First-Time Buyer Mortgage Advice
A mortgage for First-Time Buyers is no different to any other type of mortgage for house purchase, although a more thorough discussion regarding regular budgets and affordability is normally appropriate to ensure that applicants are fully aware of all the ongoing costs associated with home ownership. Regular costs for household utilities, Council Tax, telephones and insurances need to be included in the monthly budget, together with general living costs such as food, housekeeping and essential travel. As there will always tend to be some ongoing additional things that will need paying for, an allowance for any unexpected costs should ideally be made.
By going through all of your income and known regular commitments, our Advisers will then be able to work with you to estimate what is needed for some of the household related costs in order to establish a realistic budget for your mortgage. Applicants who have previously been renting will have some experience of regular household commitments which will form a basis for the budget discussions.
How much deposit do first-time buyers need?
Generally speaking, a deposit of at least 5% of the purchase price will be required, although there may be some exceptions to this in the event that you are buying a property under the market value, possibly with a gifted equity deposit from the vendor who would usually be a family member. A larger deposit will influence the rates of interest and mortgage deals that will be available. Deposit can come from a variety of sources.
Most commonly this will be from personal savings and investments, although in recent years there has been a growing number of borrowers receiving financial help from family by way of gifted deposits. This is normally acceptable to a lender, provided that the funds are not repayable and the donor of the gift will not have any financial interest in the property or be living in the property. Regardless of the amount of deposit you have, the amount of borrowing must still fit within the lender affordability calculations.
How much can first-time buyers borrow?
It is important that an affordable monthly budget is established at the early stage of a discussion to ensure that your expectations can be met. Traditionally a lender used to calculate lending based on a multiple of income. This is no longer the case as individual circumstances are very different when it comes to how people spend their disposable income. A lender will have a specific affordability calculator into which all income and known commitments are entered. Any future unknown costs may be estimated or the lender may assume a figure based on information from the Office of National Statistics. Income used in the calculation can be from employment or self-employment.
Some types of benefits may also be acceptable and these can be clarified by our experts. A detailed analysis of all your income and expenditure by one of our specialists will provide an accurate indication of a maximum mortgage that may be available. However, in some circumstances it may be that this is actually greater than you are comfortable with, once you have established your monthly budget for mortgage and related costs. The amount of deposit may also influence the amount available to borrow, with some lenders applying a “cap” on higher loan to value cases which may be 4 or 4.5 x the income, regardless of the affordability calculation.
What are the mortgage costs for first time buyers?
Mortgage costs for First-Time Buyers are as follows.
- In the first instance you will need a deposit to put down. This usually starts at 5% of the value of the property you are looking to purchase.
- Stamp Duty will be payable if you purchase a property for over £300,000.
- You will also need to pay for a Solicitor or Conveyancer who will take care of all the legal paperwork when purchasing a property.
- Your Solicitor will also collect payments for The Land Registry (For when your property is registered in your name), HMRC (to pay the Stamp Duty), Local Authority and various other third parties (while they carry out the due diligence on the property you are looking to purchase).
- You may also be required to pay for a Survey/ Mortgage Valuation fee.
- And lastly you may also be required to pay for a Mortgage Advisers fee, and depending on your mortgage product any product related fees to the lender.
What Stamp Duty Do First-Time Buyers Have to Pay?
In England and Wales, First-Time Buyers are exempt from paying Stamp Duty on a property they purchase for £300,000 or less. If a First-Time Buyer purchases a property between £300,000 and £500,000 then they will be required to pay the Stamp Duty on the difference of the value above £300,000.
For example if a First-Time Buyer purchases a property for £500,000 then the Stamp Duty will be due on £200,000 at the current rate of 5%. If however, a First-Time Buyer purchases a property for more than £500,000 then they will lose the initial tax relief and pay the Stamp Duty as per the current rates.
What Other Costs are There for First-Time Buyers?
The standard costs for First-Time Buyers are usually a deposit, survey/ mortgage valuation fees, Solicitor costs and Mortgage Broker and mortgage lender fees. On top of these fees, it is important to take into account the costs of actually moving. This can sometimes cost a considerable amount if you need to hire the services of a removal company. Once you move into your new home there can also be costs for redecorating and furnishing a property.
Can I get a mortgage?
When you apply for a mortgage, the lender will make a full assessment of your financial situation. Your income from all sources will be taken into account, together with any regular outgoings and commitments. These commitments will include loans, credit cards, child care and travel costs. It is important that you do not over commit yourself and the lender affordability calculations will take account of potentially higher interest rates in the future.
