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First Time Buyer – finding a good mortgage deal
Buying a first home is exciting, but often seems complicated and stressful. There’s a lot to understand about both owning a property and getting a mortgage. A little research will help you understand what’s involved and how to get an affordable deal.
What is a First Time Buyer mortgage?
The mortgage market separates customers into First Time Buyers and Home Movers. That’s because the process is slightly different depending on whether you’ve had a mortgage before.
Lots of different types of mortgage products sit under the banner of a First Time Buyer mortgage so it’s quite a general term. The different products include interest only mortgages, fixed rate mortgages and variable rate mortgages.
Each kind has pros and cons, and what you choose will depend on your budget and your appetite for risk.
How much can a First Time Buyer borrow?
The first step towards buying a house is to find out how much you can borrow – as this will set the guide price for the homes you view.
Usually, lenders offer around four and a half times your annual income as a total loan. You will also need to save for a deposit of around 10% of the home’s value. The bigger your deposit, the better your mortgage offer. Use a mortgage calculator to explore house prices and monthly mortgage payments.
What is an Agreement in Principle?
If you talk to a bank or building society about a mortgage they might say they can give you an Agreement in Principle (AIP). Sometimes called a Decision in Principle, this is a statement from the lender that, subject to a full mortgage application, they will theoretically lend you a certain amount to buy a home.
An Agreement in Principle gives you credibility with estate agents and property vendors. It shows you are serious and can – in theory – afford the homes you’re viewing. The agreement should be free and often takes just a few minutes. An Agreement in Principle is usually valid for 30 or 90 days.
How much deposit does a First Time Buyer need?
The more money you can put down as a deposit, the more lenders will want you – so they will have more competitive deals for you. The average deposit is around 10%, but some mortgage lenders will accept 5%. If you can get to 15% or 20%, you will get better interest rates and lower monthly payments.
Saving a deposit is always a challenge. You may have heard of Help to Buy ISAs, a government initiative to boost people’s savings. While this scheme is now closed to new applications, the Lifetime ISA is its replacement and also helps you save for a home.
Checking and improving credit scores
The biggest challenge for First Time Buyers comes if you have poor credit. It comes from running into financial trouble in the past – missing credit card or loan payments for example.
You can view your credit score online. Check the details, as sometimes poor scores are the result of an error.
Easy credit score wins are to make sure you’re listed on the electoral roll, always pay your bills on time and stay well within the limits on credit cards. Avoid going overdrawn, and try to stay at the same address for a while.
Bad credit is not necessarily the end of your home ownership dreams. Bad credit mortgages do exist, and you could look at a guarantor mortgage as another route to buy a home.
Help for First Time Buyers
There are a few schemes designed to help First Time Buyers own a home:
Help to Buy – Equity Loan
With this government scheme you can buy a property with just 5% deposit. The government steps in and loans you up to a further 20%, interest free for five years. You then take out a mortgage for the rest of the value.
Help to Buy – Shared Ownership
This scheme supports you in buying a 25% to 75% share of a home, paying rent on the rest. You can increase your share over time.
Right to Buy
If you live in a council or Housing Association property, the Right to Buy scheme helps you buy the home with up to £84,200 discount (£122,300 in London).
How can a Mortgage Broker help First Time Buyers?
First Time Buyers have everything to gain from talking to a mortgage adviser or broker. Brokers are industry experts who can explain the whole process of applying for a mortgage from beginning to end. We act as first time buyer guides: we help you understand each step – from the Agreement in Principle to deposits, mortgage rates, application and the legal work involved.
Speak to us for free advice, if you decide you want us to help you, we charge a mortgage application fee, typically £400. We are authorised and regulated by the Financial Conduct Authority for your peace of mind.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE