How do first-time buyer mortgages work? – 10 common questions

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Spolton Mortgages

As a First Time Buyer, the thought of buying your own home can be exciting but also confusing.

There’s a massive amount of information available online and from friends and family and not all of it is easy to understand.  Even worse, sometimes you’ll find two completely different answers to the same question.

At Spolton Mortgages we get a real buzz from helping First Time Buyers to get a full understanding of what’s involved in buying a house and even more importantly how to be in a position to get the best mortgage deal.

There are a few steps you can take that can help you get the best possible mortgage that could save you Hundreds and Potentially Thousands of Pounds in the long run.

By talking to a professional Mortgage Adviser, even if you’re not thinking about buying your first home for another year or more, you’ll be able to plan a few simple and often free steps to be in the best possible position.

10 Questions that First Time Buyers ask the most


What are first-time buyer mortgages?

Many lenders offer mortgages specifically designed for first-time buyers.

There are lots of different lenders to choose from and some lenders might not lend to you.  It’s important to check that you qualify for the mortgage you need before looking for your first home and your Adviser can help you with this by getting your mortgage approved in principle.

A Mortgage Agreement in Principle will be required from most Estate Agents before they will accept an offer on a property.

There are lots of different interest rate options and here is a guide to some of the most popular interest rate options.

Standard Variable Rate Mortgage

This is a standard interest rate, which a lender will set and can go up and down in line with market rates (such as the Bank of England’s base rate)

With a Standard Variable Rate, you have more flexibility and can usually repay your mortgage without any early repayment charges but your monthly payments can go up and down which makes budgeting difficult.  Standard Variable Rate Mortgages are not usually the lowest rate that lenders offer.

Discounted Rate Mortgage

On a Discounted Rate mortgage the initial interest rate is set at an amount below their Standard Variable Rate (SVR) for a set period of time. 

With a Discounted Rate Mortgage, your payments should cost you less in the early years but your monthly payments can go up and down which makes budgeting difficult and if you want to repay the mortgage early there may be early repayment charges.

At the end of the discounted period, the lender will usually change your interest rate to their SVR and it’s a good idea to review your mortgage then as their SVR may not be the best deal available.

Fixed-Rate Mortgage

With a Fixed Rate mortgage, your monthly payments won’t change for a set period and it’s often possible to find rates that are fixed for 2 years, 3 Years, 5 Years and sometimes even longer.

Fixed-Rate mortgages mean that you know exactly what you will be repaying each month, during the fixed-rate period (even if other interest rates increase), which makes budgeting easier but your payments will remain the same even if other rates go down and if you want to pay the mortgage off early.

At the end of the fixed-rate period, the lender will usually change your interest rate to their SVR and it’s a good idea to review your mortgage then as their SVR may not be the best deal available.

Tracker Mortgage

With a Tracker Mortgage, the interest rate is linked to a rate such as the Bank of England base rate.  If interest rates fall then you could benefit from a reduced monthly payment but your payments can go up and down which makes budgeting difficult, there may be a collar to the rate which means that your rate cannot go below a certain level and there may be early repayment charges if you want to pay the mortgage off early.

First-time buyer what can I borrow?

How much you can borrow depends on

  • Your income, outgoings and any expected changes to these
  • Your credit history
  • Whether you’re able to make any changes to your lifestyle that may reduce outgoings
  • How much deposit you can afford

You’ll need to find out how much you can borrow before making an offer on a property.

By sitting down with your Adviser you will be able to find out how much you can borrow and how much this will cost you in terms of repayments so you can organise your budget. 

Your adviser can arrange an Agreement in Principle for you.  This will help you to know what’s the maximum amount you can offer for a property. 

Some lenders will give you an Agreement in Principle Certificate that you can show to Estate Agents so they know you have the finances available when making an offer to buy a property.

When lenders are working out how much you can borrow they will usually take your basic pay and some of the overtime, bonuses and other income you earn.

As a first-time homebuyer, can I afford it?

Choosing a longer term for your mortgage will reduce the monthly payments and lots of lenders will offer terms of between 5 and 40 years.

It’s important to remember that by taking the mortgage over a longer-term means that the overall interest you’ll pay will be higher.

Your Mortgage Adviser will recommend a term and it’s always best to choose the shortest term you can afford to keep the overall cost down.

It’s also worth checking, if you choose a longer-term, that the mortgage you choose will allow you to make over-payments when you have extra money available as this is also a good way to reduce the total amount you will payback.

You’ll also want to think about the extra costs you will have when you own a home and doing a budget planner with your Adviser will help you to work out what you can afford.

Your Adviser will also make sure you understand the costs of buying a home for things like any Arrangement Fees, Solicitors and Surveys etc.

First-time buyers with no deposit?

It is possible to get a mortgage with as little as a 5% deposit.  For example, if you’re looking to buy a home for £150,000 then you’ll need a minimum of £7,500 deposit.

Lenders like to see that you’ve been able to save this deposit from your own income but, if you’ve not been able to save, it is possible to apply for a mortgage using a deposit that has been gifted from your family.  This would need to be a non-repayable gift and your Adviser will be able to advise you on this in more detail.

Very simply, the bigger the deposit the better.

