Taking your first step onto the property ladder is an exciting achievement. However, navigating the mortgage process as a first time buyer can feel scary. Our guide unpacks the key things to consider as a first time buyer, helping you to approach your mortgage with confidence.

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Getting Ready For Your First Mortgage

Saving for a deposit

One of the biggest steps to take when buying your first home is saving for a deposit. Most lenders typically require a deposit of at least 5%. However, a higher percentage such as 10% leads to lower interest rates and in-turn, lower monthly mortgage repayments.

Whilst saving for your deposit, there are a few things you should consider.

1. Create a budget

Understanding your income and expenses will not only help you to understand how much you can save each month, but also how much mortgage you can afford.

2. Set a savings goal

Now that you understand how much you can afford to save, it’s time to set your goal and timeline. Think about how much deposit you need and how long you will need to save this.

3. Cut avoidable expenses

Now that you’ve reviewed your budget, it’s time to work out what you need and what you don’t. Avoidable expenses could include things like:

• Unused subscriptions
• Expensive dining out
• Impulse purchases

Evaluating your spending habits can help you identify where you can cut back without impacting your quality of life significantly.

4. Get a savings account

As a first-time buyer, there are lots of savings accounts that you could consider.

• Lifetime ISA (LISA)
• Fixed-term savings accounts
• Instant access savings accounts

Shopping around can help you to find the right account for your needs.

Understanding your mortgage affordability

Ensuring that you can comfortably afford your mortgage payments is essential. Not only this, but it’s also important to understand the costs associated with owning your own home.

• Use affordability calculators:

These useful tools are a great way to estimate how much you can borrow based on your income, expenses and debts. You can also use them to calculate an estimate of your monthly repayments.

• Use budget planners:

As we’ve already discussed, a budget planner can help to plan your finances so that you know whether you can comfortably afford mortgage payments as well as your monthly expenses.

• Consider ongoing costs:

Ongoing costs for a property include things like insurance, utility bills and council tax.

Building and managing your credit score

Your credit score impacts your eligibility for a mortgage. The lower your credit score, the more likely you are to receive higher interest rates.

If you’re unsure of what your credit score is, we recommend getting your free credit report from all of the three main UK credit reference agencies:

• Experian
• Equifax
• Transunion UK 

It’s important to gain a copy from each of the agencies as each may hold different information for you.

Improving your credit score

• Check your credit reports for errors.

If there are any differences or incorrect information, be sure to contact the agency to get it put right.

• Register on the electoral roll

This is to help creditors prove who you are and the details you provide are accurate.

• Pay your bills on time

Doing this shows lenders that you’re reliable and managing your finances well.

The Mortgage Process

The mortgage process can feel complex, but it doesn’t have to. At the end of this guide, you should understand the types of mortgages, interest rates and fees. You should also be able to understand the impact your financial situation and employment has on your mortgage eligibility.

In this section, we’ll also discuss the importance of a mortgage broker and how they can help to simplify any complexities.

The types of mortgage available

There are various types of mortgages available to first-time homebuyers in the UK. Understanding which is right for you is essential.

• Fixed-rate Mortgages

This type of mortgage is where the interest rate that you are charged stays the same for a set period. Typically between 2 to 5 years.

• Variable Rate Mortgages

This type of mortgage is where the interest rate may go up or down based on your lender’s standard variable rate (SVR). This means that your monthly payments may increase or decrease.

• Tracker Rate Mortgages

Like a variable rate, tracker rate mortgages go up or down. The difference here is that a tracker rate is based on the Bank of England base rate – which a lender doesn’t control.

• Offset Mortgages

This type of mortgage links to your savings accounts. The money in these accounts offsets your mortgage balance, reducing the interest you pay. This can potentially shorten your mortgage term.

• Interest-only Mortgages

This type of mortgage is where you only pay back the interest on your mortgage. This can reduce monthly repayments significantly. However, you must have a repayment plan in place to pay off the loan at the end of your term in this case.

