A guide to First Time Buyer mortgages
Buying your first home feels like an enormous step and you might feel that there is a lot to learn. Not only do you need to learn about owning a property, but you also need to understand mortgages too.
Mortgage customers are often described as either First Time Buyers or Home Movers. It’s because there are a few differences in getting a mortgage deal if you already own a property.
There isn’t a specific mortgage product for First Time Buyers. All kinds of loans are available to you, from interest only mortgages and fixed rate mortgages to variable rate mortgages.
The type of mortgage you go for will depend on your personal financial situation and the property you are looking to buy.
What is an Agreement in Principle?
One of the first things you might be asked as a First Time Buyer – when you speak to an estate agent, for example, is whether you have an Agreement in Principle (AIP)
This is a statement from a bank or building society to say that they will lend you a certain amount to buy a home. A credit check will be done together with an assessment of your income and a provisional agreement to lend (subject to a few documents at application stage) provided. It’s not legally binding – you will have to go through a full application to get a formal mortgage offer.
Nevertheless, an Agreement in Principle makes you a credible customer. It confirms that you can afford the homes you’re asking to view. Sometimes also called a Decision in Principle, a lender will usually give you an agreement free of charge. They are usually valid for 30, 60 or 90 days.
How much can First Time Buyers borrow?
Most lenders will give you around four and a half times your annual income to buy a property, provided you also have a deposit. They will normally expect around 10% of the property’s value as a downpayment.
Some banks will consider advancing up to five times your income depending on the amount of income and deposit available.
It’s important that you work out what your monthly mortgage payments will be and that you can comfortably afford them. Use a mortgage calculator to explore how much the likely costs will be. You can also explore different mortgage terms. The norm is 25 years but some lenders will stretch to 30, 35 and even 40 years.
How much deposit will I need as a First Time Buyer?
Saving up for a deposit is crucial to getting a mortgage. The more you can contribute as a deposit, the more attractive you become to lenders – which means they will offer you more competitive rates.
The average deposit is around 10%, but some lenders will accept 5%. But if you can stretch to 15% or 20%, mortgage companies will give you better interest rates – which means lower monthly payments.
How do I check my credit score?
An important step in any mortgage application is for lenders to check your credit score. This is a record of your past activity with financial providers. If you have previously run into financial troubles, such as missing credit card or loan payments, you could have a lower score and this could impact on a lenders decision to lend, restrict borrowing or percentage they are prepared to lend..
Your credit score is available online – you can check with Experian, Equifax or Credit Karma. Quick ways to improve your credit score include getting listed on the electoral roll, always paying bills on time, and staying within your credit card limits.
Neither Purely Financial Planning Limited nor PRIMIS Mortgage Network is responsible for the accuracy of the information contained within the linked site.
Having a poor credit history is not necessarily the end of your ambitions to get on the property ladder. There are mortgages open to those with poor credit ratings, however, they usually cost more as interest rates are higher.
Is there any help for First Time Buyers?
The government has created various schemes to help First Time Buyers purchase a home:
Help to Buy – Equity Loan
This program enables you to buy a property with just a 5% deposit. The government contributes up to 20% (40% in London boroughs) as an interest free loan for five years. You need to get a mortgage to cover the rest of the value.
Help to Buy – Shared Ownership
Shared Ownership is a scheme where you buy a 25% to 75% share in a property and pay rent on the remainder. You can buy a greater share of the property over time, this is called staircasing.
Right to Buy
The Right to Buy scheme helps you buy a council or Housing Association home with a discount. It gives you a maximum of £84,200 off the property value (£122,300 in London).
Stamp duty, the tax on house purchases, is not payable on homes up to a certain value. This is also designed to support First Time Buyers.
Can a Purely Financial Planning Mortgage Broker help First Time Buyers?
A Mortgage Broker can help take away some of the stress for First Time Buyers. Brokers have vast experience in helping people find an affordable, good value mortgage. They will search the market for the best rates and then compare those that are closely matched for the lowest fees and free valuations….giving you the very best overall cost over the term of the loan.
Our mortgage advisers will get to know you and will guide you through everything – from finding suitable lenders and competitive mortgage rates to applying for a mortgage that will suit you.
Our initial advice and research is always without charge – we would only make a small administrative charge (detailed in ‘our fees’ within the About Us section of our website), so let us act as your First Time Buyer guides.
A mortgage is a loan secured against your home.
Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.