If you are able to make a deposit of 10% or more then it is very likely that you will be able to get a cheaper rate of interest on a mortgage meaning that the overall cost and monthly payments would be lower.

Remember, in addition to your deposit there will be other things to pay for such as Arrangement Fees, Solicitors and Surveys.

First-time buyer ISA scheme?

Since 1st December 2019, it’s no longer been possible to open a new Help to Buy ISA.

If you already have a Help to Buy ISA, opened on or before 30th November 2019, then you can continue saving into that account until November 2029 and you will continue to qualify to claim the bonus on those savings.

Whilst you can’t open a new Help to Buy ISA you can still open and save into a Lifetime ISA and potentially claim a bonus to help you buy your first home or save for later life.

Features of a Lifetime ISA

You can open one if you are over 18 and under 40

You can save up to £4000 per year into the account

The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year

You can use your savings to help you buy your first home if all the following apply:

  • the property costs £450,000 or less
  • you buy the property at least 12 months after you open the Lifetime ISA
  • you use a conveyancer or solicitor to act for you in the purchase – the ISA provider will pay the funds directly to them
  • you’re buying with a mortgage

Can first time buyers get help to buy?

The Government Help to Buy Equity Loan Scheme is available to First Time Buyers

The scheme is only available to help buy a newly built property.

You need to have at least a 5% deposit available to apply for the scheme and subject to approval, the Government will lend you up to 20% of the cost of a newly built property.

With a 5% deposit and a 20% loan from the Government, you would then need a 75% mortgage.

To find out more about how this scheme works then visit https://www.helptobuy.gov.uk/equity-loan/equity-loans/ 

It’s important to remember that whilst there are no interest charges for the first five years, after the first 5 years there will be a monthly cost that you would need to budget for and if the value of the property goes up the amount of the loan will increase.  There are also costs associated with repaying the loan.

Do first-time buyers have to pay stamp duty?

The great news is that, as a first-time buyer, provided you are paying no more than £300,000 for your first home then there’s no stamp duty to pay.

You might see this referred to as Stamp Duty Land Tax or SDLT.  In Scotland, instead of stamp duty, you’ll pay the Land and Buildings Transaction Tax (LBTT), while in Wales it’s the Land Transaction Tax (LTT).

Not having to pay Stamp Duty is a real big saving for First Time Buyers.  If you’ve owned a property previously, anywhere in the world, and that property was worth more than £40,000 then you’ll need to pay Stamp Duty.

You can find out more about Stamp Duty Land Tax, and work out how much it will costs, here https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#/intro

First-time buyers with bad credit?

If you’re not sure about your credit rating then it’s a good idea to use one of the free services available online to get a copy of your credit file.

There are lots of things you can do to improve your credit rating and the earlier you start the better.

It might seem an obvious thing to say but making sure that you manage the money you have carefully and making sure the payments you have due are paid on time is the single most important thing but there’s also a few things you can do that will also help.

Here are a few things that are important and a few myths answered,

  • You don’t have to have lots of credit to have a good credit rating
  • Registering to vote at the address where you live is really important
  • Make sure everything is registered to one address, where you live, like mobile phone contracts, car insurance, bank accounts, storecards and any other credit agreements
  • Using a small proportion of any available credit card and overdraft limit and where possible pay off the balance in full each month or at least reduce the balance over time.

Most lenders will consider your application for a mortgage even if you’ve had a bit of a financial hiccup.  It’s important to sit down with your adviser as soon as possible to go through your credit file to get a clear understanding of which lenders that may be available to you.

First-time buyer process?

So, you’ve got your deposit together and decided it’s time to buy your own home.

What do you need to do now?

  1. Meet your Mortgage Adviser to find out how much you can borrow and how much it will cost
  2. Your Mortgage Adviser will get you an agreement in principle so you know what’s the maximum property value you can afford
  3. Start the Search for the home you’d like to buy
  4. Make an Offer on the property you’d like to buy. If your not comfortable doing this then your Mortgage Adviser can often help to do this for you
  5. Apply for your Mortgage. At this stage, you’ll need to decide on whether you want an additional survey on the property to make sure you’re aware of any potential problems with the building
  6. Appoint your solicitor who will be doing all of the legal work for you
  7. When your mortgage application has been fully approved you will get your Mortgage Offer
  8. Exchange Contracts. At this point, you will pay your deposit and the solicitors bill for the work they’ve done for you. From this point onwards neither you nor the seller can pull out and you need to make sure that you have the Building Insured from this day.
  9. Completion Day – when you pick up the keys to your new home. The day you’ve been waiting for!
  10. Budgeting for your first payment. It may be a month or more before you make your first months payment and this payment will usually be higher than a normal month. Each lender is different so it’s a good idea to check with your adviser when your payment will be and how much it will be. This can help you to budget to make sure you don’t get into difficulties right from the start.

First Time Buyer Mortgage Advice?

It’s important to choose an adviser that you feel comfortable with.

Spolton Mortgages are specialists in First Time Buyer advice but don’t take our word for it.

Visit our homepage here, https://spolton.mortgage/ to read what our clients have said about us and if you like what you read then please feel free to contact us.

Spolton Mortgages, 7-8 Market Place, Sleaford, NG34 7SH

01529 300500, 07899 666072, nick@spolton.mortgage

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