Mortgages for First Time Buyers
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.
FIRST TIME BUYER MORTGAGE ADVICE
As a potential first time buyer, you will probably have a lot of questions and concerns regarding the whole property buying process and need to borrow money by way of a mortgage to enable the purchase to take place.
By having an initial discussion with one of our team, we can answer your questions and guide you through the process to make sure you can move forward with confidence.
WHAT ARE THE BENEFITS OF USING A MORTAGE BROKER IF I AM A FIRST TIME BUYER?
As a first time buyer, no doubt with many questions and possibly a limited understanding of the whole house purchase process, a discussion with a suitably qualified mortgage broker may prove invaluable.
You will be guided through the purchase process, where the adviser will make sure you understand some of the key points including;
Once the mortgage broker has a full understanding of your current circumstances and objectives, he or she will be in an ideal position to research the marketplace and select a suitable mortgage lender and rate to match your needs.
Following on from the completion of the purchase, the broker will make contact with you before your mortgage rate finishes, to review your circumstances and assist with finding another good deal, either with your existing lender of by moving to a new lender.
DOES A MORTGAGE BROKER OBTAIN EXCLUSIVE RATES FOR FIRST TIME BUYERS?
In addition to having access to lenders, deals and rate from the mainstream and high street lender, it is highly likely that some exclusive rates and terms may be available through a mortgage broker. Membership of a variety of professional mortgage networks or mortgage clubs will from time to time attract rates or scheme terms (for example, lower arrangement fees or fees assistance) from lenders which are not available elsewhere. This is possible because of the volumes of business provided to the lenders by intermediaries.
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.
MORTGAGE CALCULATOR FOR FIRST TIME BUYERS
Buying your first home is usually a very exciting time however it can also be a time of great uncertainty and anxiety. With so much to find out and learn it can feel like you just simply have no idea where to begin. For many there is the need to arrange a mortgage and this in itself comes with many unknowns such as:
- How much can I borrow?
- How much will it cost?
- How will my payments change if interest rates go up or down in the future?
- How does a longer or shorter term affect my monthly payments?
Other questions you may look to find answers for are:
- How much will I have to pay for Stamp Duty?
- What other costs are involved and how much are these?
- I have a history of bad credit, what chance do I have of getting a mortgage?
- What interest rates are available?
The list of possible questions can seem endless and indeed will vary from one person’s requirement to the next but most if not all of these answers can be found on our website. Many questions you have can be answered using some of the numerous first time buyer calculators where you can input your specific details to find out the information that relates to your circumstances. Of course, if you are unable to find the answers here or anywhere else, or simply do not have the time, please drop us a line at Just Mortgage Brokers and one of our friendly qualified advisers will be on hand to help you.
HOW DO LENDERS WORK OUT AFFORDIABILITY FOR FIRST TIME BUYERS?
One of the more common questions a first time buyer wishes to know the answer to is “how much can I borrow?” Understandably so, as this will for many be the dictating force for the possible purchase price they can go up to. So how is this established?
Historically, the amount an applicant could borrow would be calculated as an income multiple i.e. income would be looked at as a whole and then as an example a multiple of 4x may then be applied. Therefore, any applicants earning the same or with the same financial picture when any commitments such as loan payments etc are taken into consideration, would be able to borrow the same. A sole applicant earning £40,000 per annum with no credit commitments would therefore be looking at a potential maximum mortgage of 40 x 4 = £160,000.
However following changes in the market back in 2014, lenders amended their assessment of loan amounts to be based on an affordability model. Although income is still very much a deciding factor, many other elements are now also taken into consideration. Some of these being:
- An applicant’s age i.e. how long can the loan be taken over?
- How much deposit or amount of equity is there?
- Number of dependants
- Outstanding credit commitments
- Childcare costs
- Pension contributions and other salary deductions
- Council tax
- Travel costs
- Ground rent and/or maintenance payments where applicable i.e. leasehold properties
Although the list above is not exhaustive and different lenders apply different rules around their calculations, it does go to show that when calculating what you may be able to borrow it is now much more in-depth than that of historic criteria.
As mentioned above, all lenders adapt their own individual ways of calculating affordability however it is in common that a lender will differentiate between a first time buyer and a home mover, although, at the time of writing there are some who will limit how much a first time buyer can borrow when compared to a home mover. It is also very rare that a lender will exceed that as calculated using the income multiple method of 5x income regardless of how much you may be able to “afford”.
All lenders will invariably have a calculator that you can use on their website to establish what this number is with them. However even these are not always reliable as some are not as in-depth as that used when you actually apply and therefore can be very misleading. Our advice is to speak to an adviser who works for the lender with the specific mortgage you are interested in to ensure they carry out the correct calculations before you make any commitment. Or, alternatively, speak to an unlimited mortgage broker such as us here at Just Mortgage Brokers where we have access to the lenders’ full calculators and can make all these necessary checks for you.
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.
CAN I GET A FIRST TIME BUYER 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.
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.
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 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.
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.
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 are only able to advise on what they can offer or do for you.
Mortgage Advisers – Fully qualified advice again tailored to your individual needs. However, do check on their access to the market. A broker with access to a wider range of lenders will be able to offer more options than a broker who is tied to a particular bank. There may also be a fee payable.
First Time Buyer Mortgage Advice
At Just Mortgage Brokers, we have access to over 12.000 mortgage products from over 90 lenders. 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.