First Time Buyers

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First Time Buyers

First Time Buyers

Kathryn Haycock explains the mortgage process for First Time Buyers.

What is a First Time Buyer mortgage? 

A First Time Buyer mortgage is specifically for a person who’s never bought a property before. They’re buying their first house – either a brand new house or a secondhand property. 

Some lenders class people as a First Time Buyer if they haven’t owned a property for three or more years. You might have owned a property in the past and then been renting or living with family for that time – in which case some lenders would class you as a First Time Buyer. 

What are the steps to follow when applying for a mortgage as a First Time Buyer?

Generally we would arrange an initial chat to get to know you. We would go through your income and expenditure, see what would be comfortable on an affordability basis and we’d look at your credit history. 

Once you’re in a position to get the ball rolling and start viewing properties, we would obtain an Agreement in Principle – that’s a short application form where, once approved, you’re in a position to put an offer in on a property.

What are the typical requirements to apply for a mortgage as a First Time Buyer? 

It’s pretty standard. Generally it’s three months’ payslips, bank statements and proof of deposit – but it’s all dependent on each lender and the amount of deposit that you have. 

What documents do I need to get pre-approved for a mortgage as a First Time Buyer? 

It’s the same documents – payslips to confirm the income for affordability purposes, and bank statements. That’s how we would get our income and expenditure form completed to see what the budget could be. We then look to get approval for a mortgage.

What is the maximum amount that can be borrowed for a mortgage as a First Time Buyer?

Again, it’s based on your income and expenditure. Whether it’s one customer or a joint application, the more income you have, the more you can borrow. We’ve also got to factor in any credit commitments you have, whether these be credit cards, loans or car finance. The more you owe, the less you can borrow.

What’s the minimum deposit required for a First Time Buyer?

There is actually a scheme available at the moment for a 100% mortgage for First Time Buyers – you don’t actually need a deposit for that one. It’s for people who are currently renting. 

Because rent’s quite high at the moment, people might be struggling to get a deposit together. But if you can prove you’ve paid the rent for the last 12 months and kept up with those payments, plus you have a good credit history, potentially you could buy with zero deposit. Generally, across the board it’s a minimum of 5% otherwise.

What are the types of interest rates available on mortgages for First Time Buyers? 

Different interest rates are available and there are different types of deals you can go for. It depends on the amount of deposit you’ve got. The more deposit you have, the lower the interest rate. If you go in with a 5% deposit, it’s classed as high risk lending, so interest rates are higher at that level. 

As with all different types of mortgages for First Time Buyers, you do have the same options in terms of whether you want to fix the mortgage. Fixed interest rates can be for two years, three or five years. 

You’ve also got tracker rates – these are more risky as they track the Bank of England base rate. It’s not fixed, so it goes up and down. It depends on the customer and what level of risk they’d be willing to take. 

These are the things we would ask about in our initial appointment with you to get an understanding of what you would be comfortable with.

What are the pros and cons of fixed versus variable interest rate mortgages for First Time Buyers?

Obviously your fixed rate mortgage offers you security – in what you’re paying each month for that fixed term. If you go for a two-year fixed deal, your monthly payments will be the same for the two years. If you go for a five-year deal, you secure that rate for 5 years which gives you absolute peace of mind. 

The market at the minute is a little bit crazy [podcast recorded in September 2023] and although the five-year deals at the moment are cheaper, most of our clients are still opting for the two-year deals, in the hope that interest rates are going to come down. 

But variable rates or tracker rates are not fixed, so they do have a higher level of risk involved. A tracker rate tracks the Bank of England base rate. So if the base rate goes up, which it has done 15 times so far, people on a tracker mortgage will see their mortgage payment increase every time. 

A variable rate is what you go on to once your fixed rate has ended. Every lender has a variable rate and it’s generally higher than the fixed rate. So there’s no real reason why you should jump onto a variable and stay there. There are definitely cheaper fixed rates available. 