If you need help to buy your first home, there are other mortgage types available such as:

• Guarantor Mortgages

This type of mortgage involves another person taking responsibility for your repayments if you are unable to make them. Usually, this person is a parent or family member.

• Joint Borrower, Sole Proprietor (JBSP) Mortgages

This type of mortgage is where not all the people listed on the mortgage are the legal owners of the property. These individuals would still be responsible for the whole debt, not just the monthly payments. However, their income would be considered when it comes to affordability which means that the amount of mortgage allowed could increase.

Understanding interest rates and fees

The interest rates and fees when it comes buying your first home varies from lender to lender.

1. Interest rates

Interest rates are fundamentally the cost of borrowing money from a lender. A lower interest rate converts to lower monthly mortgage repayments. Interest rates can either be fixed or variable.

2. Mortgage Fees

Common mortgage fees can include things like:

• Arrangement fees

This fee is an admin fee charged by lenders for arranging your mortgage.

• Valuation fees

This fee is for the valuation of your property to find out how much it’s worth and will usually be arranged by your lender.

• Solicitors

As a first-time buyer, being unfamiliar with the house purchasing process, a solicitor can help you to make the best possible decisions during the process.

• Stamp Duty Land Tax (SDLT)

As a first-time buyer, if you’re purchasing a home under the value of £425,000 you will not have to pay this fee. However, if you are purchasing your home over this value up to £625,000 you would pay a 5% fee on the difference.  No relief is given if you buy above £625,000.

• Land Registry

This fee is in place to register the property in your name. The amount you pay would depend on your purchase price. If you have one, your solicitor will usually handle this for you.

• Local authority and conveyancing searches

Searches are conducted to go through planning details and records to find potential problems that may affect the value of the property.

• Mortgage Brokers

As with solicitors, mortgage brokers can help you to find the best possible mortgage deal for your individual situation.

Getting an agreement in principle (AIP)

An AIP, also known as a decision in principle or mortgage in principle, is a statement from a lender showing how much they might be willing to lend you. This will be based on your financial situation and is not a guarantee. It does, however, help to demonstrate to sellers that you are a serious buyer.

How different financial and employment situations can affect applying for a mortgage

Applying for a first-time buyer mortgage, or any other mortgage, can be affected by your employment status or financial situation.

• Being self-employed

If you are self-employed, you may need to provide additional documents to prove your income.

• Having a complex income

If you have multiple income streams, lenders may require detailed financial information to be able to assess your application.

• Having bad credit

It can be challenging to secure a mortgage with a poor credit history. However, some lenders do specialise in this area of lending. However, be prepared for higher interest rates and you may also need a larger deposit.

The role of a mortgage broker for first-time buyers

What is a mortgage broker?

A mortgage broker is an intermediary, or middleman, between you and potential lenders.

Do you need a mortgage broker?

There is so much information about mortgages available on the internet. This may lead you to think you don’t need a mortgage broker. However, there are thousands of mortgage products available on the market. Not all these products will be offered to the public and will only be available through intermediaries.

Using a mortgage broker or advisor can be one of the best options for you to get the right mortgage for you, and they can save you money too.

Why you should choose a mortgage broker as a first-time buyer

Using a whole-of-market mortgage broker as a first-time buyer comes with a wealth of benefits including:

They’re impartial because they’re not tied to any providers. This means they don’t have any incentives to push certain products to you.

They’re knowledgeable about the whole mortgage process as they deal with applications every day.

They have unlimited access to the market which means they also have access to intermediary market. This means they can search through products that aren’t publicly advertised.

They can save you hours by searching provider websites and comparison websites on your behalf which can save you a great deal of time.

They know the right people so if you don’t have a solicitor in place, they can likely recommend one for you to help you through the homebuying process.

To Conclude

Buying a house is a big milestone in your life, and it can feel overwhelming, especially if it’s your first time. To ensure the process goes as smoothly as possible, you will need to be well prepared. By following this guide, you will be armed with the knowledge and foundations to confidently take that first step onto the property ladder.

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