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?
Typically, a First Time Buyer is someone who’s never owned a residential property anywhere in the world. A handful of lenders still offer the benefits of being a First Time Buyer if you haven’t owned a property for a few years, but as a rule of thumb, it’s someone who’s never owned a property before.
What is the maximum amount that can be borrowed for a mortgage as a First Time Buyer?
It depends on what you’re trying to buy and how much deposit you’ve got. A 95% Loan to Value ratio is possible for houses, so that would mean a 5% deposit. Some lenders even do these on flats. But ideally, the bigger the deposit the better.
You’re probably at about four and a half times your income, in terms of the amount you can borrow. But again, some lenders offer a little bit more – everything is done on an individual basis.
What’s the minimum deposit required for a First Time Buyer?
Typically, the minimum deposit is 5%. It will vary based on whether you’re buying a house or a flat and whether it’s a new build or not. Although certain requirements come into play, there are also a number of schemes where you can buy with as little as 1% deposit.
There is even one lender where you have zero deposit [podcast recorded in August 2024]. Brokers like ourselves will be able to help and advise, depending on your scenario.
What are the types of interest rates available on a mortgage for a First Time Buyer?
Interest rates can depend on the size of the deposit. If you’ve got a larger deposit, interest rates tend to be a little lower. But if you’ve got a smaller deposit of, say, 5%, you’re going to have a higher interest rate.
Again, it depends how long you fix your mortgage for, and whether you have a two-year or three-year or five-year product – that will reflect the interest rate as well.
What are the pros and cons of fixed versus variable interest rate mortgages for First Time Buyers?
Fixed rates are really good for someone who wants to budget and know exactly what they’re going to pay for a period of time. Typically you would get a two-year, three-year or five-year fixed rate.
Sometimes you will get slightly higher mortgage rates on a five-year fixed rate as opposed to a two-year or a variable rate. On the flip side of that, especially in the current climate where rates are changing quite frequently, people who are a little bit more open to risk might prefer to have a variable rate. This means their rates could go up or down.
Obviously they potentially benefit if rates do drop in the near future. There are also benefits in that early repayment charges usually don’t apply if you’re on a variable rate, while they can be a factor when you’re tied into a fixed deal.
What government schemes are available to help First Time Buyers?
Initially we had the Help to Buy scheme, which was very popular and successful, but that has come to an end. We can hope that something similar will come back in the future. A similar option is the First Home scheme, and there’s also the Lifetime ISA to help you save, and the government tops that up.
There’s also shared ownership, and we have helped with quite a few of these. With the option for lower deposits now, you’ll potentially have no deposit at all or as little as 1% deposit.
More lenders want to support people in getting on the property ladder, whether that’s through shared ownership or just a much lower deposit than has typically been required [podcast recorded in August 2024].
What documents do I need for a mortgage as a First Time Buyer?
Typically you’d need a form of identification. We would also normally ask for three months’ pay slips and three months’ bank statements. Perhaps you’ve just started a new job or you’re only one month into a new role, but some lenders will take a view on this if you supply a copy of your contract.
We would always seek a copy of your credit report, to make sure everything’s in order and we’ve got all the accurate figures on any finance outstanding.
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What are the steps to follow when applying for a mortgage as a First Time Buyer?
It can be a long process, and it can be stressful – but we like to make it as easy as possible for First Time Buyers and hold their hand through the whole process. To start off with, we would do a Decision in Principle.
That in itself can be difficult, because some people ask for an Agreement in Principle, some for a Mortgage in Principle – but they are all exactly the same document. That’s something that we can do, no problem. It confirms that a lender would be happy to lend a certain amount. Nothing is guaranteed until a full application is done, but it gives you an indication of the loan amount.
Once you find a property, we then do the full application. The solicitors become involved and we get the mortgage offer – we will manage the whole process for you. The process can take anything from a few days to a few weeks, but we’re here to explain every step.
What are the most common mistakes to avoid when applying for a mortgage as a First Time Buyer?
A lot of people assume that going direct to their bank is the right thing for them on affordability. But that often leads clients to end up being disappointed, if the lending isn’t as much as they hoped or the rate’s not as good.
A broker has access to much more than your existing bank. We can search through all the competitors to make sure you are getting the right deal.
It’s also important to look at your credit report and make sure there are no blips. We will prevent you from applying to banks who won’t lend to you. We would often know that in advance.
Preparation is key. Find someone who can go through all of the finer details for you and take you to the right lender, first time.
What happens if I miss a mortgage payment as a First Time Buyer?
It’s not the end of the world, but ideally it needs to be addressed straight away. I would recommend you call up your mortgage lender to explain and pay the outstanding amount. Hopefully if it’s only a day or two, it’s probably okay.
If it’s more than a month, it may show on your credit score – and your credit is key in getting mortgages in the future. One missed payment might not be too bad, but if you miss two or three, that will impact your credit score for the future and potentially be an issue when you come to remortgage.
If you have perhaps overpaid on your mortgage in the past, you could remind the mortgage lender that you have some extra money in the pot that they could pull from, rather than class it as a missed payment.
It’s always recommended to give that lender a call, discuss it with them and get it sorted as soon as possible.
Can I qualify for a mortgage as a First Time Buyer with bad credit?
Yes. You would still fall into the First Time Buyer category, and it may mean you need more deposit. But if you’ve got some adverse credit blips, depending on how bad it is, some lenders will still consider it. They just may need a slightly larger deposit of perhaps 15%, but we will still have lots of options for you.
Can I get a Buy to Let mortgage as a First Time Buyer?
Yes, it is possible. It’s a little bit more difficult because most lenders state immediately that you have to be an owner-occupier for a Buy to Let property, which a First Time Buyer won’t be.
But there are lenders that accept First Time Buyers, as long as there is good reasoning behind it. I’ve done quite a few where clients live in accommodation from work. They don’t need to buy a residential property, but they want to get on the property ladder.
Other clients are quite happy living at home, but they want to get on the property ladder or start a property portfolio. It is possible – but you do need a minimum 25% deposit. Depending on what the rental income ratio is, you could even need substantially more than that for a Buy to Let.
How can a mortgage broker help me with my First Time Buyer mortgage application?
Hopefully, from these questions you can get a sense of the expertise you’re going to gain from having someone on your side. We explain the process from start to finish and can really hold your hand throughout. That’s definitely a huge plus.
We can also help with recommending a solicitor, finding associated insurances such as life insurance, income protection and building insurance. There’s a lot more to it than just getting the right rate on your mortgage.
We guide you through the process, maximise your affordability and seek out the right rate on your mortgage, but we also help with all the paperwork and any challenges that come after securing the Agreement in Principle.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
MOST BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