In addition to assessing affordability, lenders will carry out a check of your credit profile and history. They will also need to establish your address history for at least the last 3 years and would expect that you are registered on the electoral roll at your current address. To support a mortgage application, you will need to provide evidence of your income, usually the latest 3 months payslips if you are employed or tax calculations and accounts if you are self-employed, together with your latest 3 months banks statements, proof of Identification and address. Documentary evidence of your deposit will also be required at the application stage.
What Government Schemes are Available for First-Time Buyers?
There are a number of government schemes available for both saving towards a deposit and assisting with a house purchase.
Help to buy equity loan
With a Help to Buy Equity Loan the Government will lend you up to 20% of the cost of your newly built home. This means that you will only need a 5% cash deposit and a 75% mortgage to make up the balance. With a mortgage of 75% of the property purchase price, you may be eligible for a lower rate of interest. No interest or loan fees are charged on the 20% loan for the first five years of owning your home.
From year six interest is charged at 1.75%. The rate will increase each year at the RPI (Retail Prices Index) measure of inflation, plus 1% until the loan is paid off. The loan can be repaid and the amount payable will be equal to 20% of the value at the time of repayment. It may therefore be advantageous to clear the loan as soon as you are able, either from savings or by way of a remortgage arrangement if your financial circumstances allow for the additional borrowing. If the loan is not repaid earlier, it must be repaid after 25 years. The property purchased must be your only residence.
Help to Buy is not available to Buy to Let Investors or those who will own any property other than their Help to Buy property after completing their purchase. You cannot rent out your existing home and buy a second home through Help to Buy.
London Help to Buy
To reflect the current property prices in London, from February 2016 the Government increased the upper limit for the equity loan it gives new home-buyers within Greater London from 20% to 40%.
You can use Help to Buy Equity Loan to purchase a home worth up to £600,000 in England (or £300,000 in Wales).
Help to Buy Shared Ownership
If you are not able afford the mortgage on 100% of a home, Help to Buy Shared Ownership provides an opportunity to buy a share of your home (between 25% and 75% of the property value) with rent payable on the remaining share. In the future you may be able to buy additional shares of the property when you can afford to.
You can buy a home through Help to Buy Shared Ownership in England if;
- Your household income is £80,000 a year or less outside London, or £90,000 a year or less in London.
- You are a First-Time Buyer, have previously owned your own home but can’t afford to buy one now or you are currently a shared ownership owner looking to move.
With Help to Buy Shared Ownership you can buy a newly built property or an existing one via resale programmes through housing associations. You will need to apply for a mortgage to buy for your share of the property purchase price, or fund this through your savings. Shared Ownership properties are always leasehold.
To buy a home through a Help to Buy: Shared Ownership scheme you will need to contact the Help to Buy agent in the area you want to live.
Help to Buy ISA
The Help to Buy ISA is a savings account designed to assist first-time buyers build up a deposit.
Although you cannot purchase property under the age of 18, from the age of 16 or over you can save up to £1,200 into a Help to Buy ISA in the first month after opening the account. After that, the maximum monthly contribution you can make is £200.
The main attraction of a Help to Buy ISA is that the government tops up any contributions you make into the account by 25%. If you pay £200, the government will top this up to £250. The maximum the government will give you is £3,000, and you’d need to save £12,000 to get this. The returns you’ll receive vary depending on which provider you go to, so it’s worth doing plenty of research to find the best Help to Buy ISA rates.
Funds held in the Help to Buy ISA may be used to buy property costing up to £250,000, or up to £450,000 if you are buying in London.
The Lifetime ISA is available to anyone aged from 18 up to 40, who wants to buy their first home or save for retirement, or both. You can save up to £4,000 into a Lifetime ISA each year, and the government will again top up any contributions you make by 25%.
Savings held in a Lifetime ISA can be used to buy a first home costing up to £450,000 anywhere in the UK.
If you have both a Help to Buy and a Lifetime ISA, you can only use the government bonus from one of these accounts to buy a property.
I am a first-time buyer with poor credit, can I get a mortgage?
Whether you’re a First-Time Buyer with poor credit or already a home owner, the criteria for whether or not you qualify for a mortgage when you have poor credit is usually similar.
Lenders will assess your eligibility based on the ‘hard data’ that is showing on your credit file. Things they will look at to assess an application can range from the number of Late Payments, Defaults or County Court Judgements (CCJ’s) that show on your credit file, as well as how recent or historical this data is. The data is not limited to this as credit files can hold a lot more detailed information.
