First-Time Buyer Mortgage Guide

As a first-time buyer keen to get onto the property ladder, you’re aware of the bigger steps you need to take on your home-buying journey. However, you might not yet fully understand the nuances of the process of applying for a mortgage, such as which government initiatives are available to you. Within this guide, we aim to provide you with all of the core information you need to get the right mortgage for your first home.

What is a first-time buyer?

Before we get into the details of mortgages, it’s important to outline what a first-time buyer actually is from a legal perspective. You are classed as a first-time buyer if:

• You have never owned a residential property before.
• You only own, or have owned, a commercial property with no living space attached.

You would not be a first-time buyer if:

• You’re buying a property with someone who owns, or has previously owned, a house.
• You’ve inherited a property. 
• Your property is being bought by somebody else for you, such as a guardian. 

What is a mortgage?

A mortgage is a type of loan used to help in purchasing a property. You usually pay back the loan every month with interest over a set period such as 25 years. If you fail to repay a mortgage, the lender has the right to take your property. You can have a longer mortgage term, but this will result in you paying more interest overall.

Work out how much you can borrow

Your mortgage provider works out how much you can afford to pay back each month based on factors such as your credit rating, salary and outgoings. You may want to look at ways to improve your chances of getting a mortgage in preparation for this moment, for example increasing your credit rating. 

Create a budget

Only borrow what you can afford to repay, and make sure to keep some money aside for unexpected expenses. You should create a budget going into buying a house, where you should determine how much money you need each month to live on top of your mortgage. You should factor in:

• Bills such as gas and electricity.
• Food shopping. 
• Monthly payments on mobile phone contracts, broadband or entertainment platforms.
• Transport, e.g. petrol or public transport.
• Childcare and pet costs if applicable. 
• Home and life insurance. 

How to apply for a mortgage

You can speak to a mortgage provider to determine how much money you can borrow. They will conduct an assessment based on your financial and personal information, which will result in a Mortgage in Principle (MiP), also known as an Agreement in Principle (AiP). A MiP/AiP gives you a clear idea of your budget and can also reassure sellers that you’re in a strong buying position.

You can only apply for a mortgage once you have found a property and agreed on the purchase price. The MiP lets you know the maximum price you can afford to pay which you should have from a lender before starting your search for a property. There is nothing worse than falling in love with a property and finding out you can’t quite borrow enough. Once the sale is agreed, the mortgage application can be submitted and it is normally within 2 to 6 weeks until you receive your Mortgage Offer, which is effectively a promise to lend you the money needed so you can buy your chosen property. 

Types of mortgages

When you begin to look at mortgages, you’ll notice there are different types available to you which will impact your monthly payments. The choice you make for your mortgage is dependent on your individual situation. 

Fixed-rate mortgages

A fixed-rate mortgage is a set rate for a certain amount of time, between two to five years commonly. 

Tracker mortgages

A tracker mortgage is based on the Bank of England’s base rate, meaning that the interest you pay could fluctuate over time. 

Standard variable rate mortgages (SVRs)

Although this tends to follow the Bank of England’s base rate, this option can mean the lender has a right to set whatever level they choose. 

Choose your mortgage with an Independent Financial Advisor

To find out more about the options available to you, you may benefit from speaking directly to a lender or an Independent Financial Advisor (IFA) who specialises in mortgages. Going direct to a lender will only let you know which mortgage rates they are able to offer you, whereas an IFA is likely to have up-to-date knowledge of the best deals available across the whole market and of those which would fit your personal circumstances.

Before choosing an IFA, it is always worth checking that they are registered with the Financial Conduct Authority.

When deciding whether to get in contact with an IFA, you may want to consider the fees you would be charged. In most cases, an IFA will charge you an arrangement fee, however by having access to more of the mortgage market they can take the hassle out of finding you the best deal. Having access to this information should save you more money overall and can also save you the hassle of all the paperwork which can be daunting.

 If you have the time to scour all the lenders’ websites for the best rates you could cut out the IFA entirely. Something to consider, with this approach, you are less likely to know if the lender you have chosen will accept you for the rate you’ve found. In contrast, this is something a broker would likely know as they are required to go through your finances in detail and having placed many mortgages, will better know which lenders are likely to approve your application. This means if an IFA submits an application on your behalf, there is normally a greater degree of success. 

Government help for first-time buyers

The government supports first-time buyers with a range of schemes that could reduce the amount of money you spend on a new home, such as:

Lifetime ISA

For adults ages 18-39, the Lifetime ISA is an option for saving money for your first home. Money saved in this kind of bank account is topped up with a 25% bonus by the government. One important stipulation for the account is that you can save a maximum of £4,000 each year, meaning the government will add up to a maximum of £1,000 per year.  

Shared ownership

If you are struggling to borrow enough to purchase a home outright, you may want to consider shared ownership. If you are applicable, this would mean you would only need to secure a mortgage for the percentage share you can afford. This figure starts from as low as 10% to as high as 75%.  For example, you could buy a 50% share of a house with the housing association owning the rest. This means you would only need to secure a mortgage for half the 100% value, and you would pay a subsidised rent on the remaining share you don’t own. This method allows buyers to secure a mortgage with a smaller deposit, and as time passes you are able to buy more shares, known as ‘staircasing’. The more shares you own, the less rent you pay up until you own 100% at which point you will own the property outright and no longer have any rent to pay. 

Buy your first home at County Town Homes

If you’re feeling more comfortable with mortgages and are on the search for your first property, check out our outstanding new-build developments in the Shropshire and Staffordshire regions. 

For more help and advice information on buying your first home, check out our blog where we have helpful tools such as the Guide to First Time Buyer Stamp Duty and our House Viewing Checklist.