirement, lenders might expect your income to go down when you replace your income with your pension.

Other lenders will go more in-depth with your income and look at things like state benefits, bonuses, holiday pay, dividends, investment income and overtime payments into consideration. This is why it is important to find a mortgage provider who understands your unique circumstances.

How much deposit should I save?

With the rising cost of rent, saving a healthy deposit can be challenging. This is one factor that often puts first-time buyers off applying for a mortgage. The current minimum deposit amount if 5%, but the criteria for securing a mortgage with a 5% deposit is very strict. The Help to Buy scheme can help you to secure your first property with a 5% deposit. By seeking out advice early on in the application process, you could save a lot of money in fees.

If you decide not to use a help-to-buy scheme, saving a deposit of 10-15% of the property value is advisable. You are more likely to secure a mortgage with a deposit this size and you will also have access to better rates. If you have a bigger deposit, some lenders will also be willing to overlook some adverse credit factors as they will see you as a lower risk borrower.

100% mortgages are pretty much a thing of the past. Some lenders might allow you to take out an unsecured personal loan to cover the deposit, provided this is affordable. If you are thinking about a first-time buyers mortgage with no deposit, get in touch with our team today.

How much will I have to pay every month?

This all depends on the property value, your deposit, the term, the rate and any associated fees. In the past, most mortgages were paid back over a 25 year period, but lenders are a lot more flexible these days. It’s far more common to see mortgage terms of around 30 years.

Changing the term of the mortgage may help to make a property more affordable. For example, if you are borrowing £100,000 over 15 years, your monthly payments could be as high as £1,000. Extend the payment terms to 30 years and this can dramatically decrease your monthly payments.

Being able to extend your payment terms will often depend on your age at the time of application. Although, some lenders will be willing to lend to those approaching retirement age, provided the repayments will still be affordable.

Top 3 tips for first-time buyer mortgages

Stay in control

With the market in its current state, estate agents are all the more keen to shift houses as soon as possible. This can lead to intimidation tactics, such as making you feel like you have to make a decision right away. This isn’t the case. You are making a huge, life-changing decision and you need to make sure you are well-informed before you act.

Be prepared with the knowledge you need to make the right decision for you. By speaking to a specialist mortgage advisor, you will be in a good position to make an informed decision that is right for you.

Sellers love first-time buyers

First-time buyers are a commodity in the housing market. As you don’t have another home to sell, you have the advantage of speed. You’re already entering the transaction in an enviable position, so sellers will be more than keen to work with you. Don’t be afraid to use speed as a bargaining tool when you are ready to go. You have your deposit and you’re ready to go. And unlike other buyers, you don’t have a home to sell first.

Work with a mortgage broker

Working with a mortgage broker gives you access to a number of perks, provided you find the right broker. Make sure your broker has access to the whole market and aren’t tied to any affiliations. You should also ensure they aren’t charging any up-front fees. They should only be taking a fee on a successful sale, so don’t be tricked into handing over money up-front. And finally, working with the right mortgage broker can help you get your finances on track. They’ll give you guidance on budgeting and how to present your financial situation in the best possible light.

Do I have to get a first-time buyer mortgage?

This type of mortgage is often designed to help first-time buyers to manage the costs of getting on the property ladder. They will often have a lower rate, cheap fees, or be available to those with a smaller deposit. However, you aren’t limited to this type of mortgage.

There are many different mortgages available on the market, and you shouldn’t feel that you are restricted to one particular sector. Be broad in your search for a good deal.

I’ve been told I need a guarantor, what is this?

A guarantor is usually a family member who joins you on the application. They don’t have any legal claim to your home, but they can be responsible for the repayments if you fall behind.

This can offer lenders some reassurance that there is someone there to keep up with the repayments, just in case. Some lenders will request that first-time buyers find a guarantor to be added to the application.

All lenders will have different criteria for guarantors, so it’s worth speaking to a specialist mortgage advisor to find out if this type of mortgage could work for you. If you’re concerned about being able to afford a mortgage on your own, a guarantor can help to reassure lenders.

What are the current government schemes?

There are a number of government schemes available to help you get on the property ladder. The most well-known is the help-to-buy scheme. This is a scheme to help you secure a home with a smaller deposit. This can only be used to purchase a new home and cannot be used for a buy-to-let property.

There are also key government worker mortgages which are intended to help teachers, doctors and other key workers to get on the property ladder. You can read more about mortgages for professionals here.