Other things that they will take into account when assessing your eligibility will be your general financial conduct. This is usually assessed by looking carefully at your personal and/ or business bank statements.
Being a first time buyer with poor credit does not instantly disqualify you from obtaining a mortgage. The assessment process is complex and it will help if your case is presented to a lender in a favourable way. That is why it can be important to speak to an experienced Mortgage Adviser who can help you with the purchase of your first home.
I am a First-Time Buyer with No Credit, Can I Get a Mortgage?
Having no credit as a First-Time Buyer does not mean you cannot get a mortgage. While this will most likely mean you will have a low credit score, it will not rule out your eligibility to obtain a mortgage.
While it can be difficult to instantly change your credit profile if you haven’t had credit in the past, you may already have other parts to your overall profile that can counteract against this in a positive way.
A bigger deposit, being on the electoral roll and a good employment history will be looked at favourably. Our Mortgage Advisers have the experience to assess your profile and give you a good indication whether not you may qualify for a mortgage. They can also inform you to what you can do in the short or long term to put you in a position to obtain a mortgage. Get in touch today to see how they may be able to help you.
Mortgage rates for first time buyers
First-Time Buyers can usually access mortgage rates that are available to all applicants. On top of this lenders sometimes have rates that are exclusively reserved for first time buyers that may also include extra benefits added to them. The benefits can range from free mortgage valuation/ surveys, cash back and in some instances help towards fees.
Speak to one of our experienced advisers at Just Mortgage Brokers to see what rates may be available to you.
Best Mortgage Lenders for First-Time Buyers
The vast majority of lenders are happy to lend to First-Time Buyers. No lenders are specifically set up for solely helping First-Time Buyers. If you have a good credit profile, a large deposit, good employment history with good levels of income and are on the electoral roll then you will always be in with a chance of obtaining a mortgage from some of the best mortgage lenders on the market.
What is a guarantor mortgage
If your income is not enough to achieve the amount of borrowing you need, a mortgage with a Guarantor may be an option. This type of mortgage will be suited ideally to borrowers who are on a career path where the current income is relatively low but is likely to increase substantially in the medium term.
Essentially, a third party is named on the mortgage application as a guarantor and they agree to cover the monthly repayments if you do not maintain them. The Guarantor will not own or have any interest in your property, nor will they be named on the Title Deeds. They are however required to sign a legal document to confirm that they will make your mortgage repayments if you do not.
The mortgage lender may require additional security to be provided by the Guarantor. This could be;
- A Legal Charge against a lump sum interest paying savings account. This may be for an amount equal to the additional lending that has been allowed and it will not be accessible until either the mortgage is affordable based purely on the income of the borrower.
- A Legal Charge against the residential property of the Guarantor. This means that if they do not cover any missed repayments, their own property is at risk of being repossessed in order to recover the debt.
The financial circumstances of the Guarantor will be looked at by the lender to make sure that they are in a position to take on the commitment. They would normally be expected to own their own home and have a good credit history. The income of the Guarantor should be sufficient to cover your monthly payments in addition to their own mortgage and regular spending. It is essential that the potential Guarantor seeks independent legal advice and the solicitor for the lender would expect to see evidence of this.
Mortgage Advice for First Time Buyers
Buying your first home is a time of excitement but also for many it represents a period of anxiety and a step into the unknown. One area of the process that is relevant for nearly all First Time Buyers is that of the mortgage. With what appears to be so many different options available together with a mind boggling amount of terminology it is perhaps no surprise that this is a part of the house buying exercise that many seek help and advice.
Advice can be found from a variety of sources including:
Family and friends – A good source of honest and hands on experience of home ownership. It does however depend on their knowledge of the current mortgage industry to the accuracy of the information being provided.
Internet – A huge amount of information at your fingertips 24 hours, 7 days a week. However, with such a vast amount of information it can be difficult to know where to begin and to determine what is relevant to you and your individual requirements.
Lenders – Fully qualified advice tailored to your individual needs. This could however represent a restricted viewpoint of the market as they only able to advise on what they can offer or do for you.
Mortgage Brokers/Financial Advisers – Fully qualified advice again tailored to your individual needs. However, do check on their access to the market. A broker with unlimited authorisation should be better placed to give a wider view of options than a broker with a restricted panel. There may also be a fee payable.
First Time Buyer Mortgage Advice
At Just Mortgage Brokers, we have access to the vast majority of the mortgage market. Our Mortgage Advisers will always endeavour to find the most suitable First Time Buyer mortgage for you based on your specific circumstance. Call us to see how we can help.