Mortgage guide for first time buyers

First time buyers guide

The first time buyer mortgage market is still strong in the UK, with lenders offering up to 100% loan to value products (depending on property value and if your family are able to help you out), but what does this mean if you are looking to get on the property ladder? 

Buying your first ever home is such an exciting but often daunting thing as there is so much to think about – here is a brief mortgage guide to point you in the right direction and as always, we are here to hold your hand every step of the way

How Much Deposit for a First Time Buyer?

This is a question we regularly get asked. You will need a minimum deposit of at least 5% of the purchase price, to obtain a mortgage with a high street lender. Ultimately the more deposit you have, the better your chance at receiving a lower interest rate on your mortgage.

Your deposit can be accumulated from savings or a gift/inheritance from a close family member. You will just need to be able to provide evidence of where the deposit came from.

Don’t worry if your deposit doesn’t fit the mould though – if there’s a solution, we will find it!

First Time Buyer Schemes

There are a number of different schemes in place to support first-time buyers including your parents being on the mortgage with you to increase buying power plus a number of other mortgages where family members/parents can support you through their own property or savings (kept in their account).  

The most common of schemes that you will have likely heard of though is Help to Buy; they offer two main schemes which can be used to support you purchasing your first home

Help to Buy: Equity Loan

This is available for First Time Buyers purchasing a New Build property.  You need a deposit of at least 5% of the property price and the scheme will provide an additional deposit of 20% (or 40% in London).  This additional deposit is provided as an interest-free loan for 5 years; from the start of year 6, you will start to pay interest.  You must repay the loan on the sale of the property and the amount you repay will be based on the value of your property at the time of the sale.  You can also remortgage your property to repay the loan if you do not want to sell, this is subject to your financial circumstances and the equity in the property at the time you choose to redeem the loan. Again, the amount you repay will be based on the value of your property at the time the loan is redeemed. 

Shared Ownership

This scheme will allow you to purchase a share of a property and then pay rent on the remaining percentage.  Specific properties, both flats, and houses are available through Housing Associations and you can typically purchase between 25% and 75% of the property. In the future, subject to your financial circumstances, you can purchase additional shares in the property, this is called ‘staircasing’.

If you would like to know more about either of these schemes or any other options available do get in touch for a completely fee free mortgage consultation with us.

Check your Credit File

Another useful piece of first-time buyer advice is to check your credit file through one of the credit reference agencies such as Experian, Equifax, or Clear Score as your credit score will have an impact on your ability to borrow.

It’s also worth noting that if you have never taken out credit for anything, you may well find yourself being rejected for a mortgage as you haven’t yet built up a record of credit; mortgage lenders want to see that they can trust you to pay back borrowed money.

Many of our customers have told us that they have boosted their scores by taking out small amounts of well-maintained credit that is repaid each month, such as a credit card which is used for such things as fuel or the food shop.  

Give us a call if you would like to discuss ways to improve your credit score as we have lots of tips to help you.

Provide Evidence of your Income

To make sure you can afford a mortgage, lenders will require evidence of your income and circumstances. The most common evidence requested is your last three months’ payslips and bank statements. For the self-employed, the last two or three years’ accounts will be required. Each lender has different documentation requirements and we will let you know exactly what you need to get together.

Agreement in Principle

Before you start to view properties, contact us for an Agreement in Principle.  This is likely to be required by the estate agent or a new build developer so they know what you can borrow and will put you in a strong position to be able to offer on a property.

Costs to Consider

As well as your deposit you should also consider the other costs associated with purchasing a property: 

Valuation Fees

Some mortgage lenders will charge for a basic mortgage valuation – this valuation simply confirms the property is worth the price you are paying.  The cost of this type of valuation typically starts at £200.

If you are purchasing an older style property which is in a reasonable condition and you would like a more detailed survey of the property, you can instruct a Homebuyers Survey. This will offer guidance on maintenance and repairs that might affect the property at a later date. The starting price is around £400.

The third type of survey is a Full Structural Report.  This is a detailed review of the condition of the property with guidance on defects, repairs, and maintenance required. They typically cost over £1,000 but would only really be necessary if the property you are purchasing needs significant renovation, is in a very bad state of repair, or has an unusual layout.

Mortgage Fees

Broker Fees – as a whole of market mortgage broker we charge a fee of up to £500 for our advice.  We want to ensure that everyone has access to the highest quality financial advice no matter what their circumstances. Part of this fee is payable to obtain an Agreement in Principle; the second part is paid on completion. Any fee paid is a lifetime fee, which means once you have paid this, you will never pay us a penny ever again!

Mortgage Application Fees – depending on the mortgage interest rate recommended you might have to pay an arrangement fee, typically £999, on application.  You can often add this fee to the mortgage rather than pay it upfront.  Adding it to the mortgage will effectively increase your overall mortgage by the amount of the fee and you will pay interest on this amount for the term of the mortgage.

Stamp Duty

As a First Time Buyer, there is no Stamp Duty to pay on properties up to the value of £300,000. If you purchase a property between £300,000 and £500,000, you will pay no Stamp Duty on the first £300,000 and then 5% on the value between £300,001 and £500,000.

Conveyancing Costs

These are your legal costs and will cover land registry and local searches; you should budget around £1,500 – £2,000. 

Removal Costs

You might know someone with a van, or plan to move yourselves, but if you have lots of furniture to move you should also consider the cost of a removal firm.

So, if you need first-time buyer mortgage advice give us a call and one of our advisers will talk you through every step of the process and help you understand how you can take those first steps to becoming a homeowner.

We would love to help you achieve your dream of buying your first home!

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About Key Solutions

Here at Key Solutions we believe taking out a mortgage should be easy. Why shouldn’t it? So when people say buying a home or getting a mortgage is one of the most stressful things ever, we say, come and speak to us.

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