The Right to Buy scheme was introduced to allow those living in council-owned homes to purchase their property after they have been living there for a number of years. These homes are usually offered at below-market values. However, there are strict criteria and you have to agree not to sell or borrow against the value of the property for 5 years.

What is a shared ownership mortgage?

This is another type of mortgage that can help low earners and first-time buyers onto the property ladder. Shared ownership allows you to purchase a portion of a property and pay rent on the remaining amount to a housing authority or property developer.

So, if you were purchasing 75% of a property, you would need to secure a mortgage for that amount. The other 25% would be owned by a local authority or property developer. You can then choose to purchase more of the property further down the line.

Can I still get a mortgage with bad credit?

This all depends on the type of bad credit you have. It can be difficult to secure a mortgage with poor credit history, but not impossible. High street banks will often make this their primary criteria, so you might find you are rejected from the most obvious choices. If this is the case, you will need to approach a specialist lender. Get in touch today to find out more about securing a mortgage with bad credit, or read out in-depth guide on the topic.

How long does the process of buying a house take?

There are many steps to the house buying process which we have outlined below.

  1. Get your mortgage “in principle” from your chosen lender. This simply means that a lender would be happy to lend you x amount of money for a property, provided the information you have given them is correct and can be backed up with the relevant documentation. This allows you to start thinking about the type of home you could buy and how much you can expect to pay every month. This process only takes about 30 minutes and will often be completed through an online form.
  2. Find your property. This can take as long as you want it to! Remember that your mortgage in principle will usually only last around 3 months as your circumstances can easily change. If you find the process of finding your dream home is taking longer, you might want to apply again. When you find a property you like, you need to put in an offer and wait to see if the seller accepts.
  3. If your offer is accepted, you will need to instruct a valuation. This can take around 3-4 days to complete. This step is a reassurance to you and the lender that the property is worth what you are willing to pay for it. At this stage, you can also instruct full structural surveys at an additional cost. You can read more about this below.
  4. Once the lender is happy with the value, they will formally offer the mortgage and send paperwork to you and your solicitor for completion. It can take up to 10 days for the lender to make their final checks, but this stage is usually much quicker.
  5. After you have a formal mortgage offer, you can instruct a solicitor to start the conveyancing process. This is the formal process of checking the land records to ensure the seller actually owns the property and also checking for things like future planning permission. You wouldn’t want to purchase a home and discover there are plans for a motorway to cut through your garden.
  6. Exchange contracts. Once everyone is happy to move ahead, both the seller’s and buyer’s solicitors will exchange the relevant contracts and the title deed will be handed over to you. This can often happen on the same day.

The entire process from start-to-finish can take around 6-8 weeks. This can be faster if you are purchasing a repossessed property.

Do I really need a survey?

You will need to get a lender’s valuation in order to move ahead with the application process. However, there are other checks you can carry out to give you extra peace of mind. For example, a home buyer’s report will check for things like damp, rot and electrical problems which might not be obvious at first inspection. If you purchase a property and later discover the whole house needs rewiring, this can be a huge financial blow, particularly for first-time buyers.

You can also go one step further and get a full structural survey. This can be beneficial if you are buying an old or unique property. This type of survey will check that the property is structurally sound so you aren’t left footing the bill for a collapsed wall due to unsafe modifications.

When will I need insurance?

Most lenders will expect you to take out buildings insurance as part of the conditions of your mortgage. This should take effect from the very first day you exchange contracts. This will only cover the structural aspects of your home and will not cover your possessions, so you should also consider adding contents insurance to protect your belongings.

Life insurance is another popular type of cover for home owners. You can also get something known as income protection to ensure you can still keep up with your payments if you can no longer work due to illness or injury.

Do I really need a solicitor?

Your mortgage advisor can only take you so far and there are aspects of the home buying process that will require a solicitor. There are specialist solicitors who deal with the process known as conveyancing so you will need to pay for the specialist service. Shop around when choosing your solicitor as a local one might not always offer the best deal.

What does “rates” mean?

When mortgage providers talk about rates, they are talking about the interest you will pay on the loan. You may see rates replaced with APR, which stands for annual percentage rate. You may be offered an initial rate, a fixed rate, tracker rate or variable rate. This will all change the amount of money you pay every month so it’s important to understand the difference between the rates.

Can first-time buyers purchase a buy-to-let property?

Most lenders will want to see that you already own a property before allowing you to take out a buy-to-let mortgage. Some lenders will allow you to purchase a buy-to-let property as your first home, but the criteria will be very strict. In general, you will also need a much higher deposit.

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