Variable rates aren’t determined by the base rate, but if the base rate goes up there is a chance that the lenders could readjust their variable rate. So once you come off your fixed rate, the variable rate will be higher. There’s also that risk that it could go up. 

I would always recommend speaking to a broker at least six months before your deal is due to end. We can more than likely get you a better deal than the variable rates on offer.

What government schemes are available to help First Time Buyers?

These have changed recently. We used to have the Help to Buy scheme – that was a great one but has finished unfortunately. 

Now there is the First Home scheme, generally only available on new build properties for First Time Buyers. It offers a discount of 30% to 50% off the property value. There are some criteria with this scheme and you would be probably better speaking to your local council to see if there’s a new build site in the area where you’re looking at purchasing. 

There’s also a Discount to Market Value scheme which is very similar. You’re getting a discount on the full purchase price of the property, generally on new builds only. 

There is also Shared Ownership where you buy a percentage of a property. A housing association will own that property and you can buy as little as 10% of the property and pay rent on the other 90%. You can generally scale up to purchase 100% of the property over time. That’s great if you’re on a low income but your earning potential is likely to increase over the years.

What are the most common mistakes to avoid when applying for a mortgage as a First Time Buyer?

Be careful what you’re spending money on. If you like to put a little bet on here and there, it might not seem like a big deal. But if it’s very regular – regardless of how much you’re winning – that can be seen as a massive negative to lenders, especially if it’s tight on affordability. 

They will look at how much you’re spending on gambling but they won’t factor in how much you’re winning. Regular betting could affect your affordability. 

If you’re living at home with mum and dad and you’re not paying any rent to live there, but you’re spending all your wages every month, that can be a concern to a lender. They will look at your bank statements, see you’re getting paid every month but if there’s nothing left at the end of the month, they will be concerned about how you plan to pay the mortgage. 

Taking new finance out can affect your affordability too, so be mindful of that as well.

Speak To an Expert

We’re there to help. There are no silly questions – we like people to ask us about anything and everything that might be going through their mind. 

What happens if I miss a mortgage payment on a mortgage as a First Time Buyer?  

This is the same for anyone. If you miss a mortgage payment, don’t bury your head in the sand. If you do come into financial difficulty, all lenders would rather you pick up the phone and speak to them. 

A new mortgage charter has come out, with interest rates being a lot higher than they have been for some time. Lenders have spoken to the government and come up with this charter to give customers a little bit of breathing space.  

If your mortgage is going up and you’re struggling to pay, pick up the phone and speak to them. They have got a couple of different options to discuss with you. They’ll help you out. The last thing they want to do is try and repossess anybody, but if you do miss a mortgage payment it will impact your credit file. So please try and avoid that if you can.

Can I qualify for a mortgage as a First Time Buyer with bad credit?

There are definitely mortgages out there for all different credit profiles. There are also specific adverse lenders that specialise in mortgages for people with poor credit. 

They’ve all got different criteria. Some will accept more negatives than others. It’s worth speaking to a broker – we can check your credit profile and explore issues you’ve had in the past. 

Sometimes people go through a marital breakup causing a credit blip at a bad time in their life. Once you’ve moved past it, lenders can take a view on it. A broker will give you a better understanding of the severity of your credit file. Generally you do need a higher deposit, maybe 15 or 25%.

What else do we need to consider with First Time Buyer mortgages?

If you are thinking that maybe it’s not the right time to buy in this market, don’t wait. There’s never a right time to buy a property – it’s always so up and down. You’ve got to assess your current situation and if now is the right time for you, go ahead. 

I’ve had clients back in 2020 when we were in lockdown and they were waiting, saying that there’s going to be a crash and properties are going to come right down in value.

Nearly four years on, properties have come down in value very slightly in the last few months. People are still potentially waiting for something that might never happen. The market is always changing. My advice to First Time Buyer is, if you’re ready to buy that first house and you can afford to do it at this moment, then absolutely still go ahead.

Your home may be repossessed if you do not keep up with your mortgage repayments. 

Approved by the Openwork Partnership on 27/11/2023

First Time Buyers

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